By Jim Calloway

Last month I covered practicing law in tough economic times. We’re going to stay on that topic for one more month. But we are going to focus more on a few ideas that are good for good times as well as hard times.

FOLLOW THE MONEY

The famous advice of “Deep Throat” to Washington Post reporter Bob Woodward about the Watergate scandal should be followed in your law office as well: “Follow the money.”

Reviewing your internal financial reports regularly is an important part of maintaining the firm’s profitability in tough economic times. Monthly reviews of your financial reports may no longer be sufficient. Many firms will be well advised to switch to either weekly or bi-weekly review. You would never allow a client to operate a business without checking their inventory, bank balances and financial statements very regularly. Why would your law firm have any lesser standard?

An increase in accounts receivable is the first bellwether of a recession’s impact on your firm. It may be that a list of who is delinquent with their accounts, including the balance owed, should be distributed to the lawyer assigned to their matter so it can be handy at their desks. When a client calls seeking additional services or wishing to inquire about the status of their matter, it is totally appropriate to bring up the fact that the client is delinquent in their agreed obligations to pay fees to the firm.

Cutting costs is often difficult in a professional services firm of any kind. But it may be that increasing revenues is also difficult during bad times and so, this is an area you must consider. Just be careful, as the saying goes, to only cut fat and not muscle, particularly “muscle” that produces revenue.

Look at each item of your monthly and annual overhead and determine how important it really is. Could the firm retreat be held in a borrowed cabin or spare room provided by a client rather than in a location where costs will be significant? For some, the idea of doing things “on the cheap” impacts their self-image and their view of what a professional lawyer’s life should be. It is helpful to stress to everyone that some of these measures may be temporary and that all of them will increase the profitability of the firm and the potential compensation for the partners.

If that doesn’t work, just look the other lawyers in the eye and tell them to quit whining and be happy they have paying work to do.

Remember that your staff is likely having tough times too. Make sure you have obvious and sufficient checks and balances on the funds you receive so that no one is tempted to help themselves to money they are not entitled to receive. Some firms may even resort to checking out office supplies rather than having the supplies open for anyone to take. This will be taken poorly by some. Stress that you are improving “the system” and that there is no suspicion about anyone.

Many law firms now have two staff members participate in opening the mail and identifying incoming checks just to have that extra level of security.

Larger firms have bonded professionals in their accounting department to handle financial matters. In a smaller firm, it is important that all bank statements are delivered to a supervising attorney so that they can be opened and reviewed for questionable items before anyone else in the office has access to them.

We certainly appreciate that many of you have loyal assistants that you trust with your money and would trust with your life. We do not intend to impugn the integrity of those individuals. However, you may recall the words of a former United States president, “trust, but verify.” To the extent that everyone in the firm is aware of your stringent financial controls, there is lessened temptation to do something wrong. If everyone recognizes that the firm is fairly loose with the way money is handled, the opposite is true.

If your firm has a fairly lax purchasing structure, perhaps you need to consider whether every lawyer should be able to make purchases without first having the purchases approved by others. Certainly we all know what we want and the things that we perceive that we need. That treatise may be important and helpful with the current matter. But if you haven’t needed it prior to this particular matter, would it be better to go review it at the local law library? Having everyone justify every purchase to others in the office will no doubt result in savings for the firm.

CLIENT SCREENING

Canadian Practice Management Advisor Deborah E. Gillis recently published the article, “In a Tough Economy, the Importance of Effective Client Screening in Law Practice Today.” The article is online at tinyurl.com/dle4xx. I strongly suggest that you read this entire article.

Careful selection of clients and declining matters that will be difficult or unprofitable should be an important aspect of your firm’s business plan for the next two years, and perhaps from this point forward.

The client who cannot pay an adequate retainer or who has a type of matter that your firm has not handled in several years presents even more of a red flag in bad times. (Although taking a new matter from a new client without a retainer should raise a red flag at any time).

ARE LAY-OFFS AHEAD?

Lay-offs are difficult and painful to manage. But the uncertainty created by postponing the inevitable is bad for office morale. If you have to reduce staff, do it earlier rather than later. Then try to reassure the remaining staff that you believe you have made the needed cuts and their jobs are secure.

It may be that alternative arrangements could be accomplished.

