Published on 11/24/08
Law firms are no strangers to the boom-and-bust mode of operation, and it's been apparent for some time, as I've written in recent columns, that the "bust" phase is here.
Of course, small firms and solo practices face the valley of lean times frequently, sometimes more than once a year. But in an economy-wide downturn, the entire profession must adjust. That adjustment should not require major changes. Instead, it means an intensification of a three-part cycle that drives any business:
- Win the business (the sales and marketing function);
- Do the work as effectively and efficiently as possible (the production function); and
- Get paid (the collections function, which is inseparable from basic finance).
Paying closer attention to any of these three essentials can be done at any time, at any point in an economic downturn. Firms need not and should not wait until income slows before considering them. Athletes know that there is a lag between when the body becomes dehydrated and when it sends the thirst signal, so they drink fluids proactively to avoid problems. Similarly, law firms should take proactive steps in each part of the cycle to protect themselves financially.
Win the business: get out and market. When you fret about how bad business is, hours become days, and it's easy to get into a funk. Break out and look for clients where they are. Go to a bar association meeting, do blawging, call up past colleagues and clients, write for publications.
None of these steps require expensive advertising or brochures. They do require effort, though. Marketing is every activity throughout the day that communicates what you can do for people who potentially need your services. Start today, and the future will take care of itself.
Do the work: scrutinize overhead. Investment and staffing plans made in better times may simply not be feasible in a recession. Consider postponing any major new investments in more technology (unless there is a demonstrable high payback — ROI). Look hard at your space needs and lease terms and consider more affordable options.
Don't eliminate valuable lawyers and staff whom you'll need when business inevitably picks up; reassign them to new areas that are generating work or have the potential to do so
Get paid: collect overdue accounts. Review your accounts receivable weekly and determine which clients are behind on their payments. Forgetting or ignoring these clients means failure to collect your money. Thank those who have paid; remind those who are behind.
Above all, don't let collections slip. Studies show that a bill that is more than 60 days past due can still be collected about 89 percent of the time. However, that drops to a 67 percent likelihood of collection after six months, and to a 45 percent likelihood after one year. By then, you may be out of business.
These examples all illustrate that, for recession survival, it's important to know what the firm is trying to accomplish. A firm cannot control its destiny unless it understands its business functions. Following this three-part cycle with such an understanding has the best chance of success and the firm best prepared to take advantage of the next business upturn.
