Recession-Proof Your Practice
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The economy may be weakening, but your practice need not follow. Implementing a proper business model with cost controls is paramount for any business’ success. For lawyers to recession-proof their practices, they must focus not only on financially managing the bottom line, but also on providing value-oriented services and adapting their marketing techniques to the economic environment. Here are 10 strategies that can help your practice thrive while those around you may be sputtering.
1. CASH FLOW
Proper management of cash flow is critical. Take a good, hard look at your balance sheet. Draft a worst-case, 12-month cash flow scenario by assuming a drop in revenues of as much as 25 percent. Identify what changes you could implement and when, should the worst occur.
If you have an office administrator who handles budget management, consider the addition of monthly or quarterly status reports. Such reports can prevent a tardy reaction should there be a drop in your monthly financials.
And while the going is still good, try to put cash aside to build a financial safety net.
2. CREDIT
A good credit rating is crucial now, especially for solo practitioners, since personal credit is what banks normally look to when determining risk for an entrepreneur. Before your worst-case scenario occurs, it may be wise to consider increasing your line of credit. It’s better to approach a lender with a positive financial forecast than when your balance sheet reflects a recession.
3. ACCOUNTS RECEIVABLE
Keep an eye on someone whose debt to you is increasing. Before allowing a substantial debt to accrue, a diplomatic yet candid discussion can be beneficial.
Remember, if a client goes under and your cash flow is tight, that will adversely impact your compensation more than a one-time, frank discussion about timely payment. Instituting a retainer requirement for new clients is a good policy, and also useful for those with a history of delinquencies.
Should your cash become tight, try negotiating with suppliers and service providers. It may be possible to make payments in 45 days instead of 30. And be prepared for the client’s call informing you that economic constraints have tightened the legal budget. Having a heart-to-heart about the client’s needs and responding with an innovative approach helps you be selected over others to develop ways the client can meet goals.
That isn’t to say that, if you have clients who aren’t helpful to your bottom line, you shouldn’t analyze whether they are worth keeping. Every attorney has had clients who cost more in time, money and headaches than they’re worth. After all, basic economics dictates that if a business can earn more by devoting energy to a client who timely pays the agreed-upon rate versus one who consistently doesn’t, a financial re-evaluation of client relationships should be undertaken.
4. SPENDING
Discretionary items such as complimentary bagels and sodas are usually what most managers think to cut. Yet chipping away at the perks of the workday does little if your firm is nursing credit card debt or incurring unnecessary travel and operational expenses.
Reduce business costs by implementing time-saving technological advances. Teleconferences in lieu of travel, effective use of Internet and subscription services, nonduplication of administrative and operations duties, and a staff that matches your needs are budget savers.
It’s sound business practice to review staffing needs annually, including whether job duties should be reassigned or job descriptions revised. For example, a technologically savvy attorney presents opportunities where a secretary’s time is freed up to handle other administrative responsibilities as opposed to traditional job descriptions.
For new associates, be aware that attorneys laid off from competing firms may be the preferred staffing investment, so make sure you are adding value and keep your resumé up to date. Similarly, though the word outsourcing may jolt staff members, consider whether it may be more cost-effective to have administrative tasks such as payroll and human resources duties performed by third-party providers.
5. RESEARCH
Analyze how a recession may impact existing or potential clients, which may result in adding, expanding or refining a practice area to match the times.
Bryan Cave formed its Distressed Financial Institution Team, led by Karen Garrett in Kansas City, Mo., when weaknesses in the banking sector first surfaced. “We refocused our financial practice group,” Garrett says, “and cross-trained and included other attorneys in related practice areas such as securities and real estate to correspond to the specific problems we anticipated the economic environment would bring to our financial institution clientele, as well as their customers, third-party providers and potential acquirers.”
Generally, a challenging economy tends to spike litigation and regulatory activity. A survey of in-house counsel conducted by Greenwood Associates confirms this, with many reporting that they anticipate a litigation spike in 2009, and others projecting an increase in regulatory proceedings.
Public companies’ concerns include securities, insurance and real estate litigation, while contract and labor disputes typically dominate private companies. Personal injury claims also increase with manufacturing companies and health care industries.
If your firm does not have a presence in some major areas of concern to clients, consider diversifying. For example, since bankruptcy filings are up, consider whether your clients will likely find themselves as creditors in someone else’s bankruptcy filing. If so, adding creditor’s rights expertise to your bankruptcy practice may be appropriate.
Someone is always making or moving money, even in a difficult economy, so find out where those pockets are and whether you have services you can provide.
6. PRACTICE
Go where the action is. Sole practitioner Nancy Jochens specializes in construction law. While her Kansas City, Mo., firm may not be in the Am Law 100, it is prospering by being involved in international ventures. For 2009, her firm is planning a Dubai office. Why? Because Dubai is in a construction boom.
