The signs are clear. The world is definitely in a recession, even if the tsunami has not yet washed over Canada’s shores. So what can law firms do now to prepare for the hard times?
Here is a list of steps that you can take:
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Law firms are seeing receivables balloon as clients are slow to pay. Ensure that your retainer agreement and invoices state that interest will be charged (in accordance with the Canada Interest Act) at a rate set higher than credit card rates to act as an incentive for clients to pay. Insist on up-front retainers. Consider holding a cash retainer but the firm expects all accounts to be paid on time. If the client defaults, the funds in trust would be used to pay the last account and the firm gets off the file.
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Check your available credit arrangements and balances. Pay down debt as cash comes in, ensuring that you will have available credit if you need it. Discuss increasing your credit limits, just in case.
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Seventy per cent of a law firm’s expenses are in facility costs, compensation and technology: there is typically little room to reduce expenses without cutting into capacity (entertainment and such being the exception). Don’t start laying off staff. Not only does that reduce your income-earning ability, it works against the firm’s culture (sending a message of “every person for the lifeboats”) and against morale. You will need good staff to carry you through the tough times.
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Protect your stars – the #1 profitability strategy of firms these days is to hire away excellent lawyers and staff from other firms.
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Deal with underperformers. Communicate expectations clearly through performance reviews and continued monitoring. Eliminate underperformers who do not respond. Do so quickly, efficiently and humanely – the rest of the firm is watching how you handle this.
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Chances are that you will have lawyers who have had their practice areas collapse around them. Assist them in transition over to productive areas of practice. If this can’t be done, the firm may be looking at how to carry them through the recession on the basis that their practices will eventually come back. But if matters are dire, they may need to leave the firm to ensure its survivability. There are no easy answers here, just hard consequences.
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Work on effectiveness improvements. By becoming a lean, efficient machine, you will be better able to take advantage of the change in economic fortunes when they eventually come.
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Lastly, focus on your clients who are facing the same economic consequences – and hoping you will help them through this mess.
By taking the right steps now you can be singing “We’re in the money, that sky is sunny, Old Man Depression you are through…”
David J. Bilinsky is the practice management advisor for the Law Society of British Columbia, and the author of the Thoughtful Legal Management blog. The article was first published in the December 2008 issue of BarTalk, the CBABC’s official magazine.