As law firms (and businesses generally) confront the growing financial challenges associated with the Covid-19 crisis, a plan for an escalating response is necessary. The appropriate answer for a particular law firm will depend on its current and projected condition and its culture, but consider the following as you develop your plan.
Government assistance – If you haven’t already, consider one of the assistance programs available through the federal government, including the SBA.
Banker – Engage your firm’s banker in a dialogue regarding your credit facilities and the potential for expanding them.
Vendors – The entire business supply chain needs to work together to weather this economic threat. Proactive discussions with firm vendors can provide relief as everyone concerned works toward getting to the other side.
Bonuses and distributions – Most personal budgets are structured around a regular paycheck. Develop a plan that protects the regularity of this cash flow, while deferring bonuses and other distributions.
Temporary compensation reductions – As the threat to jobs and even firm viability grows, temporary compensation reductions should be considered. How to balance potential cuts across a diverse pay scale will depend significantly on firm culture.
Infusion of capital – As external funding sources are depleted, and other cost reductions fall short of providing needed relief, firm owners in highly stable organizations may consider additional capital contributions.
Voluntary LOA – Some individuals can afford and would prefer a “break” from the demands of their careers. Soliciting optional leaves can be a source of additional cost reduction.
Forced reduced schedules – As conditions worsen, forced reduced schedules and compensation can be considered.
RIF – Permanent reductions in personnel are painful but necessary steps to take for firms running out of options for firm survival.
Informal restructuring – When it appears that none of the above will yield sufficient relief, the firm’s creditors (banks, landlords, and others) should be approached with a plan to restructure the firm’s obligations as a means of avoiding a formal (bankruptcy) restructuring.
Formal restructuring – Finally, when all else appears to be ineffective, a firm can consider a restructuring through the bankruptcy courts.
Liquidation – If it is determined that the firm is not likely to survive, a plan for liquidation should be adopted to minimize the disruption to individuals and clients.
If these thoughts prompt interest in additional discussion, we are offering private, confidential, and free 30-minute discussion sessions from 3:00-5:00 (CST) Tuesdays and Thursdays. To reserve a slot, send an email to either of the below:
To read more on leading through law firm crisis, visit ManagingLawFirmTransition.com.