I recently had the opportunity to participate in a podcast panel discussion, “It’s the Economy, Stupid” with a stellar group of co-presenters including Mark Powers (president of Atticus), Mark Chinn, William C. Cobb, Professor Kamran Dadkhah and Thomas J. Ahrens. Typically the Atticus coaching firm makes these podcasts available to its graduates, but this one is available to anyone. You can listen to this one-hour podcast on your computer for free online at tinyurl.com/csalxh.

One of the lawyers participating in that podcast noted that when layoffs became inevitable at his law firm, he decided to discuss it with everyone. When you think about it, that was a bold and courageous move. As a part of the discussion, the associate lawyers and staff came up with a proposal that everyone should take a 20 percent pay cut in return for not working on Fridays. So now on Fridays in this law firm, only the partner and the receptionist are at the office. Obviously this probably cannot continue for an extended period, but the fact that everyone agreed on this approach and everyone is still em-ployed has certainly been a boost for office morale, given the circumstances.

Another Canadian practice management expert, David Bilinsky, is against the current trend of law firm layoffs.

“Don’t start laying off staff,” he writes. “[T]hat not only reduces your income earning ability, it works against the firm’s culture (sending a message to every person to head for the lifeboats) and that works against morale – and you will need good staff to carry you through the tough times.” (“Practice Talk - Strategies for Surviving a Recession” on the Canadian Bar Association Web site at tinyurl.com/5ufdxg.)

CUTTING THE MARKETING BUDGET

Bad times are not the times to cut your marketing budget, although re-examining how you are spending your marketing dollars may be a fine idea.

In my opinion, one rule of thumb for all but a few should be: More on the Internet, less on Yellow Pages.

Every law firm or lawyer in private practice must have a Web site. A large segment of our society now uses the Internet to search for every type of service they need, including legal services. This will only grow in the future.

In that regard, if you missed my article in the Nov. 8, 2008, Oklahoma Bar Journal “Web Site How-To Tips for the Small Firm Lawyer,” it is now online at tinyurl.com/6cfcm4.

OUTSOURCE YOUR FINANCING

As I noted in last month’s column, in a bad economy, the possibility that clients will not be able to pay their fees is dramatically increasing. One of the logical conclusions of this is that every law firm should accept credit cards. The expense of a very small service charge is now almost inconsequential compared with the possibility of not getting paid at all. Accepting credit cards is basically outsourcing your financing. If a potential client has no available line of credit on any credit card and cannot convince any friend or family member to loan him or her money for attorney’s fees, do you really want to become the financing agent for the potential client and bear the risk of not getting paid?

LOOK FOR THE SILVER LINING

Oklahoma Gov. Brad Henry in his Feb. 2, 2009 State of the State address noted that the Chinese character for “crisis” also denotes “opportunity.”

There will certainly be some areas of legal practice that grow in tough times, while others shrink. Due to some of the financial scandals, it is clear that there will be lots of work for securities litigators. Many attorneys who have ceased doing bankruptcy work will be starting to do that type of work again. It may be that many take a second look at alternative dispute resolution given the cost of litigation.

Just recently, Ron Baker published an essay on Recession-proofing Your Firm. He is a true expert on the billing methods and profitability of professional services firms. He has written numerous books on alternative billing and is a speaker in high demand. “For now, the current crisis is an enormous opportunity for firms to help their customers grow their businesses,” he states.

He also believes that coping with a recession is more than cutting costs or cutting staff. He says, “Don’t take a hatchet to costs. No business has ever cut its way to prosperity. Some costs should probably be increased now, especially innovation in new services, talent, and retention marketing.”

Baker’s essay, Recession-proofing Your Firm, is online at tinyurl.com/dba4ak. I wish that all of you would take the opportunity to read his suggestions for positive proactive change and perhaps be encouraged about some of the opportunities for you to come out of these “tough times” with an even more vibrant and profitable law practice.

Hopefully things will not get as bad as the worst scenarios that can be imagined. But just remember that you can always revisit these two articles from the first two months of 2009, either in the bar journal archives at www.okbar.org (where the links work) or in the stack of Oklahoma Bar Journals you have neatly organized in your office.

Originally published in the Oklahoma Bar Journal Feb. 14, 2009 - Vol. 80; No. 4.