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.

Kevin Cheung

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.  

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