Many large and even mid-sized firms for years had assumed that high associate salaries, million-dollar partner draws, rising rates and leveraged mergers with other firms would continue indefinitely. That was a fallacy; what is the new reality?
That will be hard to say. Cuts have been made, expenses have been reduced, some billing practices have been modified, and recruiting and other firm policies have been altered. Reversion to the past will not be immediate. The brake pedal will not be released quickly.
But attitudes may begin to change, and the temptation to go back to old habits may well return if the economy improves and clients become more passive. That would be a great waste of a crisis.
Poor business management has killed large and small law firms alike during the past three years. If surviving firms expect the good times to roll again, they must heed the following lessons:
- Firms cannot indiscriminately add lawyers without regard for demand. The law school hiring lockstep should become a thing of the past.
- Firms cannot pay compensation out of scale with what clients will accept. New, lower associate pay scales and partner compensation tied to performance should become the norm.
- Firms cannot indiscriminately pursue mergers with each other. Combining law firms should be done only to enhance synergies and eliminate redundancies.
- Firms cannot automatically raise rates. The billable hour may not be dead, but alternative billing is here to stay and the casualty in the process is unilateral rate increases
- Firms cannot try to grow without a clear client development strategy. The only practical focus should be on profitable clients with the most desirable work.
- Firms cannot ignore budgeting. Budgets define successful business planning, and any business can and should operate according to a budget.
- Firms cannot ignore technology, but rather must use it to reduce labor (and legal costs) to leverage lawyers’ per unit fees.
- Firms cannot put a premium on offices, as the virtual practice of law has made physical locations less important.
- Firms cannot be banks for their clients as millions of dollars in unpaid receivables sit on their books. Enforcing the engagement agreement is essential.
As owners of their firms, lawyers need to realize that they have a responsibility and commitment to their firm’s success. That personal commitment takes the law firm out of the realm of industries like autos and banking, where churning out cars and mortgages without regard to value and worth led to overshoot, collapse and layoffs.
If law firms cannot learn from this experience, they may yet suffer the same fate.
Check out Ed on YouTube
Follow Ed on Twitter
Join the LawBiz Forum
Become a fan of Ed's on Facebook
Contact Ed
Growing Your Law Practice in Tough Times
By Edward Poll
Following the worst economic crisis since the Great Depression, and facing a sea change in clients' demands and expectations, law firms must respond and adapt quickly and effectively. Law firms must choose the kind of law practice they will be; the marketing and business development tactics they will use; the overhead that is critical to their functioning; how to price, bill and collect for services; and how to manage the cash flow cycle. Success lies in identifying and capturing the right kinds of clients, providing the services those clients need in ways that add value, and ensuring prompt payment and the ability to grow profits. This book, based on the experiences of the author and his clients over 20 years of coaching and consulting, provides the keys to successfully thriving in the new era.
Now Available
Special New Release Price: $79
Regular Price: $120
Call or Order Online at:
1-800-837-5880 or www.lawbiz.com
2010 LawBiz® Management. All rights reserved.