IFT Managing Law Firms: Sustainable Growth Conference – key learnings

In early July The IFT was pleased to host a half-day conference in partnership with BDO discussing trends in the law firm sector and how firms can best manage challenges and seize opportunities.

This article pulls together some of the key takeaways from the conference for law firms, their advisers and funders.

The current landscape for law firms in 2025

Our first overview panel covered market and funding trends for UK law firms, highlighting a fragmented and fluctuating market. We have been seeing more market activity and not looking at mergers or transactions could leave firms behind. There is some difficulty in how you value the law firms (EBITDA versus revenue) and in working out how many law firms are viable and sustainable.  There is also an element of risk around the challenge of cultural integration between different firms.

Various options are being looked at to finance mergers and acquisitions and growth in the sector, as well as to support innovation and drive value. These include private equity, credit financing e.g. portfolio financing and other types of lending, such as non-recourse lending (providing lending based on future values). Law firms are also exploring listings or untraditional models

Looking towards medium and longer-term developments, it is an attractive market. (Though once a firm has been sold to private equity, maintaining financial incentivisation for future partners becomes very difficult with money no longer going to partners.)

The panel highlighted that private equity routes aside, there is still potential in traditional structures and firms can release money in other ways.

If we look to the accountancy sector – which the panel argued is often five to eight years ahead the legal sector, the part of the market seeing more activity is the top end of the SME market and some overseas lending.

The panel highlighted that professional services is people-powered so you need to be looking at your next generation, who are more business orientated, as well as your star performers. There is also the question of AI integration in the sector, which in the last 12-18 months has seen much more acceptance. AI is going to bring efficiencies but needs engagement from partners across the different offerings of different platforms, and there is also a query over how this impacts pricing.  Most law firms charge on an hourly basis – there is the balance of cost of technology vs impact on future revenue if this is how you bill, this could mean alternative forms of billing, such as one-off charges per year.

The panel highlighted that you can use AI as a platform to then focus more on the people aspect of law and developing and driving value. However, it needs proper due diligence and will be a process of evolution and development of thinking around this. We are on the cusp of change which is set to snowball in the next few years.

Another trend the panel discussed was law firms looking for international growth and diversifying income streams, with interest in the US, Europe, Asia, Dubai and the Middle East.

The panel was chaired by Mark Thornton, BDO, and included Rosie Ioannou of Fortress, Richard Wilkey of HCR Law and Marie Espiner of HSBC.

Working Capital management for Law Firms

This presentation highlighted the level of resilience in the legal sector with strong post-Covid growth, but also cash challenges:  basis period reform, investment required for international growth, technology, office regeneration/relocation as well as new cash requirements such as national insurance and minimum wage increases.

We looked at different sources of funding and how this can be managed, with broadly three options for law firms to fund cash demands:  internal reserves (likely not enough), borrowing (more expensive), working capital (cheapest source of cash).

For law firms, external borrowing usually takes the form of revolving credit facilities (RCFs), overdrafts or prior agreements, which generally have an average interest rate of +1.4% over SONIA. For new loans/renegotiations, since Covid there may be an increased interest rate of 2%. Law firms may resist looking heavily at external financing – many want to use their own finance or RCFs to manage fluctuations or particularly large investments. Similarly, there may be a cultural impact to relying on internal borrowing, and making calls on partner capital can be more expensive than external borrowing.

Using working capital requires working bottom up, looking at cash flow, and withholding distributions when liquidity is tight. BDO had analysed average lock-up days for working capital (the average period for a firm to collect its debts/unbilled work etc) with the key point for the sector being that lock-up days are significantly lower in other professional services sectors e.g. accountancy/consultancy. Median lock up days across the legal sector are 170/180/190 compared to 70/80/90 for accountancy firms.

Within law firms, in the upper quartile of firms we can see lock-up days moving towards the 100 level – though this is still much higher than upper quartile accountancy firms which is 35 days.  Median debtor days in the sector have improved but median lock-up days have deteriorated.

