A growing number of barristers are modernising the way they do business, particularly as financial pressures rub the shine off the traditional chambers model.
Common factors seem to be a desire to reduce overheads, become more market facing, and develop business models which allow them to be more competitive in the legal services marketplace. Some also have an eye on creating capital value.
The Bar Standards Board has made great strides to facilitate this entrepreneurial activity, by giving regulatory freedom to form entities. The take-up so far has been steady but unspectacular. Most have been incorporations of self-employed practices of individual barristers, where the barrister is sole owner of the entity or joint owner with their spouse.
The few chambers that have embraced the concept have largely sought to replicate the traditional chambers model, with associated barristers remaining self-employed and central overheads funded by way of fee contributions.
Our belief is that things are about to change radically and quickly. We anticipate the emergence of genuine ‘Bar firms’ that emulate solicitors’ firms. These Bar firms will employ staff and barristers, their stakeholders will share risks and rewards, and, over time, they may attract equity investment and capital value on sale. How then might Bar firms benefit from the experiences of their law firm cousins?
Tip 1: Allocation of risk and reward
Working with law firms over many years, we have seen the collective power of a group of individuals working together with a view to profit, and how the pooling of resources and intellectual capital can bring out the best in each individual. But sharing risk and reward is likely to be an alien experience for many barristers. Some may be enticed by the prospect but find it hard to take the required entrepreneurial leap, put hard-earned cash on the line and accept the uncertainties of collective decision-making.
Keep the core ownership tight. It is best to have a small number of similar-minded, risk-oriented individuals owning your entity vehicle and find other ways to incentivise and reward others.
Tip 2: Get the legal structure right
It is rare to see a new law firm set up in any other legal form than a limited liability partnership or limited company. It is likely that most Bar firms will adopt the same approach for their trading entities. As law firms introduce non-lawyers (mainly professional managers and equity investors) as owners or managers, there has been a strong growth of SRA Alternative Business Structures. As barristers follow suit, there is likely to be a similar growth in BSB Licensed Bodies.
Take specialist accountancy and legal advice on the best legal structure for your entity.
Tip 3: Navigate the regulatory minefield
It is not uncommon to find that the business model initially proposed is not viable. It is usually possible to restructure to bring it clearly within regulation, or to take outside the scope of regulation altogether.
Take specialist legal advice on the regulatory status of your proposed model to avoid wasting time and money.
Tip 4: Test the financial modelling
However exciting a business model may appear, financial forecasts with realistic sensitivity analysis are essential.Get them stress-tested by external accountants experienced in the legal sector to help temper unrealistic optimism.
Know your numbers inside out before taking steps to formally engage with stakeholders, funders and other third parties.
Tip 5: Clarify how conflicts will be managed
Barristers within chambers are adept at managing conflicts of interest. Once sharing profits as LLP members or co-shareholders, sophisticated conflict management protocols are essential.
Run exhaustive tests to make sure future conflicts can be identified and will not hole your entity below the waterline.
Tip 6: Get the right funding mix
Some external funding will probably be required. This will be debt, equity or a mixture of both. The key to getting the mix right is understanding the drivers of the funders and their impact on structure and operation of the entity.
Be clear on what type of funding is needed and seek to align the interests of owners and funders.