More than 2000 firms could fail in next year

Financial pressure, a crowded market and ABS leave firms in risky position. Many smaller high street firms are on the brink of failure.

Research by R3 using data from Bureau van Dijk’s ‘Fame’ database, finds that 29.1% of firms in the UK and Ireland are at risk of failure in the next 12 months. The cross sector average is 21.8%.

One of the main challenges is The Legal Services Act — which has earned the moniker ‘Tesco Law’.

The introduction of Alternative Business Structures (ABS) makes legal services easier to access, whilst posing a threat to the legal services market as we know it.

President of Association for Business Recovery Professionals (R3) Lee Manning said: “Traditionally a firm would practice a range of different areas of law.

“With the introduction of ‘Tesco law’, new specialist firms will begin to emerge and they will be difficult for the high street to compete with, partly because small practices cannot afford the level of branding and marketing that these new firms will be able to take advantage of.

“It is also unlikely that they will have the resources or the technology to compete with these Alternative Business Structures.”

Mr Manning urges firms worried about their financial future, to seek professional restructuring advice before it is too late.

As well as the risk from ABS, later this month, partners in law firms will have to make their second tax payment for the year.

Unlike many other businesses, Limited Liability Partnership (LLPs), Partnerships and Sole Practitioners are not directly assessed for tax on the business’ profits but arrange to settle individual Partners’ liabilities. Ideally, a tax reserve fund will have been maintained for this purpose but this is not always the case.

This time of year puts real cash flow pressure on firms and more often than not we see a spike in banks being asked to fund taxation liabilities.

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