Financial distress affects small and medium UK law firms

October 5, 2013 A new survey of the financial health of UK companies indicates that nearly a quarter of small and medium sized law firms are in trouble, while one in eight has gone out of business in the last year.

Begbies Traynor’s ‘Red Flag Alert’ research, which looks across the full range of UK corporate entities, shows that levels of financial distress among SMEs in the legal sector have increased significantly, with 2,314 smaller firms now classified as high-risk, compared to 1,834 during the second quarter of this year.

Meanwhile large firms have seen levels of financial distress fall 7% over the period from 121 businesses in the second quarter of 2013 to 112 in the third quarter.

Julie Palmer, a partner at Begbies Traynor, noted that the financial instability would affect the rates of professional indemnity insurance, saying: “Following a series of high-profile insolvencies, insurers are demanding more detailed information about firms’ financial stability before considering renewals, which is bad news for the sector’s struggling SMEs, who have been forced to consider expensive premiums from the unrated insurance market instead.

“With pricing pressures squeezing margins, larger players increasingly targeting smaller clients and consolidation only proving to be an option for the lucky few, we are likely to see many SMEs fall at this final hurdle before ever benefiting from these latest reforms.”

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