“I have seen how badly law firms are run and I want to set up my own – can you help?”
This is something that comes up time and time again in our work as business brokers. Business people in related professions have interaction with solicitors over a number of years and swiftly form the opinion that they could do a better job themselves providing legal advice and assistance to clients, as well as make more money.
We get calls from estate agents, accountants, financial advisers, case management companies, medics, dentists and many more professionals besides who have had interaction with solicitors’ firms, decided they are overpriced, incompetent and incapable of undertaking any meaningful work, and think that they can set up an operation themselves.
We try to remain impartial on this, but generally our advice is usually that yes it is more than possible to set up a law firm when you are not a qualified solicitor (ABS structures etc..), and yes you can probably do a better job than a minority of solicitors! However we do try to put a few practical pointers in as well.
One of the major items in feedback from non-lawyer owners of law firms is the sheer amount of regulation applicable to the legal profession that is lacking elsewhere. Quite a few potential buyers have no idea of the tsunami of red tape that is about to hit them!
Yes they have heard of the Solicitors Regulation Authority but no they have not any idea of what compliance will entail. The SRA tends to be a big problem for anyone who thinks it is simply a case of setting up a law firm and off you go in making money. Solicitors seem to be one of the most tightly regulated professions in the UK.
The second thing non-lawyers have limited knowledge about is the professional indemnity insurance. Firstly how long the PII proposal forms are and secondly just how much it costs. We very often get calls from people going through the process of setting up law firms who simply cannot believe that solicitors are still trading and paying the amount of insurance that some insurance companies expect them to pay for their professional indemnity insurance. The figures can be absolutely eye-watering to a non-lawyer.
A recent example was a firm setting up to do conveyancing and commercial property work with two or three very experienced solicitors wanting to go into partnership together. They predicted to their insurers that they expected to be generating about £75-90,000 worth of work in their first year of trading. Their professional indemnity insurance premium quote was £50,000. And this was even before they started trading, without any history of risk or issues for the partners. There are not many businesses out there who pay over half their turnover in professional indemnity insurance, this is partly why soilicitors are so expensive, because they’re paying out so much money in their overheads in relation to things like this.
“We want to recruit a full time young residential conveyancing solicitor who is hungry for success, get involved in the management of the business, has the ambition to drive our business forward and share in the future returns.”
This was a call received recently from a recently launched law firm. Chances of success? 5%.
The final point and the one that makes it very difficult for most companies to get into law is the recruitment of solicitors. There are over 120,000 solicitors in the UK, most of them are more than happy to work in law firms of any shapes and sizes and get paid a salary. Most lawyers looking for work have no wish to get involved in the management side of things and instead want to undertake cases to the best of their ability. This is a perpetual problem for new firms to get their heads around.
Chances of revolutionising the legal industry? Not great. We took a call last year from a financial professional who had set up a law firm, spent about 6 months trading and then deciding the returns were so awful it was really not worth his/her time and was looking to sell up. Outsiders coming in tend not to appreciate the market conditions. We are always naturally happy to help and perhaps one day someone will turn out to be a true revolutionary and change the way we all work!