False Sense Of Security Still Prevalent Among Law Firms

In spite of overwhelming evidence that the booming economy enjoyed practically uninterrupted for the past 20 years has ended, at least for the near term, many law firms are still optimistic of their 2009 prospects.  I beg to differ.  I believe 2009 will start a strong shift in the make-up of many law firms due to the lack of any planning for the economic conditions.

Who can blame attorneys for being optimistic?  Regardless of the economy since at least the early 1980′s, lawyers have enjoyed consistently increased business and profits.  This has led to a complacency and a denial of the economic conditions that are facing the country.

Law firms aren’t alone.  In fact, the “big three” auto makers (Ford perhaps excepted) are acting out of a similar denial as they attempt to scare Congress and the President into paying for their internal problems.  Who didn’t see the failure of GM coming?  Was no one noticing the extravagant pensions being offered to the employees?  Did anyone who dared notice believe the ever slimming margins would cover the ever growing benefits?   Not likely.  As the Legislative and Executive branches delve deeper into the phantom pockets of our tax base, a  nice summary of the fallacy of “avoiding acting like Herbert Hoover” has been inked in an opinion piece by Todd J. Zywicki in the Wall Street Journal.

Law firms, though not nearly in the long-term slide as the domestic auto industry, is more sensitive to this economic downturn than many attorneys would like to admit.  Many firms have been spoiled by margins that exceed 50% without spending more than a passing glance at the indicators that led them to such bounty.  The issue isn’t so much a drop-off in business, though some firms who specialize in areas that are in the midst of collapse will certainly feel the pain.  Rather, the issue is how firms will retain good talent, retain their expected incomes and avoid layoffs of associates.

These are regular issues for most industries but are foreign to the mid-size law firm.  Many firms pride themselves in their “family” atmosphere, which includes the bratty sibling rivalries that are tolerated when times are good.  Salary incongruousness may seem a bothersome itch when profits are high, but once the deadwood becomes heavy the scratching becomes intolerable.  Some may panic to find their balance sheet showing a loss without ever seeing it coming.  Drastic change is put into place – at a time no worse to prepare.  No more is it wise to visit a market when hungry than to suggest change while in the midst of a spiral.

Yet our economy has afforded all of us time to prepare.  It was suggested by many (myself included as far back as March) that our economy was in for some hard times.  Firms with the foresight and gumption to plan and hold timekeepers accountable for providing not only quality service to their clients but ensuring prompt billing and payment for the betterment of the long term financial health of the firm are in a position now to profit over the firms who were complacent.

It’s not too late, however.  Many firms are just now seeing the first bumps in the road.  It is my opinion that the economic downturn is just now really beginning to hit middle America.  The massive layoffs (over 533,000 in November) are an indicator that the many months of body blows caused by the collapse of the credit and housing markets (not so unlike what happened in the late 1920′s, speaking of Herbert Hoover) are finally taking its toll.  The question now is, where is the bottom?

No one knows.  That is a troubling concern that should make you want to hug every dollar your firm receives and not let go of it.  In times such as these, power goes to those who hold cash.  This may change if our government attempts to over-spend its way out of our economic downturn (thereby devaluing the dollar, leading possibly to hyperinflation combined with stagnant productivity – a prescription for the “d” word), but as of right now, many believe that the economy should rebound sometime in 2010.

In my opinion, firms need to pay more attention to the profitability of each fee earner and place more emphasis on marketing activities and their key profit drivers.  Please feel free to email me (by clicking here) if you would like some ideas on how to not only retain your current income, but increase profits during an economic downturn.

Survival Planning For “Accidentally Successful” Law Firms

Measuring profitability is more important now for small and mid-size law firms than ever.  In the past, lawyers have been able to yield large profits without understanding or measuring the drivers of their profits.  Some called it being “accidentally successful“.   Regardless of whether you want to look at your firm as primarily a business or a profession, competition will be more fierce for dwindling reliable clients.  Although a well positioned law firm can take advantage of economic downturns, improper management may cut so far into your margin that the firm doesn’t thrive – which can lead to an exodus of talent.

More and more regional and national firms are marketing heavily on the Internet that will be competing for your clients – and some of these firms can price you out of business.  Flat fee and “value billing” firms have spent the time to determine the amount of resource cost each task takes and invests in technology to be the most efficient in producing.  They then build in their margins to maximize profit.  They advertise their efficiency as superior service (and it is in some compelling ways) and offer money-back guarantees.  Clients then have the ability to forecast legal costs through cost certainty.

This is what I call the “walmarting” of the legal industry.  Whatever you may think of these firms, they won’t do anything but take your best talent to man a local office and let your firm wither – much as the old hardware stores did once Walmart came to town.

Those who survive either adopt their methods or focus on client relationships to compete.  It wasn’t long ago when the mantra was “those who don’t embrace technology won’t survive”.  I believe that those who don’t embrace performance measurement, accountability and planning will have great difficulty surviving the altered marketplace for legal services that will be the result of both undesirable economic conditions and “value bill” law firms.

Even a simple strategic plan may be the difference between a firm that survives and one that fails.  I recommend a book sold through the ABA called The Lawyers Guide to Strategic Planning.  You can get a copy by clicking here.

No plan is effective, though, without management.  Of Counsel Consulting is dedicated to helping law firm managing partners develop plans and implementing them, allowing fee earners to focus on practicing law and maintaining the rewards, both professionally and financially, of providing quality legal services.