Economic Impact Survey - December 2008
The Society received a good, representative response to its recent survey of firms in Scotland on ‘Business Consequences of the Present Financial Climate’.
Of the 196 firms who responded, just under half represented firms with 2 – 5 partners. A further 40% were sole practitioners and the balance was from larger firms. The majority were in general practice and offered a broad range of services including conveyancing, chamber and matrimonial work. 38% of respondents were rural practitioners.
The effects of the economic downturn are widespread with 75% of respondents predicting a downturn in profitability. A further 10% forecast a loss making period with the remainder indicating that there would be no discernible difference to the profitability of their firms.
Just over half the respondents thought that the change in the economic conditions occurred in the last six months and while a smaller number believed the changes began more than 6 months ago, an equal number believed that the most significant changes will be felt in the next 6 months.
When asked what their business plans were for the next 18 months, 70% of respondents said that they intended to maintain their current business model and make the necessary changes to reflect market conditions. 15% responded that they would maintain their current business model but would be moderately acquisitive if good opportunities presented themselves. A small percentage indicated that they would go further and would be aggressively acquisitive to benefit from business opportunities arising. 10% of respondents reported that they were contemplating more fundamental changes by completely restructuring, amalgamating or closing their practices.
From the respondents’ firms, a total of 304 staff had been made redundant. The majority of redundancies were of support staff and 10% of solicitors/partners. While there is an indication that there are still more redundancies to come, the prediction is that redundancies will be less than half the current figure. The other difference in predicted redundancy is that the number of solicitor/partner redundancies may rise to 25% of the total.
Although the number of redundancies is predicted to decline, the indication is that the number of staff on reduced hours will increase. Based on the total number of staff affected, the ratio of 70% redundancies to 30% on reduced hours almost reverses the pattern of redundancy to date and indicates that firms are taking a longer term view, recognising the need to retain the talent, skills and experience of their staff which will be vital in the firms’ recovery from the recession.
The vast majority of respondents said that their financial plan reflected their assessment of the market and was sufficiently robust, although it is clear that in a few cases, firms’ relationship with their banks have come under some pressure in recent months. The Society has asked the banks to provide advice to practitioners and that information is also published in the December ebulletin.
Whilst most respondents believed that the main cause of the current difficult trading conditions was the credit crunch, a small percentage felt that changes to civil legal aid were also a factor.
Other issues raised include; Home Reports, issues around client accounts, bank lending, the Scottish Legal Complaints Commission and CPD.
The most frequently raised concern was Home Reports. Home Reports have now been introduced but the Society’s position remains unchanged and it continues to raise strong concerns about the single survey element of the Home Report and the timing of their introduction. The Society will continue to press for close monitoring and an early review of the impact of Home reports in its meetings with government ministers.
Information about client accounts and relationships with banks can be found separately in the ebulletin.
Conclusion
The effects of the recession are being felt across the profession with the impact extending beyond property to other areas of work. Most firms have indicated that they are putting strategies in place to see them through the downturn. It is encouraging to see that firms are trying to doing all they can to limit redundancies in favour of reduced working hours. This should mean that they have the skills and resources in place to recover quickly when economic conditions improve. The Society is also aware of firms who are redeploying their staff within the firm to concentrate resources where they can be most effective.
The Society will continue to offer practical support to the profession where it can. The business toolkit, guidelines on terms of business, advice from banks and information about how to contact the Society for assistance can all be found on the Society website. We will continue to produce useful articles and links through the Journal and the ebulletin. We received some very positive feedback from those who attended the High Street Practitioner Conference at the end of November and work has already begun on proposals to update and repeat this event in early 2009.
Finally, thank you to those who took part in the survey. Your feedback is much appreciated. By keeping the Society informed it has allowed us to focus on providing the information and support the profession is looking for.