“You have to be willing to go where the opportunities are, even if it means learning something new like the language and customs,” Jochens says.
If you’ve always labeled yourself as a corporate or real estate associate, for instance, and the deals have dried up, expand your knowledge to include the busier practice areas heating up at your firm. Most likely your firm’s management began touting its expertise in restructuring, bankruptcy litigation and the like when the subprime mess hit in 2008, or maybe it projected expansion into international markets. Get involved in the master plan.
Don’t hole up in your office expecting others to include you in their business model. The reality is that attorneys who are willing and able to adapt their skills go where the work is, and those attorneys will always be employed.
7. PRICING
Most in-house counsel will reduce outside counsel hiring. The Association of Corporate Counsel’s eighth annual survey found “a growing amount of work being kept in-house” and heightened pressure from company management to lower legal costs. For small to midsize firms offering specific expertise and low overhead, the economic cutbacks may work in their favor because their rates are more attractive than those of their big-firm counterparts.
“We’ve been pretty busy,” observes Thomas Howard, a partner at Garlin Driscoll Howard in Louisville, Colo., outside Denver. “As a practitioner in this economy, I’ve found our expertise and rate structure to be a very effective marketing tool. Midsize and large corporations are realizing they can get the same types of services from us that a large firm has, but at a lower rate.”
And raise rates at your own peril. Many firms routinely increase rates up to 8 percent at the beginning of every year without adding value to their services. In this economic climate, it is likely that clients, especially in-house counsel, will give a chilly response to rate hikes and be scrutinizing what they are getting for that rate now more than ever.
Firms that consistently deliver value, cost-efficiently manage cases and help create savings in the client’s legal budget will gain market share and revenue.
8. LOYALTY
Keep the old. it costs more to acquire a new client than it does to keep an existing one, so take nothing for granted with existing clients. Be sure to keep your pricing competitive, your service exceptional, and ensure that all attitudes reflect how much your firm values its clients and their business. Moreover, new client referrals are often initiated by former and existing clients, so keep in touch.
9. MARKET
Determine what sets your business apart and the best way to promote it in the current economic environment. For example, accounting firm Grant Thornton’s Economic Crisis Team was formed after the announcement of the 2008 financial bailout package. The firm repackaged the same expertise it has offered for years, presenting it in an adaptable form for this economy.
Gary Goldman, partner in Grant Thornton’s Midtown New York City office, explains: “Basically, with the team, we are trying to anticipate what types of opportunities exist across a fairly broad spectrum of services. We’ve always had restructuring and recovery expertise that is obviously applicable in difficult times, but there are other industry leaders we have who our clients may not have realized were needed in this economy. For example, our valuation area is getting a lot of attention now, and the team permits us to be well-positioned to respond to those client needs.”
Social media tools can also get the word out and offer networking opportunities. Blogging and podcasts are 2009 versions of writing articles and giving CLE presentations. Get started by listing your contacts from professional communities, networks and social groups. Send them an e-mail or give them a call to remind them of who you are and what you do, and ask if they know anyone who may need what you have to offer.
Not sure how to get in touch? The LinkedIn directory is a professional networking site that can help you catch up with people from your past as well as draw others to your firm.
As always, remember to practice Internet safety when posting and exchanging information. And have a bio or resumé handy and an active firm website. Sometimes opportunities take the form of a new job or merger proposal, so up-to-date information is key.
10. Schedule
Resist the temptation to become a member of the extended happy hour club or the two-hour coffee klatch. Even though you are lacking billable work, persevere with a daily schedule and leave pessimism outside the office door.
For solos, if work has dried up, consider seeking paid court appointments that may keep your skills sharp while covering some of your expenses. For attorneys anxious about billable requirements, now more than ever maintain the same enthusiasm you had that first day of work (or at least the appearance of it). Sign up for CLE training as well as pro bono projects that may offer hearing, deposition or even trial experience. Simultaneously, canvass for billable work, even if it is in the form of a boring project from another busy practice group.
Join in firm-approved activities. (Note: The office gossip team is typically not a firm-approved activity.) Volunteer for committees, firm-sponsored bar association events, marketing pitches. These are positive ways to promote your abilities and commitment during nonbillable periods.
Opportunity still knocks during a recession, but often only for those who are ready. Establishing a financially sound business model while positioning yourself through already established relationships, and adapting your marketing plan and skills to meet the spikes in business, will help position your practice for new opportunities and revenue.
Susan A. Berson is a partner with the Banking & Tax Law Group of Leawood, Kan. She is the author of The Modern Rules of Personal Finance for Professionals.