Improving lock-up is all about changing behaviours and improving processes. On the behaviour side it is about overcoming cultural challenges, and it’s worth noting that there has been a similar challenge in the accounting/consultancy sector. A useful method to overcome this is to make performance visual and ensure that people are aware of how to perform their roles and how these fit into the overall lock-up performance, as well as incentivising partners through distributions.

For processes, it is about the quality of processes covering billing, collections, contracting and having conversations about frequency; moving to monthly invoices, payment in advance, looking at high level external benchmarking.

Richard Dammermann from BDO gave the presentation.

Managing Risks & Insurance

A presentation on managing risks and insurance highlighted a number of recent law firm articles, with most headlines citing fraud, cyber-attacks, harassment (disciplinary issues), and M&As as the main risks facing law firms. Other potential risks include claims, sanctions checks, AML, AI, new technology and IT systems, work-related stress and wellbeing issues, as well as economic pressures.

Whilst some types of insurance are mandatory for law firms (Professional Indemnity Insurance, Employers’ liability, Motor insurance), firms are free to retain and manage any other risks within the firm.

Cyber risks are a top risk for firms but there is serious underinvestment in cyber insurance. Reports cite figures indicating that only 28% of firms are cyber-insured, yet the barrier to entry is lower than many law firms realise, and having access to professionals through firm cyber insurance also cuts down time in dealing with cyber-attacks.

In terms of the insurance market for law firms, there is currently a soft market with lots of competition, relaxing coverage restrictions, no premium increases and an influx of investment into the insurance sector.

Ben Waterton of Gallagher presented on insurance.

Operating a Law Firm in 2025

This panel focused on a number of key themes impacting the operations of a law firm in 2025:  AI, ESG, DEI – what do these still mean to law firms?

Following on from the opening panel, it was noted that governance and culture can fall under the scope of ESG issues, with changing models in law firms in terms of structure and funding, with the query of whether the partner model may be facing an existential threat.

Looking at AI, some of the key considerations when looking at adoption of AI were incorporating checks and balances/peer review, given possible negligence issues, though it was noted that similar concerns were also raised during the introduction of the Internet. A survey of the audience found that 80% were using AI a little in their firm, 10% using AI a lot and 10% not using AI. The panel highlighted that the risk profile was weighted towards firms not adopting AI, though AI doesn’t encourage creativity and originality, humans are needed. On a separate technological note, the panel also discussed risks of data grabs and ransomware for law firms and the importance of reputational management. The panel emphasised when using new technology like AI to continually tweak, learn, initiate and move from just data management to data strategy.

The panel moved on to discuss diversity and inclusion and ESG. There was reference to the reaction of US firms to Trump approaches and the question of whether law firm employees feel protected and when law firms should speak out. Another poll of the audience found that 79% did not agree that ESG was dead. The panel’s view was that the word may be dead, but the concept is alive, and reflects the purpose, values and culture of law firms and individuals within law firms.

The panel’s advice was that businesses should take a view aligned with their vision; it is the misalignment that causes the reputation damage. ESG should also be tailored to show dependability, trust and ethics to clients. There was a suggestion that ESG should be redefined to stand for Emerging Strategic Disruptor Risk Analysis.

In terms of law firm culture, the panel discussed changes in pricing from hourly-based to value based and focusing on where the value is, as well as changes in supervision. There was also a discussion around wellness and culture and a generational shift regarding this, as well as differences in education and contrasts between those which were pre-internet/pre-smartphone.

The change is that education now is less what you know and more about skills, analysis and interpretation. In terms of working practices, whilst the working environment is now online, hybrid working will be a manner of differentiation between firms, with a prediction that the norm will be returning to five days in office.

The panel was chaired by IFT Member Charles Metherell and included Vicky Jacobs of Atria AI, Vernon Harris of Howard Kennedy and Michael Byfield of Byfield Consultancy.