We’re managing our law firm in a Recession…how do we panic “properly”!

?

?

Recently I watched a YouTube video that examined the reality behind Japan’s official “zero homelessness” statistic.

?

I was drawn to watch it by the apparently huge gap between the picture painted by the official position, what we know to be the case in Australia and New Zealand through our own eyes, and what we see portrayed in many other countries via a variety of media.

?

The video clearly demonstrated that the Japanese statistics are in effect a brutal lie.

?

That sad reality aside, something that was mentioned during an interview with a “non-existent” homeless person was that real wages in the market sector he formerly worked in had not increased in about thirty years in Japan.

?

The impact on that man was that he had to work longer and longer hours per week to survive in the changing economy, and eventually he was forced to drop out of the workforce, and live “on the street”, despite being willing and able to work.

?

I saw an immediate connection with many smaller law firms in my target market, with a critically important twist.

?

In many Australian and New Zealand practices actual wages have been rising (irrespective of what data on averages may say), pushing up the expenses in running a specialised professional business, and many other expenses have been rising too, but revenues have not been rising fast enough in response.

?

Many managers naturally feel disinclined to increase prices, fearful that a significant percentage of potential new instructions will not proceed as a result, further tightening revenues. (The fact that prices can be improved without scaring the wrong people off is a vital subject for another day).

?

In many other businesses this picture would most certainly reduce profitability, and eventually force many to close.

?

However, in smaller law firms there very often wasn’t any genuine profit at all before the proverbial hit the fan, and total remuneration for some owners is less than remuneration of comparable employees, so a deteriorating relationship of expenses to revenues sees the screws tighten very rapidly and painfully indeed.

?

Injecting cash to keep the firm alive (for a while) by borrowing from the usual external sources, or by requiring owners to inject capital, may for many no longer be an option.

?

Robservation: The reality of employment law in 2024 is that employees do not lightly get forced to drop out of small law firms per se…but owners do!

?

One of the challenges of managing one of the many thousands of smaller law firms in Australia and New Zealand is that even if overall inflation in the national economy starts to slow, local inflation within the business may not slow at all and may even increase for some time.

?

A Recession may technically be over (or as in Australia, the economy may still be teetering on entering Recession), but the local financial pain and stress continues.

?

Fairly traditional (and often just “tweaking”) responses that managers in these firms have pulled out of the hat seemingly forever will only achieve so much…and a time will come when the inexorable creep of expenses upwards is too great to maintain a financially healthy distance from revenues, and there is simply no “wriggle room” left.

?

Almost always in these situations revenues are not rising at all, or are, but by no means enough.

?

Often, decisions are made to cut costs without enough careful consideration of where the business will be left after the initial survival period thus “bought”.

?

Don’t get me wrong, there are sometimes costs that can be adjusted, but not in panic in a way that can:

?

·????? do real damage to the ability of the firm to function the way it needs to, and

·????? be merely a distraction, that completely distracts the firm from making bigger, tougher, decisions that are begging to be made for better long-haul outcomes.

?

Good managers will recognise before it’s too late when the time for “tweaking” has passed.

?

At all times communicate thoroughly to all what must be done and why.

?

If current marketing efforts cannot be changed sufficiently quickly to impact revenues in the short term, the ratio of direct fee-producers to owners may need to be adjusted to reduce wage expense, while spreading their work around and improving morale of remaining team members who had too little to do and were going nowhere with their skills development and professional satisfaction.

?

Until then, be careful not to move any team member’s remuneration upwards without clarity on all sides about very significant improvement in valuable contributions to the business that justify it.

?

Will this have consequences? Yes, almost always, but hardly consequences worse than the firm being forced to close, or the owners being forced to sell at a poor time, because it simply ran out of cash through avoidable structure or performance issues.

?

So, what to do?

1.???? Consider if you should get truly experienced professional help.

2.???? Brainstorm a list of all potential substantial actions that the firm might take…N.B. They need to be substantial because all the tweaking actions should already have been implemented, mostly without enough impact on chances of survival. Involve all appropriate team members.

3.???? Get a truly experienced professional to review the list and be prepared for questions that seek information needed to inform their advice to you of key areas to make serious changes in your structure and operations.

4.???? Take their advice and implement it…immediately...keeping in mind my advice above to always communicate thoroughly to all what must be done and why.

?

Will it be painful?

?

Almost certainly, but not nearly as painful as 99.9% of the alternatives!

?

Will it be expensive?

?

No, the modest amount invested will be the best value investment the firm has ever made…guaranteed!

?

Your firm will have the best possible chance of surviving the current Recession in New Zealand, or the anticipated one in Australia, emerging on the other side financially healthier, and less stressed, than ever before in the business.

?

Next step…

?

Make contact today with a truly experienced expert!

?

All the very best for a superb financially healthy, stress-reduced, practising future!

My teaching, mentoring, and training platform is?LearnDesk

Recorded webinars, live webinars, practice management resources, start-up support, mentoring, useful planning documents, regular live video calls, all channelling long and deep experience supporting your practising success.

Follow me on LinkedIn

?

N.B. If you’re reading this Robservations newsletter but are not yet a subscriber you can subscribe with a single CLICKand ensure you’ll see all future issues.