Posted on 27th January, 2023 by David Honour

Debt. It’s a word that can strike us with fear, but it is an entirely normal and pragmatic fact of life.

Whether it be mortgages or financing arrangements for a new car, we all take on debt as part of our everyday lives – and similar arrangements are part of normal business practice for SMEs throughout the UK.

Construction and manufacturing firms regularly arrange structured, bespoke financing agreements with lenders to help acquire new equipment, which they are then able to pay-off thanks to the profits created through the new business generated or the increase in the volume of work they can undertake.

The legal sector though is more cautious and prone to being risk averse.

While legal firms may not need to invest in heavy machinery, they do though need to invest in IT infrastructure and cope with the demands of staff turnover – with the need to increase wages and training to attract and retain staff. This pressure can lead to firms dipping into their overdraft.

With a firm’s cash flow dependent on the volume and timescales of the work it is undertaking, and the promptness of the payment for its services, it is to be expected that some months will produce healthier balance sheets than others. This is the case for any successful, stable firms who plan for such circumstances, but it can also mean firms need to use their overdraft once again.

The more a firm relies on its overdraft, the greater the risk it is undertaking – but it is common for legal firms to delay seeking financing until it is too late.

We all know of cases when firms have grown too quickly, borrowed too much and too late, and then failed thanks to their reliance on an overdraft. The blame is then left at the door of the debt they had accrued, but real the problem lay in the lack of planning.

If a firm is heavily overdrawn then its ability to secure funding is drastically reduced, and it could be left chasing a last-ditch attempt to access financing at much higher interest rates than would have previously been necessary – and this is why it is essential for firms to research funding solutions before the need arises.

By having ready funding options, that can sit alongside an overdraft, firms will create breathing space in their finances that could both help them through expected periods of reduced revenue and invest in their staff and infrastructure.

As a specialist provider of finance for legal firms, Iceberg understands the challenges firms face and can develop tailored funding packages that will enable a firm to both meet its financial commitments and achieve its business goals. The earlier we speak to the firms, the sooner we can provide support.

While careful management of its debts is essential for any firm, structured financing can provide them stability and peace of mind – and it is never too soon to start exploring options. We look forward to hearing from you.