The escalating costs of operating a legal practice

is it worth remaining in claimant personal injury?

In the dynamic landscape of legal practice, law firms face a host of challenges that can significantly impact their operational costs. In recent years, several key factors have contributed to the increasing financial strain on legal establishments, surging professional indemnity insurance costs, the prevailing cost of living crisis, and the impending implementation of the fixed costs extension. In addition to this, the Law Society and Solicitors Regulation Authority have recently won approval for an 11.5% increase in the cost of practicing, further adding to the financial pressures  faced by law firms and sole practitioners.

Recovery First offers a positive solution for law firms facing financial difficulties and wishing to exit a legal market as a result. Whether you wish to restructure and exit a less profitable area of law, or close your firm completely, we can help.

Increasing cost of practicing

 

The Legal Services Board (LSB) has confirmed that individual solicitors and their firms will incur an additional expense of £13.2 million for regulatory oversight and representation in the upcoming year. An 11.5% increase in practicing fees has been approved for 2023/24 in comparison to this years’ fees.

The allocation of fees will cover the SRA, the Law Society, and other expenses imposed on the legal profession by entities such as the Legal Standards Board, the Legal Ombudsman, the Solicitors Disciplinary Tribunal, and the Office for Professional Body Anti-Money Laundering Supervision.

The cost of an individual practicing certificate will jump 7%, from £286 to £307.

 

Rising Professional Indemnity Insurance Premiums

 

In recent years, law firms in England and Wales have faced challenges in securing affordable professional indemnity insurance. Economic factors such as Covid-19 have contributed to a more challenging insurance market. Other factors which have contributed to the increasing cost of professional indemnity insurance include, high value claims being pursued against solicitors, the SRA minimum terms and conditions, as well as the increasing risk of data breaches in the legal profession due to cyber-attacks.

 

Impending fixed costs extension

 

The extension of fixed costs is set to come into force in October 2023, which introduces a range of changes, including the implementation of fixed recoverable costs in cases valued up to £100,000.

The most obvious challenge this will bring for law firms, is the limitation in the amount of costs recoverable on successful conclusion of a case. A restriction in recoverable costs will inevitably lead to lower profit margins and reduced cash flow.

 

The cost of living crisis

Many firms are already feeling the impact of the 2023 cost of living crisis, due to rising costs, increasing salary expectations and more price-sensitive clients.

Increased costs of living are likely to lead to higher commercial property prices and rents. Law firms, especially those located in city centre areas, may experience higher costs for office space. In addition to this, everyday operational expenses such as utilities, office supplies, and equipment are also rising, putting additional strain on firms’ budgets.

As the cost of living rises, employees will expect higher salaries to maintain their standard of living. Law firms are likely to face pressure to increase salaries to attract and retain qualified professionals.

Clients, also affected by the cost of living, may be more price-sensitive. Law firms will need to carefully consider their fee structures and potentially adjust billing practices to remain competitive.

 

Exiting a legal market due to financial pressures

 

If your firm is struggling financially, Recovery First can help you find a positive solution. Financial issues as early as possible, and seeking the right help is key to ensuring the best solution is achieved.

Opting to sell Work in Progress (WIP) files as a means to exit a particular market can serve as a beneficial strategy for struggling law firms. This approach enables firms to redirect their attention towards more lucrative practice areas.

In the worst-case scenario, you may be required to close your firm due to insolvency. Recovery First can assist you in this situation to ensure a compliant closure of your firm.

Whichever route you choose to take for your firm, Recovery First will ensure the most positive and profitable outcome is achieved, ensuring SRA intervention is avoided.

Our clients receive 100% of their recoverable WIP, plus their allocated entitlement to deductions from damages, anecdotally returning significantly higher value than a traditional WIP sale.

The unique scheme offered by Recovery First is suitable for both law firms and professional advisors. Our team manage the transfer of files from start to finish; placing case files with an approved law firm to protect the integrity of the client’s case, while at the same time maximising the value of the work in progress.

We guarantee 100% confidentiality for all clients. If you would like to find out more about Recovery First’s process, feel free to get in touch today.

It's never too late to speak to Recovery First. Contact us now in the strictest confidence

Sally Dunscombe:

sally.dunscombe@recoveryfirst.co.uk

David Johnstone:

david.johnstone@recoveryfirst.co.uk

Telephone:

01357 440140

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