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Preparing a small firm for a recession

Many Canadian law firms were affected by the 2008 recession. Firms of all sizes laid off associates and froze hiring. Business dried up as corporate clients went in-house and reduced legal-spending budgets. Even litigation work decreased due to the dim prospects of successfully collecting against parties with no means to pay. 

Since 2008, the economy has enjoyed sustained growth. Given the cyclical nature of the economy and the unprecedented length of the recent boom, however, many experts anticipate an economic downturn in the near future.   

Larger firms can navigate economic cycles by diversifying their practice areas. While small firms may not have that luxury to the same extent, incorporating recession planning into an overall contingency plan is still important. Thoughtful planning will put those that have made the effort in a position to leverage economic down times to their advantage. The following are some things to consider in recession planning.   

Respect the pressures clients face

During a recession, individuals and businesses will have less money to spend on legal services. As such, they may look to doing things on their own (make their own will or separation agreement, self-represent in court, increase work in-house). 

In addition to reducing their appetite for legal services, clients may have difficulty paying bills. Consider alternative payment arrangements, such as installments, or create incentives for paying bills early. While it may not be appropriate to reduce your hourly rate, repackaging legal service offerings to better suit a client's needs may help you keep their business. 

Identify risk areas

Recession risk areas include those that have benefited from an overheated market or a bubble. In 2008, that was real estate. While domestic real estate has boomed in recent years, the startup and gig industries have also exploded. When a recession hits, work from these sectors may dry up.   

Invest in recession-proof practice areas

Litigation, bankruptcy and restructuring are commonly considered recession-proof practice areas. While litigation might not necessarily entail full-on lawsuits, there is still plenty of work in areas such as government investigations, employment and contract issues.  

Our aging Canadian population continues to make wills, estates, trusts and substitute decision-making a growth area. With the recent legalization of marijuana, many firms are developing expertise in that industry. Artificial intelligence and cybersecurity are also areas that will continue to see need no matter what the economic environment.   

For students and younger associates, developing skills in these areas in anticipation of an upcoming recession can make them more competitive in the job market. For lawyers with established practices, expanding into recession-resistant areas of interest will help keep a practice afloat during hard times.

While there will be practice areas that flourish during a recession, the way services are delivered will also grow. Unbundled legal services and contract work, for example, will continue seeing an increasing demand. This can allow you to tailor your services to meet your client's budget when they are faced with more stringent economic pressures.  

Target underserviced communities

Recession or not, there are many communities that lack access to legal services. Expanding into these communities may be necessary to get you through a recession. 

Reduce Costs

Reducing costs is not just for a recession; it is something that should be considered on an ongoing basis.   

Embracing new technologies is a great way of reducing costs in the long term. One of the most common examples in recent years is the expanding use of video conferencing. This saves travel costs while enabling face-to-face connection with clients and others remotely.  

Another option for cost reduction is to increase the use of contract lawyers rather than hiring a full-time associate. This allows you to allocate such costs directly to a file rather than deal with the ongoing expense of an associate.   

Recession planning should be part of your contingency planning. It helps strategically position your firm to harmonize with the economic reality of your jurisdiction.  Rather than reacting to changing economic circumstances, planning now will provide you with a path to withstand pressures during hard times.  

  • "The Solution to the Legal Profession's Severely Economically-Depressed State"

    Ken Chasse, member, LSO & LSBC.
    Of much greater impact on law firm production costs would be to pressure all law societies to sponsor the support services that will create the sufficiently large economies-of-scale that the affordability of legal services for middle and lower income people requires. That's the cause of the long- standing unaffordability of legal services problem, i.e., "there are no economies-of-scale in the practice of law." "Scale" means scaling-up the volume of production because in the manufacturing of everything, not all factors and costs of production vary in proportion with the volume produced. And so, the greater the volume produced, the smaller is the share of total costs that each unit produced has to pay for. As a result, "nothing is as effective at cutting costs as scaling-up the volume of production." As Henry Ford said, "if you want to sell your product at a lower price, make more of them." That's what support services methods of manufacturing all goods and services provide--the scaling-up of production volumes necessary to produce the economies-of-scale that are essential for affordability. Because of large-volume production of only a few kinds of services or products by each support service producer, the large revenue obtained can be applied to a very few factors of production. As a result, support services methods provide the greatest degree of specialization (competence) in regard to every factor of production, and the greatest cost-efficiency. For example, there should be a centralized, high volume, legal research service that provides legal research work in the form of legal opinions for every client's file. That's what LAO LAW (at Legal Aid Ontario) does for lawyers in private practice who service Legal Aid cases. By its 9th year of production (1988), LAO LAW was producing legal opinions at the rate of 5,000 per year. Lawyers use the service because it helps them make money, instead of billing Legal Aid for their own legal research hours. And, there are many other such support services possible, such as centralized law office clerical and administrative services. "Fasken InHouse" had a webinar seminar on June 28th to launch such a service. And, there are many other such support services that law societies should be required by their members to provide. That's why there is a "parts industry" for automobile manufacturers, and why all medical services are provided by means of an infrastructure that is made up entirely of mutually-interdependent support services. There are no "general practitioners" in the medical services professions. Even the family doctor is a type of specialist doctor--specializing in being the major in-take point for all of the medical professions' patients. The only other one is the Emergency Department at hospitals. But the legal profession has no counterpart. And so, no doctor's office provides all treatments and all remedies for all patients as does a law office for all of its clients. It uses only the internal resources of the law office because there are no support services (except law book companies). But the production volumes of law offices are too low for affordability. But no single law office can create the necessary support services. The legal profession has priced itself beyond the majority of society because it has law society benchers (managers) whose concept of a bencher's function is still that of the early 19th century, i.e., management by part-time amateurs. And so our law societies are like an elected government without a civil service. Such a government cannot govern. And neither can law societies deal with problems like the access-to-justice problem. And this century will bring many more such problems that law societies cannot solve because benchers bring nothing more to their work than the expertise of a lawyer. But the major problems of law societies are not legal problems. And law society management structure in its present early 19th century form, is inherently incompetent. And so lawyers are a major victim of their own law societies, because: no pressure means, no innovation--no innovation in law society management structure since they were created, and therefore, no innovation in the method of doing the work to produce legal services. The volume and complexity of laws means that people have never needed lawyers more, but we can't provide affordable legal services because our method of production is very, very obsolete-it's a cottage industry method instead of having evolved into a support services method as has every other manufacturer (except those having a monopoly such as the legal profession's law societies). Read this article for the rest of the solution to the unaffordable legal services problem, by, Ken Chasse, "Access to Justice--Unaffordable Legal Services Concepts and Solutions" (SSRN, Feb. 2, 2018), at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2811627 .