To Furlough, Mothball or Adapt & Survive ???

To furlough or not to furlough - that is the question! I am not an economist of an accountant but like many business owners I am having to grapple with extraordinary decisions at this time. I'll share my thoughts if you join in and share yours in the comments!

Like many small business owners, I take a small income and then take dividends when net income and other business needs allow. There is no specific assistance for this sector of the business community from the government. One could argue that this is the most dynamic sector of our economy – from which the giants of the future will grow. One is faced with the stark options: plough on or put this business in hibernation - which would allow the directors to carry out their statutory duties only and their staff to receive 80% of their salary from the government.

Here is a link to the government’s ‘Coronavirus Job Retention Scheme’: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme So the terminology I’ve used is not quite correct, but it seems to be what’s out there. In fact the government is trying to stop businesses from putting staff onto furlough (unpaid leave), but rather to keep them on as employees, receiving 80% of their pay from the government under this scheme. However, if you are to benefit from the scheme the employee cannot work: ‘To be eligible for the subsidy, when on furlough, an employee can not undertake work for or on behalf of the organisation. This includes providing services or generating revenue.’

The trouble with the 2nd option is thatyou still carry certain business overheads but now have decided againstgenerating any income. Staff may be able to survive, but the owners (who takeall the risk) will receive 80% of their small salary, so even from a personal viewpoint the maths does not add up, let alone from a business standpoint. Another issue to bear in mind is that your customers may still be out there wanting you to do things and willing to pay. For lawyers, areas that will continue or even increase are: employment law advice, family law advice, wills, estate planning, LPAs, probate, litigation, personal injury and other claims, insolvency and bankruptcy, business rescue and restructuring, commercial law, corporate law. I am not comfortable ethically or commercially with the idea of putting a firm in mothballs ‘until this is all over’ as some have talked about. How long will that be? Initially people thought 3-4 weeks. Then 3 months. Now the Chief Medical Office is talking about 6 months or more. During that time your competitors are taking tough decisions to adapt to the new environment. I’ve had consulting sessions (remote of course) with a number of law firms to work through their plans and look at ways to adapt their ways of working and look at new strategies to enable them to survive and indeed come out of this stronger and more profitable. In little over a week I’ve learned of 4 of our client firms who are actually expanding. No surprise that they are all operating on cloud-based case management systems. Although this current crisis has been inconvenient – they already have the machinery in place to work remotely as one unified team and so can concentrate on hunting clients – perhaps the clients of those firms who have gone into furlough… For those not yet on a cloud-based system I would suggest the time to act is now.

The alternative to hibernation is to adapt and survive. Isn’t that what nature and business and people have always done when there is change? The world has changed. It will not go back to how it was. There is a ‘New Norm’ for the next 3-6 or more months. There will be a ‘New Norm’ when we eventually come out of this. I am sure it will have accelerated trends that were already happening: more flexible and remote working, giving clients access to advisers through remote means such as audio and video conferencing, signing documents digitally, work acquisition through remote means (even if they are your own existing clients they will contact you remotely rather than physically face to face), remote team meetings and collaborative working through TEAMs, zoom and other software platforms – and an increased movement to working on cloud-based systems.

Do you find option 2 the option more appealing? If so, feel free to contact me to talk through your plans. In your deliberations, please take advice from your accountant.

I’d welcome anyone else’s thoughts. We’re all trying to work this one out and only hindsight will tell what was the right course.

Ingemar runs HCL, a consultancy providing Business Support for Law Firms and others improve how they run themselves. Previously he practiced as a solicitor for 24 years, as an equity partner for 14 years and running a department of 60 staff. Since setting up his consultancy he has worked with around 300 businesses. We work entirely in the cloud. Visit our website for our services. Or call Ingemar on 07887 524507.