“If you throw a frog in a pot of boiling water, it will hop right out. But if you put that frog in a pot of tepid water and slowly warm it, the frog doesn’t figure out what is going on until it’s too late…” Stephenie Meyer
Much like the boiling frog, if a law firm’s partners don’t recognize that the water is heating up — and not in a good way — they too may face a painful demise.
For some law firms COVID-19 has resulted in an immediate and apparent crisis; for others (e.g., bankruptcy and employment law firms) business has rarely been better.
Thousands of firms find themselves somewhere in between, considering what the damage associated with the virus will have on their firms.
Here are three specific areas that should be examined and routinely monitored in order to accurately assess what the future holds.
- Client satisfaction and stability– Any significant decrease in the depth of relationships with key clients, or the loss of any material number of clients is reason for heightened attention. The percentage of revenue associated with key clients, as well as the quantity of clients served should be closely monitored. Too many eggs in one or two baskets is a warning sign.
- Personnel unrest or discontent– A negative shift in the way lawyers and staff feel about the firm is reason for further study and concern.
- Economic stress– declining financial performance is an indication of a firm that must take steps to strengthen operations or face the prospects of serious challenges to its survival. As obvious as this may seem, it is puzzling how often firm leadership manages to ignore economic issues. Several indicators to watch include:
- Falling revenue per attorney
- Declining productivity
- Failure to meet monthly budgets
- Slower turnaround on payables and receivables
- Decreased partner distributions
- Increased reliance on debt
All of the above are signs of a potentially unstable platform. In the end, the impact of financial decline is the decreasing ability to pay partners fairly for their contributions to the firm. As partners make less and less for the same work, dissatisfaction will be followed by departures.
In summary, the sooner potential challenges to law firm stability are identified, the more probable damage can be limited and long-term fixes can be implemented.
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.