Leading personal injury practices such as Merseyside’s SGI Legal and Michael W Halsall, and London-based Hodge Jones & Allen, have signed up to a risk management and financial forecasting tool developed by consulting law firm Citadel Law.
Citadel managing director Lesley Graves said that LQC Analytics delivered real-time data which profiled caseloads by risk, value and costs. This allowed firms to monitor the viability of the cases they were working on, the efficiency of the fee-earners handling them, and their fee-income forecasts.
Standing for ‘Liability, Quantum and Costs’ – “the three key performance metrics all PI firms should be focused on,” Ms Graves said – LQC Analytics sits on top of case management systems.
She said LQC Analytics was initially developed for a law firm whose bank urgently needed clarity over the WIP value of its caseload and the likely cash collection. As a result, the firm was turned around and continues to trade.
“LQC was then used to help prepare a firm for sale so that when it went to market, its full value – including future profits – was demonstrated in a robust way prior to external due diligence taking place.”
Citadel has since started installing LQC Analytics into successful firms, supported by ongoing auditing to provide independent assurance that the data is correct for management, bankers and funders.
Ms Graves said: “At its heart LQC Analytics is a simple proposition. It gives managers a full understanding of the cases their fee-earners are working on. With margins under ever greater pressure, this is vital. And if firms are looking to get out of PI, it also delivers real-time information about their WIP value and cash flow projections so a managed exit or sale is far easier to facilitate.
“Furthermore, the data it can produce enables effective due diligence by potential purchasers to occur without breaching SRA guidance on client confidentiality – as I fear some firms are facilitating due diligence by reviewing client files .”
Patrick Allen, senior partner of Hodge Jones & Allen, said the LQC Analytics feature of having cases rated with a traffic light system, and being able to predict when they would finish and what costs would be recovered, had proven of particular benefit.
“Say your WIP is £10m and the bank is concerned that it’s looking a bit high. With LQC Analytics, you can explain that £5m is green-rated, meaning that liability has been admitted; £3m is amber-rated, so there is good evidence to support the cases; and £2m is red-rated, which simply means you are still investigating.
“If you can provide a timeline of predictions as to when cases will finish and how they will pay, then you will have a much happier bank. You can also forecast a particular quarter when you might need a bit more lending because of a lag in cases closing.”
He added: “Without a lot of financial management, many PI firms may go under. The banks don’t have much appetite to lend to legal businesses at present and they definitely won’t unless you are a switched-on firm well on top of your finances and cases.”