... or anytime else in the future?
Some of the most reliable economic indicators warn of a possible global recession in 2020.
If it happens, will your law firm be prepared for it?
Our firm's experience advising law firms during slowdowns and recessions since 2002 has demonstrated the importance of developing a successful recession management strategy before the crisis hits. We have observed four points that, among others, are especially important.
First of all, anticipate how the financial situations and needs of your clients could be affected. Traditionally, when commercial transactions, mergers, and acquisitions are sharply reduced during an economic disruption, the demand for dispute resolutions services increases. But your firm will need to do more than sit and wait for the litigation work. Develop an informal response plan for each of your top clients or client sectors. The firms that have done best in recessions or financial dislocations usually are those that put the client first.
Second, expect cash flow challenges -- especially if you are a small or midsize firm. Our observations of past recessions are that declining GDP usually is a leading indicator of reduced fee income for law firms about four to six months later. Some of these declines can be sudden, simultaneous, and severe. Try to reduce your current accounts receivable in order to build up cash reserves. Improving collections is a good start, but you should also pay attention to every aspect of your management of working capital (e.g., preventing write-offs, prompt billing ). We also recommend that firms defer a somewhat larger part of their year-end profits distributions to partners in order to provide healthier cash reserves in the early months of the next year.
Third, focus your year-end investments (especially partner time and financial resources) on activities that will enable you to manage the effects of a recession better. Yes, you should consider to make investments in your firm's strategic performance and business operations. Firms that adopt a "bunker mentality" usually find it more difficult and longer to recover once the recession is over. But where you make those investments might need to be different.
- Investing in the development of a short-term contingency plan for a recession is usually a better investment than a multi-year general strategic plan. But, if you believe that your firm needs to review its strategic plan, focus on specific strategic priorities -- actions that can be accomplished in a relatively short period and that will produce the best return on your investment.
- Focusing on strengthening relationships with your existing clients is usually a better investment than a large-scale general marketing campaign.
- Defer investments in advanced technology. Invest instead in developing the skills and capabilities of the people in your firm, especially junior fee earners and staff. The advanced technology -- and even more advanced technology will still be there when the financial crisis is over. Your people might not be.
Fourth, communicate the plan and, if you have to implement it, keep everyone in the firm updated about your progress in managing it. This can be critical in sustaining morale among your colleagues and trust and confidence in your firm's leadership team.
As Ralph Waldo Emerson said, "Knowledge is the antidote to fear."
Walker Clark LLC can help your firm develop a simple, cost-effective contingency plan to manage the next recession. For more information, contact us by e-mail or at the telephone number listed at the bottom of this page.