As we get to the end of 2020, it is fair to say it has been a very tough start to the new decade.
When we surveyed members back in May to understand the impact the COVID-19 outbreak and subsequent restrictions were having on the financial health of the sector, 90% of private practice firms reported a downturn in new business, with the majority also reporting reduced turnover and cash flow. Since then certain areas, such as residential conveyancing, have experienced a significant and welcome upturn. But for many, while the upturn may be welcome, it is unlikely to be large enough to outweigh the drop in income and strain on cash flow during the full lockdown.
We still find ourselves in very uncertain times, and many firms will be wondering how they can maintain resilience and plan for the coming year. Many firms took advantage of the HMRC support to defer payments, but with January approaching many of our members have growing concerns over meeting payment deadlines in 2021.
Meeting deferred and usual payments is a real challenge, so I asked two of our commercial partners to join me in explaining what options are available to you, either from them or elsewhere in the open market.
Financial management information is critical to plotting firms’ recovery and building up resilience. Lyn Calder, managing partner – Edinburgh from AAB, our accountancy partners, highlights the need for robust financial management, saying: “It has been a challenging time for businesses since lockdown was first announced back in March, and while it may feel like we are slowly turning a corner, some firms could be about to enter another challenging period.
“With the various Government business support packages coming to an end, there is every possibility that cash could become tighter than it was previously.
Therefore, it is essential for firms to have a clear and regular view of their business performance and cash against forecasts.
“Strong financial management has never been more crucial. Firms must have a clear understanding of the KPIs that drive their business, and these must be regularly reviewed along with the two key profit levers – fees and costs.
“We would encourage all firms to ensure that they have the right systems, software and processes in place to provide their decision-makers with quality, real-time information about their business performance.”
Time for a tax loan?
As part of your financial planning, you should also consider any temporary cash flow support that is still available to law firms. Every tax season brings its own challenges, but fortunately, there are finance options available to both individuals and businesses to help spread the cost of any tax liability.
Aileen Boyle, managing director of our Strategic Partners Braemar Finance, introduces the benefits of a tax loan.
“Tax time can be incredibly stressful for business owners, because no one enjoys the thought of having to deal with the impact that paying out a lump sum to HMRC has on a firm’s cash flow. We introduced the Braemar Finance tax loan to help business owners avoid any HMRC penalties and daily interest charges for late submission.
“Our unsecured tax loan gives professionals and business owners the option of spreading the cost of their tax demand into more affordable monthly payments.
“We fund personal, business, corporation, capital gains and crossover tax demands and will consider consolidation of existing agreements. With flexible repayment terms and fixed monthly payments, the payment can be made directly to HMRC or to your bank account by faster payment transfer.
“The application process is very simple – tell us the amount of your tax bill and the term you would prefer, and our in-house specialist underwriters will provide a quick decision.
“We will then tailor the tax loan to suit circumstances with fixed payments over the agreed repayment period.”
Paul Mosson is executive director of Member Services & Engagement at the Law Society of Scotland
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