Whilst in the
context of the current recession the
headlines have been made by the big
retailers and the manufacturing sector,
evidence is emerging of a crisis amongst
professional partnerships.
Already this year we have seen
administrations and the consequent break-up
of two commercial law practices in Fox Hays
based in Leeds and Lees Lloyd Whitley based
in the North West. The daily rumour mill is
of significant and increasing pressure on a
number of the regions “big” law firms with a
shift to 4-day weeks, defections of key
partners, and speculation on an increasing
level of calls on equity partners to
contribute to the funding gap.
A partnership, even an LLP partnership is a
difficult vehicle for a substantial business
with many organisations moving towards a
hybrid quasi-corporate structure as a
management tool. It is also true to say that
many professional partnerships existed on a
‘special’ relationship with the banking
industry whereby, arguably, the subjective
view of the worth of the brand and its
individual partners took precedence over the
objective view of the underlying value of
the business.
The current trend is for lenders to take a
much more critical view as to the degree of
their exposure both to the business unit and
the individual partners against the quality
of the assets, in particular levels of work
in progress and recoverability of debts, as
lenders look to reduce their exposure by
balancing out debt funding against partner
capital.
Professional firms are also difficult to
fund outside of traditional bank cash flow
lending. As the quality of assets can be
difficult to assess because there are
concentrations of sales and debt on single
projects or a narrow range of clients,
access to other financial markets such as
asset based lending is almost non-existent.
The withdrawal from the market place of a
raft of secondary lenders providing
professional practice finance for VAT and
tax payments has exacerbated the credit
squeeze.
The dynamics of this type of business are
such that often any significant extension in
the client payment profile, most obviously
as a result of the liquidity squeeze on
clients themselves, can have a dramatic if
not devastating affect on the cash
requirement.
The fundamentals of a turnaround solution
are no different to a professional
partnership than any other business.
Critical to any solution will be the ability
to focus the business on cash generative
work and to match cost to productivity.
Driving through efficiencies and
implementing strategies to mitigate against
risk of over exposure on fees or debt will
be more critical than at any other time.
An appreciation of the working cash
requirement, the likely pressure points on
the business and a positive dialog with the
lenders will all feature in the mix. The
structure tools to ring fence the assets of
the business through administration and
voluntary arrangement are all available to
some degree if it is necessary to put the
business through a formal process in order
to secure refinance and emerge on the other
side.
The single most important issue is to
recognise the problem before it becomes too
acute and to be able to put forward a
workable solution when called on to do so.
Taylors has substantial experience across
many sectors in advising business including
professional and other partnerships on
turnaround and re-finance solutions.
Copyright 2006 - 2010
Taylors Solicitors
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