Which Law Firms are Adapting Well During Covid-19 and Why?

Through the first few months of 2020, the international economy was booming. Law firms, in particular, were experiencing record-setting levels of demand after over a decade of low growth. There was much to celebrate.

 Then, of course, the COVID-19 pandemic hit, followed by associated mandatory shutdowns and the deep economic impacts these shutdowns caused. The economic implications of the shutdowns were unevenly felt as social distancing and other efforts to mitigate the spread of the virus became a norm. While the economy has rebounded in significant ways in the later part of 2020 and looks to continue on the path to recovery, new norms are becoming more established.

 As when faced with any economic challenge, many law firms quickly adapted to the fast-changing pandemic economic environment. In examining firms that have been most successful in navigating these turbulent waters, the profile of a strong firm can take many forms but all strong firms have certain characteristics or have taken similar steps.

 Who Are You and Who Do You Serve?

 Every law firm is shaped by their core practice expertise and the clients they serve. Law firms that are thriving during the pandemic have in-demand practices and clients that are themselves healthy and therefore able to pay legal bills. For firms that are struggling, oftentimes, the issues they face come from low client demand or from practices that have been deeply impacted by the pandemic. Every law firm has a unique mix of practice expertise and clients, but generally speaking, we are seeing some practices and clients perform much better than others.

 Practice Areas: Law firm practice areas have felt the effects of the pandemic differently. While some areas have seen a drop-off in demand, others, predictably have experienced a large up-tick. While some similarities exist between the pandemic economic downturn and past economic downturns, there are many parts of this pandemic that are unprecedented and present unique challenges for law firms.

         - Historical data has shown that litigation has traditionally seen steady demand in good and bad economic periods. Historical trends, however, cannot account for a period when courts have closed or are scheduling much fewer hearings, indefinitely pausing all but the most urgent cases. While courts have taken steps to utilize virtual meeting software, the already over-taxed justice system has not been able to replicate in-person court proceedings.

 As a result, litigation practices have experienced a sharp decrease in demand as litigation has stalled with only a few bright spots. Litigation concerning contract provisions has increased as struggling businesses look to cancel contracts (e.g., through force majeure clauses) or to compel customers to honor agreements (e.g., supplier agreements). Some insurance litigation has increased, too, as businesses have made claims against business interruption policies.

 Apart from some specific areas of demand, litigation-heavy firms have seen existing client work slow and new work has not materialized as clients hold on litigation or find alternate routes to resolve disputes. There is uncertainty about the duration of this down-turn given it is unclear when in-person courtrooms will be allowed to re-open. There is some sense that when courts are able to return, pent-up litigation demand will ramp-up quickly.

 -   With the economic turmoil roiling certain industries, firms with strong restructuring and bankruptcy practices stand in a strong position to meet client demand. Businesses of all sizes and across industries have struggled with pandemic closures and significant shifts in consumer demands. More businesses are taking steps to increase access to capital through refinancing or restructuring debt. Given the number of businesses taking these steps, firms with restructuring experts and the ability to shift attorney resources to support restructuring matters have found that this practice area has helped to make-up drop in demand elsewhere.

-         Transactional and capital markets practices have seen a large shift in M&A activity with investors concentrating on smaller transactions such as roll-ups and on middle-market targets. For law firms with an M&A focus, this has resulted in lower deal values even as volume has been somewhat consistent over all. Early data show that deal volume saw a quick drop and then rebound over the summer with an even stronger trend headed into the fourth quarter of the year. Traditionally, recessions would have hit this area of practice hard, but given how unique this economic downturn has been, especially for clients that have access to capital markets, demand has been steady to strong, especially in the healthcare space.

-         Healthcare and regulatory practices have seen steady demand as clients in these industries seek legal services as they navigate the pandemic economies and high demand for healthcare services. Hospital alliances, acquisitions of new healthcare technologies to support new offerings like telehealth, and new government regulations such as the CARES Act, have driven strong demand for healthcare practices across the legal sector.

