Conventional wisdom predicts that legal firms do well in a recession. But that’s not always the case – unless you follow our top five tips for 2023
‘Doom means boom for lawyers’, or so the old saying goes. And it’s true that some firms thrive during a recession – because they’ve built practices in areas like bankruptcy, business restructuring or M&A, employment law or foreclosures. Divorce rates can rise in a recession.
But law firms are not recession proof. In the wake of the Global Financial Crash in 2008, some US firms collapsed altogether. For instance, Heller Ehrman, which was founded in 1890, had 15 offices around the world and employed 730 lawyers, while Thelen — a firm that opened in 1924 — had more than 600 lawyers in the United States and Shanghai. Both firms went under suddenly in 2008.
The Rosen Institute says:
“Typically, a recession is “technically” over fairly quickly. But the effects linger, sometimes for years. Large firms lay off associates, who end up competing with smaller firms. Medium-sized firms reduce prices, which impacts smaller firms, who lose business. Clients reduce their legal spend and take a long time to ramp back up. It gets ugly quickly and it stays ugly for longer than hoped.”
The natural reaction of most lawyers is to deal with an economic downturn in the same way they would handle a hurricane — hunker down, don’t take any unnecessary chances and try to survive until it is over. Given the risk adversity of most law firms, avoiding action may indeed be the best plan for a firm. But for some firms, adverse economic conditions provide an opportunity dramatically to enhance their competitive position in a relatively short period of time.
We’ve compiled some of the best strategies for mitigating the effects of the coming downturn in 2023… and a few that can help your firm not just survive but actively steal a march on the competition.
Be more diverse
“Many law firms are relatively recession-proof unless they specialize in business and corporate law, so most small and medium-sized firms don’t feel as much of an impact as other industries do,” says David Aylor, Founder and Chief Executive Officer (CEO) of David Aylor Law Offices.
But when a recession does hit, you can always refocus your specialty areas to respond to the changing times.
“Though many specialties may be less useful, other legal needs will arise through a suffering economy. Corporate law, for example, may see less movement in mergers and acquisitions but more need in the areas of litigation and bankruptcy. Lawyers are needed, especially throughout tough economic times, to protect those most vulnerable to losses.”
says Minesh J. Patel, Founder of The Patel Firm.
Reduce your overheads
Most see ‘overheads’ as coda for staffing costs, but some cuts are more beneficial than others. The first people to be laid off tend to be the part-time, job share and telecommuting employees to the benefit of full-timers. This, of course, plays into two pieces of conventional wisdom in the use of legal human resources. The first is the view that full time employees are required for most legal work in order to satisfy clients’ demands for capability and responsiveness. The second is that non-traditional work schemes are costly fringe options that benefit societal objectives and can only be sustained during periods of great prosperity. When things get tough, it’s back to the bread and butter staffing model.
But there are simpler cuts to make here. By adopting new technologies (see below) that significantly reduce your already depressed workloads, you can eliminate many back-end and administrative staff without losing output. Better yet, as we emerge from a downturn back into a growing economy, you don’t then need to staff back up as these changes become a permanent order of business.
Upgrade your tech
By being forward-thinking and investing in the latest technology, your firm can save money and be more efficient. According to Tariq Akbar, CEO of LegalEase Solutions, law firms can look into using a model based on Software as a Service (SaaS) instead of relying on legacy technology.
“Alternative legal service providers can work with law firms on a transactional basis and hence the limited need to manage overhead,” says Akbar. “You need to be able to get lean on demand. That’s really the key to survival. Not investing in [technology] will have a detrimental impact for law firms, not just because of a recession but also from business continuity risks.”
And if your firm hasn’t already done so, move to the cloud, which would allow you to “reduce services, storage and usage in a way that coincides with ebbs and flows in work,” says Brad Paubel, Chief Information Officer at Lexicon. “This helps avoid paying fixed costs for times when business is slower.”
At APLYiD our SaaS biometric client onboarding and verification software can onboard new clients (and verify existing ones) within 60 seconds, with no need for paperwork or manual data entry. By implementing APLYiD’s technology into their workstream, legal firm Russell McVeagh discovered that it could onboard customers more than twice as quickly, with automated processes that reduced the need for manual data entry.
Learne Hurd of Cavell Leitch says:
“A really fast, efficient way to verify client due diligence.”
To find out more about our biometric onboarding and verification software, you can get in touch here.
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