A UK law firm survey has indicated that over half had insufficient cash on their balance sheets to cover one month’s operating expenses and almost 40 per cent were unable to meet one month’s salary costs.
The fact that so many firms are under-capitilised and face major problems dealing with the Covid-19 pandemic was reported in the UK Law Gazette and based on a survey undertaken by litigation funder Augusta Ventures, covered just 40 LLPs, but the results are disturbing.
Author of the study, Andrew O’Connor, said: ‘The rate of cash burn experienced by law firms during this period will place significant strain on balance sheets.’
To add to the seriousness of the current situation for UK law firms, a further survey last week of nearly 8,000 legal practices by the Law Society suggested that thousands of high street firms could shut within six months because of financial pressures as a result of the crisis.
Cash flow pressures and lower fee income have put more than half of all the legal practices in England and Wales at risk.
“The shock to the legal services sector has been sudden and severe,’ commented Law Society president Simon Davis.
“There are widespread concerns over liquidity as firms face a dramatic plunge in income with work falling away.
“Although a firm may be open for business, this does not mean it is business as usual.
“Residential property transactions have ground to a halt,” the report said.
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