Planning And The Future Refocus – Restructure – M&A
Introduction
As the Country moves further out of lockdown and financial support from the Government comes to an end, reviewing and planning has never been more important. The true impact of Covid 19 will be felt in the coming weeks and months as firms start to move back into the office if they have not already. Firms will of course be acutely aware of this!
The lockdown has forced many firms to not just review the expense base and financial viability because they were forced to but also because expenditure came under focus for firms that were either profitable or struggling.
New ways of working and remote working exposed expenses that were probably questionable and now regarded as unnecessary. The impact being that some firms have started to remove certain roles introduced and relied on technology for certain tasks and outsourcing.
As firms continue to adjust and make plans for the future, fundamental decisions are being made often with the acceleration of re-forecasts and new budgets being prepared taking into account the impact of Covid-19.
For some firms, the need to approach cash flow forecasting, goals and objectives is a new phenomenon or is needing to be approached on a more scientific and exact basis. Establishing a future road map is critical for firms as decisions need to be taken to secure the future and or making necessary changes whilst preserving and protecting the overall business.
Next Steps – Considerations
The development of plans, forecasts and deciding on the right path for a firm may be a task that is more routine or it may, as stated above, be something the firm has not been required to concentrate on in the past but with change thrust upon them, it is a critical step for the future.
In terms of action firms can consider, the following aims to provide some assistance and give ‘food for thought’ as they continue or begin the journey of making the necessary decisions for their future:
Refocus
For a number of firms, the current crisis has forced them to take a hard look at their business and gain a greater understanding of core factors such as:
- Their staff and the role they occupy
- Sources of new work
- Income
- Expenditure
- Operations
- Regulation & Compliance
This inward focus has driven many firms to challenge tradition and not simply accept a return to the way things were. Owners and managers have started to ask questions and in particular, the roles in the business and the spend allocated has been questioned and challenged, often with surprising outcomes.
A refocus is more about driving the firm in the same direction but with greater efficiency. We are seeing that firms have realised, through the change, that some of their spend has simply been unnecessary and a level of streamlining has occurred. Others who have needed to embrace new technology have driven new ways of working and this technology has enabled them to make key and fundamental decisions on the way in which they operate from the service they provide through to the way in which staff work (in-office or remote). The result, in many cases, has driven a reduction in expenditure.
As firms look to their future and refocus, it is essential to really understand the business, how it operates, the current direction of travel, the staff and their roles including their experience and whether the firm is profitable or not. To do this the owners and managers must look at where the business is now, coming out of lockdown and where it needs to end up.
A detailed review of the firm will pay dividends as firms start to make long term decisions and adjust.
For many firms changes will not be dramatic, they will largely carry on in the same way but, hopefully, leaner through necessary and appropriate expense cutting but that has to be monitored.
As a business, we hope, returns to the pre lockdown levels and work volumes increase, the true impact of changes will be established and firms must have plans to respond if they start to see services failing, income dropping or new business reducing. This may be an indication that the changes or cost-cutting has gone too far.
By developing a plan and setting out an expected path, firms will have the ability to assess and measure performance against expectation and most importantly, refocus and focus their efforts to ensure the achievements of those goals.
Restructure
For some firms, the current lockdown has led to more dramatic changes which have resulted in a restructure of core parts of the firm or the firm as a whole.
There are a combination of reasons that drive a restructure, from Partners exiting through to loss of business in a particular department and the need to diversify or quite simply, a downturn in income that has questioned the viability of parts of the firm.
A restructure is more dramatic and will have a more profound impact on the firm and its staff. Therefore, approaching a restructure requires careful planning and is more likely to result in consultations with staff.
Making the decision to lose or bring in Partners is an ideal time to review the partnership or shareholders agreement and to ensure it is reflective of the requirements of the firm and the owners and importantly, addresses the future of the firm.
If a firm is making the decision to bring in new departments or close departments, ensuring all regulatory issues are considered alongside the need to update insurers is an essential step to take. Consideration to reputational issues are also important to ensure the firm avoids or minimises negative consequences of more significant changes.
A restructure requires planning and careful thought even when action needs to be taken quickly. Delivering a sound strategy with expected outcomes and forecasts will ensure the restructure has a better chance of succeeding and the journey will enable the firm to identify issues and causes for concern and minimise them.
Having a future path that has clear goals and objectives will enable the firm to assess the success of the restructure and ensure the path was the correct one and if not to make further adjustments quickly.
M&A
Mergers, Sales and Acquisitions are being discussed with increasing frequency in the legal sector. For some firms, the impact of the Covid-19 crisis has taken its toll and mergers may not just be optional but required for survival. For others, the crisis has revealed weaknesses in the firm and a merger is a strategic decision to gain more stability.
Whatever the cause of a decision to merge, sell or acquire another firm it can prove to be a complex strategy and one that needs careful planning, thought and execution.
Too many mergers start with the best intentions and after significant time and effort has been spent it is established that the merger cannot proceed.
Before firms embark on M&A as part of their strategy there are essential steps to undertake to ensure the firm and its owners are ready.
To summarise, essential steps for a law firm to consider: –
- Be very clear on the reason for a merger, sale or acquisition and be ready to embrace the change.
- Ensure the owners are of like mind (or as close as possible) and have considered their personal requirements alongside those of the firm.
- Review your own systems and processes to ensure you prepare them for the impending change.
- Identify your targets and ensure they meet your requirements.
- Review your financials and prepare forecasts and objectives.
- Establish the expected outcome and what a successful merger, sale or acquisition looks like and conversely, what failure would look like.
- Consider how you will deal with a failed merger or acquisition.
- Consider the impact on staff and clients.
- PR and Marketing to ensure the message for the firm is conveyed in the way you want it to be.
- Technology and systems to review the appropriateness of systems and the introduction of new technology.
- Contracts and Suppliers.
- Timing and Resource.
- Regulation and Compliance.
- Website updates and changes.
- Accountancy.
- Overall integration project.
Preparing for a merger, sale or acquisition does not have to be complex but a thorough review of your firm and highlighting strengths and weaknesses will ensure that the firm is prepared for the negotiations and due diligence that will ensue.
Conclusion
If you are considering a refocus, restructure or M&A the input from an external party such as The Strategic Partner can provide valuable insights and expertise that are independent and can help drive and shape the strategy.
We are working with a number of firms across the UK both in terms of their own restructure or who are actively seeking to sell or buy.
Get in touch
To find out more about our approach and work with firms or to enquire about a sale or purchase of a firm you can: Call us on 020 3911 9710 to talk to one of our advisors or email us and we will call you at info@thestrategicpartner.co.uk.