The headlines are beginning to paint a pretty clear picture: many law firms worldwide are taking more aggressive action in response to their COVID related economic challenges.
As part of an effort to create a cash buffer to weather current or anticipated pressure brought about by the virus, firms are focusing on containing revenue loss while decreasing cash outflow.
To decrease costs, firms are addressing three areas:
- General operating expenses
For the last two decades law firms have been modestly but consistently trending to a smaller space footprint. The trend has been driven by a combination of technology-related capabilities and efficiencies, economic realities, and changes in work styles. Recent experiences, thanks in large part to “stay-at-home” orders and decisions to remain socially distant, have created a heightened awareness of how much less space law firms actually need to operate.
We’re seeing firms proactively explore options as it relates to significantly reducing the fixed costs associated with physical space.
Given that compensation and benefits represent a significant percentage of a typical law firm‘s costs, it was not surprising to see firms enact furloughs, temporary compensation reductions, conversions to part-time schedules, and the suspend of hiring initiatives. As the dust begins to settle, we’re witnessing many of these moves morph into permanent changes.
More and more reports are finding their way into the news, reflecting an increasing focus on overall expense reduction and investment deferral. The prevailing attitude seems to be, “if we don’t have to do it right now, let’s not.”
A June 25, article in the ABAJournal had an interesting summary of actions being taken by law firms. The material includes results of a recent Altman Weil survey, which further describes the changing mindset of law firm leaders. I recommend it.
The fact is that wise law firm leaders are taking steps today that are designed to cushion the impact of further decline. There is no single template for addressing uncertainty, so the challenge is to accurately analyze options and develop a strategic approach to the next six, eighteen, and twenty-four months that is consistent with your firm’s vision and the shared aspirations of your partners.
What is your firm doing?