It is estimated that the UK gross domestic product (GDP) has fallen by 20.4% in the second quarter of 2020 (April to June), which is the highest decline on record and 10 times higher than the worst month of the 2008 recession.
How can Scottish firms respond to performance decline in individual practice areas? What should the long-term plans be?
LexisNexis’ UK research study, the Gross Legal Product (GLP), examines the impact of the pandemic, detailing what we can learn from immediate results and statistical analysis of practice area legal trends.
The study revealed that the Scottish economy and subsequent legal market demand have been more severely impacted by the crisis than the UK overall.
Traditional sources of income in local communities have stalled – Scottish councils have had the highest cost in the UK of managing COVID, particularly the Highlands, Aberdeen and Perth. The devastating effects that the pandemic has had on the global oversupply of oil, lowering oil prices to the lowest they have been in 20 years, could mean job losses of up to 30,000 in the sector, as regions relying on tourism and marine fuel sales are also hit by COVID-19.
Employment data shows that 23.6% of all those employed in Scotland are currently furloughed – 628,000 people in total – higher than the 22.9% in England. When comparing the average share price of Scottish companies versus the FTSE 350, Scottish companies are down 31% in total, compared to 19% overall.
Unemployment rates are also affected, with an increase of 1.3% between February and April in 2020, whereas the UK rate stayed stable. Most prominently, research conducted by Durham University with 250,000 companies in Scotland, across 99 sectors, put 29% of them at “high risk” of collapse due to the impact of COVID-19 on supply chains.
One reason behind this is that the Scottish economy is driven by work in the quaternary and tertiary (79%) sectors – namely knowledge-based firms operating in information technology, media, and research and development, who rely on complex global supply chains.
Consistent with trends revealed by the GLP report, the financial services industry is responding positively to the pandemic, with the Scottish financial services industry only showing a very minor retraction. Much more resilient than the total Scottish economy, it grew by 1.2% in March and only shrank by 1.7% in April, in comparison to -5.8% and -23.8% respectively for the whole economy.
Recommendations for Scottish firms
Keep control of your cash
- You can find what financial support is available for your business (including loans, tax relief, cash grants, job retention scheme) on the UK Government website or Scottish Government schemes on the Scottish Government website.
- Are there any unnecessary costs you can strip out or delay? Review your variable costs and seek payment holidays or negotiate discounts. Digital services can be considered to offer better value and flexibility than traditional alternatives. Stay on top of your receivables and invoices, and proactively negotiate payment plans where possible.
- Forecast your cash flow regularly and be proactive in addressing any upcoming threats to your business. A regular cash flow forecast will help you make quick decisions when needed.
Efficiency and tech adoption – Try the LexisNexis tech adoption quiz
- There will be greater pressure than ever from clients on fees – are your processes as efficient as they need to be? Are there any areas you can automate to free up time for more productive work?
- 80% of firms are improving their technology and working practices. This has been led by a 47% increase in use of videoconferencing platforms in the short-term, but the next phase of adoption is likely to include legal research tools and efficiency solutions.
Diversify or rebalance your practice
- Look at your service lines – how well aligned are they with our expanding practice areas?
- Are there any faster-growing areas you could move into? Is it time to change your approach in struggling areas?
- Make use of tools and research to facilitate your diversification and fill any gaps in your staff’s knowledge.
- Can you merge or partner with another firm to give yourselves a broader base for future crises?
Trends and assumptions in this article were taken from the LexisNexis Gross Legal Product (GLP) study, published in July 2020, due to be updated quarterly. Click below to download the full report and receive future legal market coverage.
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