Lawyers in Birmingham have had to adjust to difficult market conditions this year. Martin Bradley of Grant Thornton explains why the number of firms in the city could be set to shrink.

Few businesses are recession-proof and Birmingham’s large and prolific legal sector is as vulnerable in the economic downturn as any other.

With the badly hit construction industry previously being big business in the city and the housing market taking a nose dive, the first two quarters of next year look to be increasingly difficult for Birmingham’s law firms.

We have already seen some firms take redundancy measures and although I expect to see further practices resort to staff cutbacks to see them through the downturn, I also expect to see firms with a broader commercial base to hang in to ride out this storm more readily. Some niche firms are likely to look for a broader base so I won’t be surprised to see consolidation, resulting in mergers between firms specialising in complementary areas.

I suspect that firms focused on private clients may see out the downturn relatively unscathed. As clients see the value of their assets change and in some cases diminish, they are likely to take action and move their wealth around as a protective measure, which of course requires advice and support.

Family law firms may be busier than ever over coming months. Sadly, in some cases, love diminishes alongside wealth and financial worries can place stress on any relationship. With the New Year the busiest time for divorce lawyers at the best of times, I predict that Q1 and Q2 will be busier than ever in these worst of times.

The firms that have previously capitalized on the traditionally profitable and prestigious corporate work are now feeling the strain in what is currently a highly unpredictable market. Prior to the onset of the crunch, law firms that may previously have had a regular and steady supply of deals on the burner are now experiencing huge fluctuations in activity. One week they may have no deals pending and the next could have two deals of significant value in the pipeline. But none with any guarantee of completion.

Apportioning value to this riskier ‘work in progress’ can be difficult at any time and this unpredictable period has made fee forecasting especially problematic.

But this is not the only challenge when it comes to financial management. The assumptions law firms have been able to make in the past about how much of the recorded time can be translated into fees may no longer be valid.

While real workloads may be reduced it is possible that, due to fear of redundancy and cutbacks, employees may feel compelled to record the same number of billable hours as usual, in a measure to protect their jobs. Although understandable, if happening this will create considerable inaccuracies in management accounts leading to financial problems further down the line.