Clients matter: Client demand drives practice group success. Firms with a diversity of practice focuses and who support a client-base in a variety of industry areas are on solid ground during this pandemic. Clients are central to every firm, but this has become even more-so the case in 2020. Traditionally steady client industries like energy production, manufacturing, travel and hospitality, and brands with products that cannot be consumed at home are struggling in the pandemic economy because of shut-downs and social distancing requirements. On the other hand, technology clients, or those into home consumer goods and services are having a strong year. Firms supporting businesses with access to capital markets and secured lending have also not felt the downturn in nearly the same way.

Many firms and individual lawyers have carved out industry-specific expertise niches tied to a core group of clients. Given the uneven impact of the pandemic-related recession and the heavy toll felt by certain industries, law firms without a diverse client base are also susceptible to feeling the pain of this recession disproportionally compared to the rest of the legal industry.

Mind Your Business

 During the pandemic, information and certainty have been in short supply as law firms grapple with economic uncertainty and make decisions about the future. In the early days of the pandemic, there was no doubt a sense throughout the legal industry that decisions could possibly make or break the firm. Thankfully, for most firms, that dire feeling subsided as the economy started to get its footing and many law firms were able to make adequate adjustments to steady their balance sheets. Cashflow and the firm’s cash position have been critical metrics in 2020 and firms can and have taken steps to build a solid foundation for the future in these regards.

Pricing. To remain competitive and financially sound, law firms must understand their costs and accurately price their services. There has been a strong movement towards smart pricing, but many firms continued to resist the move thinking that they did not need to change their pricing practices because clients were not demanding it. Well, clients are now demanding it.

Implementing better pricing processes and software to help law firms accurately price their work is easy and a critical step toward ensuring financial success during and after the pandemic. Accurate Legal Billing (or ALB) allows firms to better understand costs, accurately track time spent on matters, and produce accurate bills that meet client billing requirements. Improved clarity on cost helps clients to budget and often enhances the law firm-client relationship by growing existing trust.

Metrics for Firm Management. Law firm managers require access to key performance metrics, performance data, and economic modeling as they plan and make financial decisions. Without access to this information, making these critical decisions becomes much more difficult and uncertain. Using a tool like ALB provides law firm managers with real-time data, presented in an easy to use dashboard, providing them with a picture of firm performance. For example, firm managers can use this data to identify practice strength relative to how other practices are performing or identify growth opportunities with existing clients. These metrics can also help with assessing lawyer productivity and identify opportunities for training. Additionally, ALB can help firm managers track accounts receivable and realization, two crucial metrics in determining the firm’s cash position and for monitoring cash flow.

Billing, Payment Plans, and Cash Collection. Paying a legal bill within a set time frame has become more of a problem for more customers due to economic pressures. Not surprisingly, this is also a large problem for law firms in a few ways. First, outstanding balances cause cash flow issues and make budgeting unpredictable. Second, law firms are typically not in a position to offer payment plans. Finally, the longer a bill goes unpaid, the lower the likelihood is that it will be paid in full. Considering these issues, law firms must find a way to make paying bills easy for clients. Recent studies have indicated clients are interested in payment plans and law firms should be interested, too. Cash in the door, even if the bill is not paid in full, is better for the bottom line and for firm budgets than a load of outstanding invoices. Further, the payment plan option offers some goodwill to clients who likely do not want to damage the relationship with their law firm, but may simply be facing a cash crunch of their own.

Firms can implement a billing solution, like ALB, that can be built to accommodate any firm’s billing practices. In addition to these new pandemic billing considerations, ALB’s core functionality is designed to ensure your client will accept your invoice without requiring rounds of edits and negotiation. Minimize the risk associated with outstanding invoices by using a tool designed to improve your billing process.

The Adaptive, Durable Law Firm

 Law firms have not always been seen as the most dynamic of entities, but the COVID-19 pandemic has proven this to be a misconception. There is, of course, a spectrum of law firm success during this time. Confident, forward-looking law firm leaders have been able to plan effectively and navigate the turbulence, reshaping their firms for what is next. Firms that are succeeding during the pandemic have developed a diversity of practice areas and expertise, have clients in a variety of industry areas, and have a solid, information-based business plan focused on maintaining a strong cash position. These elements are durable and can support firm success in good and bad economic times. Good times will return, and by focusing on these key areas, law firms can be poised for continued success and growth when that time comes.