Bold headlines tend to focus on the spectacular failures. But consequential transition — even crisis — are equally traumatic for the small to medium sized law firm. Given the fact that fewer partners must carry the load, the impact across the smaller firm may be even more intensely felt.

If you are part of the management of a small to medium size law firm wrestling with how to turn things around, here is a five-step process that will help you set priorities and marshal resources in a way that can begin to ease the pressure…and the pain. 

1. Know Your Pain-Points

The issues that cause us pain are as varied as each partnership is unique. However, there are a handful of themes that push a law firm (of any size) to consider restructuring or “turnaround.” Awareness of these “warning signs” is critical to managing a transition with minimal upheaval in your firm.

• Loss of a key client(s). The loss of any significant relationship — or worse yet, a series of relationships — often points to underlying issues that will put pressure on the law firm.
• Loss of a partner(s). Losing a partner or partners is often a precursor to other losses that will inevitably create stress on the organization’s ability to generate the revenue necessary for ongoing operations.
• Litigation against firm. More than one law firm has found their future in question because of litigation against it.
• Market changes. A poignant example of the impact a market shift can have is the recent collapse in energy prices. One of the country’s most prominent energy focused law firms found itself in dissolution a few weeks ago.
• Lack of attention to your economics. Debt service, the growing use of credit, unprofitable work — these are just a few example of law firm economic factors that allowed to get out of balance, will drive a law firm to a need to restructure. Or worse . . . bankruptcy,

Regardless of the core reason behind a law firm’s difficulty, there are a series of key steps that, if followed, improve the odds that the firm will be viable for the future.

2. Get a Handle on Cash

Without sufficient cash reserves any business is in serious trouble. Here are five ways you can strategically manage your cash position.

• Produce a monthly, weekly and daily cash flow forecast. Not only will the forecast provide critical information regarding potential crisis points, it will assist in the identification of ways you might actually decrease cash outflow.
• Engage your banker. Bankers hate surprises as much as you do; and they are well positioned to be a valuable resource during transition if you treat your banker like a business partner. Don’t make the mistake of trying to conceal your challenges from your banker. As soon as they suspect they’ve have been misled, all trust is gone. And with it, the assistance of an ally.
• Reduce expenses. The two most significant outlays of cash are people, find a way to humanely and prudently decrease your commitments in these two areas, and you’ve significantly turned the arithmetic in favor of a positive outcome. Also review all planned operating expenses, defer or reduce all that you can.
• Consider reducing partner draws. It goes without saying that this step must be taken with care and skillful communication. If you’re already facing challenges, little is worse than partners losing faith that there is a successful path forward.
• Capital contributions can also help through challenging periods of economic uncertainty. Once again, this subject must be approached with the same sensitivity as reduction in partner draws. For many firms, internal communication is a significant challenge. Tread carefully.

3. Bring In Some Help

Self reliance is great; but there are critical junctures when the experienced perspective of an outsider is what is called for. As is the case in the practice of law, the perspective and counsel of a trusted advisor can provide an objective approach to a plan for the firm’s turnaround.

4. Focus on Communication

Many otherwise workable plans miss the boat here. Have a process that provides routine updates in a confident forthright manner. Silence is decidedly not golden. Careful communication will provide the comfort necessary for the firm’s personnel to remain focused on serving clients. Adopting a “bunker mentality” creates suspicion, breeds distrust and will ultimately turn a difficult situation into a crisis.

5. Do Not Hesitate

Unlike fine wine, time is not the friend of the distressed law firm. As soon as you suspect that your firm is under pressure it is time to react. Not panic; but react. Building a plan that will result in a confident and comfortable future.

How stable is your firm?