Bar News - June 20, 2008
Law Practice Management: How to recession-proof your legal practice
By: Sylvia Hsieh
With a full-fledged recession looming, lawyers should start thinking about how they can shield their practices from a sustained economic downturn.
Although experts disagree on whether we are technically in a recession, there’s no doubt that lawyers are beginning to feel the economic pressures their clients have felt for months.
The current legal downturn has already been called a "perfect storm" in which "finance, transactional work and litigation have all trended downward at the same time," according to a legal trends advisory released by Hildebrandt and Citibank earlier this year.
Now is the time for lawyers to do what they should be doing all along – the only difference is now they have to do it, said Larry Bodine, a law firm marketing consultant in Arizona and Illinois. Bodine predicts a more far-reaching recession than the last one because today’s credit crunch affects a broader spectrum of businesses and consumers than the technology crash of the 2001 recession.
"The first recession-proof technique is to operate your own practice as efficiently as you can," said Ed Poll, a law practice management consultant and owner of Law Biz Management in Venice, Calif.
Here are the key tips to recession-proofing your law practice:
Bullet-proof your best clients
Lawyers need to strengthen their relationships with their best clients by visiting them to make sure they are happy with the relationship and don’t get wooed away by a competitor.
"Your best clients are your competitor’s best targets," said Bodine.
Many lawyers do not react fast enough or are even afraid to talk to their clients for fear of hearing bad news, said Gerald Riskin, a consultant with Edge International, an international consulting firm.
"If a client says they want to cut their legal bills, a good law firm that is sensitive to the needs of their client will say, ‘Let’s figure out a way to decrease your overall costs while at the same time you receive a reasonable return on the work we’re doing,’" he said.
For example, if your client has litigation around the country with different law firms, a smart litigator will say "let’s take all these lawsuits, package them together and I’ll be the main lawyer and work with local people as needed. This will lower the client’s overall cost without changing the hourly rates at all," said Patrick Lamb, a consultant and litigation attorney in Chicago.
Another bullet-proofing technique is to encourage young associates to meet with clients in their peer group.
"You want to have as many points of contact as possible. In five years, those two 25 year-olds are going to be in decision-making positions, and they will already know each other," said Bodine, who added that law firms with policies against associates taking clients out to lunch should reevaluate.
Keeping existing clients happy is kind of like keeping your marriage together. "The only flowers my spouse gets should not be from other suitors," Riskin said.
Lawyers who monitor their collections will be in a better position to assess and prepare for a recession because they will start to notice that bills are overdue.
One of the most common mistakes lawyers make is they continue to work for clients who owe them money.
Usually this is because lawyers are so busy lawyering that they aren’t paying enough attention to the business side, said Poll.
"Unless you operate your practice in a business-like way, you are not going to see the change in the economy or, on the positive side, see opportunities to grow," he said.
Another mistake lawyers make is counting gross revenues from a client without looking at how much the client profited the firm.
Bodine suggested cutting loose clients who do not provide a 40 percent profit, the industry norm.
He added that many law firms are irrationally attached to money-losing areas of practices, such as insurance defense, that pay a capped hourly rate that is less than it costs to "keep an associate in an office with the light on."
Research new clients
Now is the time to look for new clients in your practice area.
Usually they are right in front of you, said Poll.
Bodine recommends getting an economic analysis of your footprint from the chamber of commerce to learn which industries are doing well.
Another tip is to make a pitch to clients in the same industry as your existing clients, based on work you have done for their peers.
"If you represent a trucking company, call other transportation companies and tell them, ‘I’d like to meet you and give you ideas to help your business. I represent other trucking companies in the region,’" Bodine suggested.
If your practice area is on the downturn, "you might want to think about either acquiring a new skill or operating your firm very, very efficiently so you can sustain any change in the economy," said Poll.
Family law, for example, is a practice area that "almost never goes out of fashion," he said.
Other growth areas to explore include intellectual property and legal work related to emerging green technologies.
Nothing replaces "putting leather on the pavement" and finding new audiences through speaking engagements or personal contacts, said Lamb.
"Don’t waste your time talking to other lawyers. I want to talk to potential buyers of my services. Clients hire people they see, talk to and touch, so use your time to meet people in person rather than sending e-mails," he said.
Without hands-on management and good communication, difficult economic times can kill morale and even cause an implosion of the firm if senior partners start to leave in panic.
"It’s time to have a little chat with people inside the firm and have a strategy for dealing with the short-term," said Riskin.
This includes putting underproductive lawyers to better use or reducing their salary.
Most firms have "practice group" leaders who, in good times, do little to lead their groups.
"Now it’s time to get together every week and start scheduling meetings. Find out who’s busy, who’s not, what lawyers are hearing from their clients, and what we’re doing for our clients," said Riskin.
Smaller firms may have a slight advantage in being able to react faster to a changing economic environment, he added.
If your firm is holding its own, Bodine suggests looking for lateral hires from weaker firms.
"All these tactics are harsh and aggressive, but we’re in tough times," he said.
Law firms should be flexible in looking out for new opportunities, such as plaintiffs’ work on a contingent fee basis.
"Stop viewing yourself as a plaintiffs’ or defense lawyer only – view yourself as a business lawyer, because sometimes businesses are plaintiffs, and sometimes they are defendants," said Lamb.
A company is more likely to bring a lawsuit if it can pay on a contingent fee basis, so plaintiffs’ work is another way to expand the overall pie as well as your own share.
Sylvia Hsieh writes for Lawyers USA Online. Her article, published March 24, 2008, is reprinted with permission. Questions or comments can be directed to the writer at: email@example.com.
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