Too few at the top: Supporting professional firms facing financial strain

In the professional services sector, although we are seeing increasing investment from private equity and a trend towards consolidation, partnerships remain a bedrock amongst law practices, accountancy firms and consultancies. 

Like all businesses, professional services firms will occasionally encounter financial issues which will need to be resolved. This might be a need for investment to upgrade the firm’s systems or, in the worst case, cash shortfalls and the threat of insolvency. The options available to the partners to address any issues may be limited as a result of the way in which the partnership is structured.

This article explores the challenges of equity imbalance and how timely, specialist support can help firms navigate these turbulent waters.

The equity imbalance: A growing structural risk

In many firms, the number of equity partners has declined over time, while the number of salaried or non-equity partners has grown. This shift may not be an obvious concern – after all, non-equity partners often bring valuable expertise and leadership. But when too few individuals hold equity, the financial and operational burden can become concentrated to such a degree that it creates a risk to the firm’s ability to resolve financial problems.

This imbalance can lead to: 

• Reduced capital contributions, limiting the firm’s ability to invest or weather downturns 
• Decision-making bottlenecks, as fewer individuals are empowered to steer the firm 
• Weakened commitment, with non-equity partners less incentivised to drive long-term growth 
• Increased pressure on remaining equity partners, who may face unsustainable financial expectations

Over time, these pressures can erode the firm’s resilience, especially when combined with external market challenges.

Recognising the first signs of financial stress

The decline of a firm can be a long process although there are usually clear warning signs. These include: 

• Declining partner drawings or inconsistent profit distributions. 
• Mounting tax liabilities or delayed payments to creditors. 
• Over-reliance on short-term borrowing or partner loans. 
• High staff turnover, especially among junior professionals. 
• Low morale, lack of succession plan and uncertainty about the firm’s future. 

Recognising these signs early is critical. The sooner a firm seeks advice, the more options are available to stabilise and restructure. 

How we can help

As an insolvency practitioner at Kreston Reeves, my priority is to help a client to overcome adversity. For partnerships facing an uncertain financial future, I would recommend the following questions should be answered as a priority: 

• Do the partners have access to accurate and relevant management information? 
• Are forecasts based on differing assumptions about performance? 
• Are the partners clear on their KPIs? 
• Do the partners have a strong relationship with their lender which will allow open discussions about potential solutions? 
• Do firms have adequate sources of finance to secure their long-term future? For example, cash flow can be eased by financing professional indemnity insurances across the year and by using asset finance vehicles to fund investment in IT etc

Clarity on these points will provide a basis for exploring options to alleviate the issues.

Proactive planning, sustainable partnerships

The professional services sector is built on trust, expertise, and long-term relationships, but even the most respected firms are not immune to financial pressures – especially when internal structures are not aligned with modern realities.

If your firm is facing uncertainty, I invite you to reach out for a confidential conversation and we can explore the options available to guide you and your business to a brighter future.