The phone stops ringing slowly
No firm closes on a Tuesday afternoon because of one bad decision. It closes because of a hundred ordinary ones, each of which seemed sensible at the time.
That is the uncomfortable lesson in the Law Society Gazette's in-depth piece this week on the growing spate of insolvencies across the small and medium-sized law firm sector.
What the numbers show
When the advisory firm Taha Capital stress-tested 66 small and medium-sized practices, removing client account interest and adding a 7% National Insurance charge on partner profits would plunge 24 firms into severe strain or an existential crisis. Most would struggle to last a few months.
The rest of the findings were no gentler:
● Seven firms held less than a month of costs in cash reserves.
● Two-thirds faced costs growing faster than revenue.
● Almost half earned at least 20% of profit from client account interest.
Five firms entered insolvency proceedings this month alone: Mezzle, Rahman Ravelli, MSR Solicitors, Thomson Heath Jenkins & Associates and Berwins. According to SRA figures, 222 firms closed in the first half of 2026, and the total number of firms reached a record low of 8,899 by the end of October.
Adil Taha's observation is the one that should sting: equity partners have continued to pay themselves in full, "when all the data we have points to a change needing to happen, which should start at the top of the firm."
Four things worth checking this month
You do not need a consultant to run these four numbers. You need an hour, a blank page and honesty to write down the answers.
1. Cash runway, in weeks. Not the profit figure, the runway. How many weeks of costs could you pay from cash if the work stopped arriving tomorrow? Seven of 66 firms had under a month. If yours is close to that, it is the only item on the list.
2. Whether growth is real. Prices rose 24% between 2021 and 2025. Revenue growth below that line is a real-terms decline dressed as success. A firm can feel busy, and be shrinking.
3. How much profit depends on client account interest. Almost half the firms assessed drew at least a fifth of their profit from it. Government policy to take 75% of interest on pooled client accounts and 50% on individual accounts is not a small adjustment to those firms. It is the business model.
4. Drawings against profit, not expectation. The common thread in failing firms is not fraud or incompetence. It is partners taking out what they need rather than what the firm earned.
The fifth thing, which is harder
All of the above is arithmetic. The real problem is usually that nobody wants to be the person who says it out loud.
In a small firm, the person with the awkward numbers is often the person who owns the place. Challenging your own figures, in an industry where everyone else appears to be coping, takes a particular kind of nerve.
An outside view helps, not because an outsider is cleverer, but because they have no stake in the answer and nothing to protect.
What this does not mean
It would be easy to read these stories and conclude the sector is collapsing. It is not, quite.
Firm closures in the first half of 2026 were actually lower than the same period in 2025. Many practices are trading soundly. Consolidation is not the same as failure, and a well-planned merger is often the right answer rather than the last resort.
Nor is client account interest illegitimate. It has been part of the economics for years.
The point is narrower, and it is the same one I make about compliance: the risks that close firms are usually visible a long way off, and only unattended because nobody had time to look.
December is expected to be difficult, with falling trading and slower cash collection. That gives you about six weeks to know where you stand before the year ends.
Start with a conversation
If you want a structured, independent view of the numbers behind your firm, including financial and organisational risk, I offer a free health check with no obligation. Not to alarm you, but to tell you what to look at first.
The contact page is an enquiry form. Put "complimentary health check" in the subject and I will pick it up straight away.
Ashley Barwick is a Fellow of the Chartered Institute of Legal Executives and a Law Society accredited Lexcel Consultant. This post is general information and does not constitute legal or financial advice. Fraxinus Business Associates is not authorised to provide legal advice.
Sources
● Law Society Gazette, "In depth: A spate of insolvencies bodes ill for the SME law firm sector", John Hyde, 2 November 2026. https://www.lawgazette.co.uk/news-focus/in-depth-a-spate-of-insolvencies-bodes-ill-for-the-sme-law-firm-sector/5128398.article
● Law Society Gazette, "Supply and demand", Paul Rogerson, 2 November 2026. https://www.lawgazette.co.uk/commentary-and-opinion/supply-and-demand/5128400.article
Comments