The return to “Normality” (Lockdown is easy, the recovery is harder)

 

By Simon Rowe. Simon has been a Partner at Milsted Langdon since 2008 and the breadth and depth of his expertise covers many areas, from insolvency and business recovery.

One of Douglas Adams’ characters in the Hitch-hikers’ Guide to the Galaxy famously said “we will be restoring normality just as soon as we are sure what is normal anyway”. Never has that quotation been more apt than it is now. Perhaps just as apposite is the less well known quotation from the same radio show: “We have normality. I repeat, we have normality. Anything you still can't cope with is therefore your own problem.”

It is the problems with the “New Normality” that this article seeks to consider in the context of the challenges facing law-firms, large and small.

Now that restrictions are easing and we are being actively encouraged to “return to work” what does that actually look like and what are the consequences?

The analogy I would like you to conjure up in your minds is a badly broken leg. (You know from that ski trip that you didn’t get to go on this year?) The first few weeks are tough; you can’t really move around and are more or less confined to the house.

Still it is not all bad. Everyone is sympathetic and helpful, although your spouse says it is the last time you go skiing with “those” friends! So yes, you complain about how limiting it is but to be honest, as long as you are brought a constant stream of tea, coffee, beer and gin, then it is survivable. You are out of normal life and adjust to it.

Once the cast is off it is a different matter entirely. Expectations are raised as people can see that you are “better” and yet you can’t do everything you used to do and the physio is insisting you do some bizarre exercises and embark on a new exercise regime to sure up bones and tendons.

Stage two sounds awful, right? I am afraid that is where we now are. All of those additional expectations are coming our way and all that latitude which made lockdown survivable is going to start ebbing away. Our businesses therefore need to be prepared for it.

Change

Overriding all of this is an opportunity, which a number of the law firms to which I have been speaking are already starting to embrace. We have had to operate differently over the last few months and there are a number of things we have learnt and discovered that we can take forward. I would encourage all firms to think about the way they were doing things pre-lockdown and whether that remains the best way to move the practice forward.

Forecasting

I tell every business with which I work to do this but at the moment I appreciate that it is really, really hard. That element of crystal ball gazing is made so much more difficult by not being able to work from the basis of historical trends to build a picture of the future (unless anyone can trace their firm back to the Black Death).

However, one of the biggest advantages of forecasting is not the final result which it supplies (the one thing you can pretty much be certain about is that this is wrong, even in “normal” times) but the thought exercise of considering each line and thinking about what value it should be and how to get it there.

So yes, forecast the top line and make an attempt to guess what that turnover will be but more importantly look at all the lines below it and take the opportunity to consider those items. Ask if they are still necessary. Can they be paired back or should they be increased? Maybe you should reduce the marketing budget for wine and canape events but increase the spend on IT infrastructure. Perhaps you can reduce your car parking spend but provide tablets to all professional staff to better implement video calling with clients.

People

The most important commodity in any professional service firm, yours and mine. Hopefully you have already been keeping the communication channels open with those still working for you and those, if any, that you have had to furlough.

Who is going to need to go back to the office (because they can’t work from home) and who is simply not going to be able to in the near future, because of health concerns or child-care requirements?

If your working model has adapted to everyone being at home don’t assume that the shift to a mix of “at home” and “in office” will be the same. You need to ensure that there is equal treatment across the board. Especially when the former group starts to become the minority.

Being slightly more challenging, do you even want or need them to start coming back? Have you found that some of your workforce is actually happier and more productive at home? If this is the case do you need to adapt your practices to facilitate efficient home-working for the long term?

I have argued for a long time that offering a more flexible approach to working practices pays dividends both in terms of staff retention/engagement and productivity but am told all too often that if staff can’t be seen then they might not be working. Most firms have found over the last few months that this simply isn’t the case.

Overheads

If we are going to change things does our current infrastructure model match our expected need. Can we reduce costs in places, do we need to alter the use of our existing space? (Small cramped meeting rooms are unlikely to be popular for some time to come!)

Cash

With most firms there is a cash-lag. The work is done, a bill is eventually raised and then the client eventually pays. For once, this extended timeframe has worked in your favour. As lockdown hit, the cash that you were receiving reflected the size of your business and turnover, pre-lockdown. That, combined with VAT deferral, CBIL loans and any other debt deferral you may have achieved during the lockdown period, may mean that your cash position is not looking too bad.

The problem is (just like re-building those muscles) the process of returning to normal is going to hurt and provide points of strain. Suppliers are going to start being less understanding as life returns to normal and let’s face it, will need the cash themselves. Furloughed staff are going to start returning to the payroll.

HMRC is going to want that deferred VAT money eventually (and the-self assessment payment) next year and other debts and loans are going to have to be met.

All of these cash needs are based on the size your firm as it was pre-lockdown not on the size your practice as it is now or what you forecast it may be over the next 12 months.

It is quite common for firms to trip over themselves as they grow (or in this case re-grow) as cash demand for the work being done now outstrips the cash available from work done in the past.

For that reason, even if the coffers are looking healthy (or at least not too awful) now. Look at your retention policy, look at your leveraging and decide how you are going to fund those pinch points when they come. Building a war chest for the next 12 months would definitely be worthwhile and is why trimming any cost now will pay dividends (perhaps quite literally) in the future.

Recruitment

Many firms have alienated their staff during the lockdown and many great lawyers will have used time at home to think about their work lives and dust off their CVs. This means that there will be opportunities for entrepreneurial firms to attract candidates over the next few months who, in normal times, might not have been on the market.

Turnover

I have dealt with this last as it is often the bit that is most heavily focused on anyway so probably needs the least additional comment.

Think about which areas of your business are going to be busier in a recovering economy, here you can actually look to history and previous recessions as a guide. Will the housing market and the conveyancing that goes with it bounce back or will it take time before numbers return to normal?

Will insolvency and recovery work pick up to fill that gap? Will debt recovery and litigation take off as people and business look around for sources of cash? Consider how your business might adapt to those changing demands and remain flexible enough to adapt to whatever letter-shape recovery we end up getting.

Once you have identified the areas where you think growth will appear, how do you ensure that you get your share of that work and are you able to steal a march on your peers?

Milsted Langdon June 2020