1. Limerick Solicitors Bar Association Market Update 14 th April 2011 David Rowe

2. Where are we? Our ‘average’ client – comparison with peak Profits reduced 25% to 50% Fee income down up to 50% Expenses reduced by 33% Headcount down 25% 1 10% pay cut down, another done or looming See getting a good salary as a result Debtors up significantly Balance sheet management now an issue

3. The Market – by practice area 5 main situations Commercial, Commercial Property, Banking etc down 70% to 90% off peak activity levels. Will recover, albeit at tighter rates. These areas are the differentiating factors, must keep investing in Litigation, Insolvency, Employment law up an average 20%, issue is to get paid

4. The Market – by practice area continued Private Client – Residential Conveyancing changed forever, fee rates after recovery will be irrevocably eroded below those which larger firms can service profitably Family Law and Probate – fees lower but still profitable in some circumstances State / tendered institutional work -20% / 25% reductions where tendered, lots of work will be retained – a big opportunity/threat

5. The Market – by practice area continued Where are the opportunities: –Commercial litigation –Corporate restructuring –Insolvency/Debt Collection –Employment law –Family law –Crime –Regulatory / professional indemnity –Construction disputes –Defence and plaintiff personal injury litigation –Commercial deals (small transactions only) –Estate planning / Wealth management / Probate –Limited commercial and residential conveyancing – now leases

6. The Market – by practice area continued There is still work in the following areas but less of it: –Residential Conveyancing –Commercial Conveyancing –Company Commercial –Banking

7. The Market – Implications Firms have changed radically over the past 3 years, those actively repositioning doing the best Repositioning/re-investing mean actively re- orientating the firm to the areas still active while keeping contacts where markets are quiet

8. The Market – by firm size Small firms – huge distress, main practice areas eroded (PI Litigation and Conveyancing) and Professional Indemnity Insurance uncertainties, many will fold their tents Mid-size – income back by 20% to 25% typically. Very quick to react on the cost base and not as economy dependent as large firms (good litigation, probate, crime and some institutional / State work). Some badly hit – developer / banking practices

9. The Market – by firm size cont. Larger firms – huge challenge to reduce their cost base and very economy dependent with fewer anti – cyclical areas than mid-sized firms but started from a position of high profits. Now picking up high end advisory work, NAMA work etc. Overall –serious challenges to survive, trend of work gravitating to larger firms Mid-sized space is best (with a strong litigation department) Significant oversupply of solicitors to work available – 5,000 to 7,500?

10. The Balance Sheet We now have firms struggling to stay afloat Not a time to owe and be owed a lot Banks tightening the criteria Many firms still overdrawing – negative capital accounts a no Getting paid demands a whole new set of disciplines and follow up internally

11. Keeping cash flowing The new rules Consider the credit risk before you take on the work Do not finance outlays (some exceptions) Long term assets = long term finance Have a structured credit control system, this starts at accounts level Know your breakeven and your profits per hour figures

12. The Banks See solicitors as a mixed bag Many firms or partners over borrowed Want the following as a norm: –Overdraft no more than 1 months fees –Partners capital equal to or above lending facilities –Capital items such as a goodwill payment, an office fit- out or a building purchase are outside these tests Changing the rules on set off Still regard well managed firms as premium business, the client account is a factor in this

13. What happens next? Currently work for 5,000 out of 7,500 solicitors in practice Litigation fees will come under pressure Litigation, crime, probate and institutional work will carry firms through Slow recovery in the economy will lead to a slow recovery in transactional work Fees per hour will continue to fall

14. The Cost Base Other overheads will fall where reductions sought PI will remain high for 3-5 years Property costs will continue to fall Operating with good systems and appropriate cost base will become part of doing business

15. Structure of the Profession The profitability between will run and poorly run firms will widen, poorly run firms will be uncompetitive Amalgamations will happen from full mergers to overhead sharing convenience co-operatives New and dynamic full service partnerships will enter the market Many will leave the profession More space for those who continue

16. Surviving Its survival time It is still about the fundamentals –Client service –Marketing –Good people –Effective management –Financial control

17. Client Service Going the extra mile for clients Same return of calls Prompt written response See client’s as the lifeblood of your business, not as a nuisance See transactions through the client’s eyes

18. Good People Recruit and retain the best Train and empower staff in a team environment Communications key, weekly or fortnightly meetings work Be hard on underperformers

19. Marketing It’s still out there, if harder to find Starts with service levels to existing clients About being visible and connected Look at mutual referral points Tenders are the order of the day –250 Partner rate max Don’t take your eyes off client retention (more important than marketing)

20. Effective Management Now includes: –Finance –Human Resources –IT –Risk Management –Managing work flows

21. Financial Control Can we do the work and make a profit? How do we make sure we are paid? What is the correct cost of running my office? What do I need to bring in each month to earn a living? What does it cost me to do an hours work Can I buy my overheads better?

22. Conclusion The profession is undergoing radical change, size necessary to make a living is increasing Earning a good salary is now a result The demands and skill sets needed are higher in every sphere This phase will end, transactional work will pick up gradually

23. The Survival Guide Recognise where we are – large fees not in the files anymore Look after clients with high service levels Bring your costs per hour down Get the cash in, up front where necessary. Do not fund outlays Consider a merger – will be right for some Run your firm on the basis current conditions will last 18 to 24 months Help available – Practice Advisory Service

24. For further information contact: David Rowe Managing Director Outsource Ph: 01 6788490 Email: dr@outsource-finance.com