David Beech, CEO of Knights 1759.
Profits have decreased at half of UK law firms and the collective debt held by the top 100 firms has reached £4.3 billion – a 14% increase from last year.
As one of the biggest industries in the UK, what’s going wrong and why is the legal sector in such turmoil?
Increased competition from US firms and cash flow have been cited as major challenges affecting the market, but the CEO of the fastest-growing professional services business believes the antiquated structures at traditional partnership firms are stifling growth in the industry.
David Beech, CEO for Knights 1759, said: “Lack of innovation and investment, painfully slow cash flow and decision making is at the heart of the problem and an increasing number of mergers in the industry is simply increasing the debt level within firms.
“It’s a ticking time bomb waiting to explode.
“But it’s not all bad news in the sector. Opportunity is ripe, but only for those businesses that recognise the opportunities and implement key changes.”
In the UK, around 600 Alternative Business Structure (ABS) licences have been granted since they were established in 2012.
Yet only around 25 of these law firms have truly embraced the opportunities these licenses bring in terms of business growth and very few have secured external investment and made significant changes to their business model.
Having trained formally as a lawyer before moving into private equity funding, David Beech was the first in the legal sector to secure private investment and embrace the Alternative Business Structure (ABS) revolution on behalf of Knights 1759, moving away from the traditional equity partnership model.
David continued: “Businesses in the legal sector need to be more adaptable than ever; clients expect a service that delivers expertise and value for money.
“Why should my client pay for old-fashioned ways of working that are expensive and inefficient?”
Since 2013, David has helped Knights 1759 halve its waiting period with a strict payment collecting regime which he says has been ‘instrumental’ in powering the business’ impressive growth.
“We have implemented a paperless system and new technologies which now enables our lawyers to prepare and send a client invoice in less than three minutes.
“There’s no credit control department and everyone in the business takes ownership of billing for their own work. We don’t tolerate late payments – even from our biggest clients,” he added.
“Driving efficiency and running a lean organisation ultimately benefits the business which is why we have very few support staff.
“Some major law firms are relocating support teams out of London to save money and the roles are under review; at Knights, we run a 1:12 ratio of support staff to fee-earning professionals, reducing risk and ultimately increase profitability.
“Like many industries, the legal sector is having to adapt to an ever-changing landscape.
“One of the biggest turning points for our business was welcoming the opportunities that external investment brought and embracing a change in culture which removed the hierarchical structure.”
Knights has increased its revenue by more than 60% in the last 12 months to achieve a turnover of £33.5 million and jumped into the UK-top 100 list of legal businesses, the leading list published by The Lawyer.
The law firm operates from six regional offices in Derby, Cheltenham, Chester, Oxford, Newcastle-under-Lyme and Wilmslow.