With the COVID-19 outbreak causing a near complete lockdown of the country, life has changed in a huge way. Businesses all over Canada are suffering after having been forced to close their doors roughly two months ago. In most respects, law firms are no different. COVID-19 has exposed the vulnerabilities of many law firms, both small and large, including their reliance on open courts for revenue.
As a lawyer, it is easy to get lulled into a false sense of confidence regarding job security. Many people believe that since crime will always exist, criminal lawyers will always be needed. The COVID-19 outbreak and lockdown that has accompanied it has shown that this is not always the case. With courts shut down, even recession proof criminal lawyers have been without work. The pandemic has put into perspective how important it is as a lawyer or any business owner to control expenses and make regular investments in the business.
Law firms can experience periods of rapid growth during a strong economy. However, without proper budgeting and planning, they can just as easily find themselves failing during periods of economic downturn. This is especially true when there is little to no notice, as was the case with COVID-19.
With overhead expenses remaining and no new business, many law firms have found themselves struggling financially, in some cases, not being able to cover overhead expenses. The best way to avoid this is to consistently manage the firm’s expenses. These expenses include rent, insurance costs, support staff and technology. While it may be tempting to spend more on expenses when the economy is strong, it is important to have overhead expenses that may be managed for a period of time even without any new business.
It is easy to scale a business when the economy is good, however, this expansion must be sustainable. Law, especially criminal law, is a rapidly changing industry, which also needs to be considered. It is important to develop a business model that is sustainable in periods of economic growth and recession.
Upon graduating law school, it is also tempting to raise your standard of living after being a student for so many years. This, however, can be dangerous. It is important to save when times are good to support you when the economy is suffering. Overextending yourself too soon can make it very difficult to survive a dip in the economy.
By controlling your expenses and ensuring you have correctly budgeted for both your business and your personal life, it is possible to survive economic recession. A strong firm should have 6-12 months operating cash (not credit) available to deploy when needed. The best way to accumulate cash is to raise your standard of living incrementally and only as savings increase. The financial health of the firm should take priority over the temptation to spend earned income. Ultimately, this war chest can be leverage for growth when the economy is strong, and used to protect the business during hardship.
In addition to controlling expenses, making investments in your business whenever possible is also important. As lawyers, we often think that our biggest investment in our business was attending law school. However, to build and maintain a successful law firm, lawyers need to invest in their business whenever possible. These investments will help firms survive during periods of economic downturn.
For example, it is important to make regular investments in your law firm’s brand. Your clients need to understand what you do, what services you can provide them and what makes you special. This can be accomplished, in part, through the everyday interactions you have with clients and other people in the industry. Treat every client and opposing party with respect. Make sure to always take the time to understand your client’s expectations to ensure they are not disappointed. Take care of your staff as they are your best investment.
The COVID-19 outbreak left many small firms in a position where, with no new clients, they had no choice but to lay off some or all of their staff. While it may not seem like a good business decision to continue to pay staff who are not able to carry out their regular duties, it is important to remember that people are an investment. Training staff, especially in a legal capacity, is a time consuming and resource intensive process. By properly budgeting and controlling your spending, it will be possible to retain these people during an economic shock. Protecting your investments from erosion will ensure a quicker recovery.
Using an economic downturn to invest in yourself is also important. If the phones aren’t ringing, use the time to train yourself. By capitalizing on the additional time not serving clients, the lawyer can build skills to be deployed when the economy resumes. This will create future time savings, where the lawyer can then focus on serving clients, rather than keeping up with the law.
By controlling spending and making regular investments in your business, you will ensure that your legal practice will be able to withstand dips in the economy and build resilience over time.