Would you like the good news or the bad news about practicing law during a recession? Financial strategist Brooke Lively has advice for weathering the coming storm.
A client emailed me this week asking, “I am thinking about opening another office, but with the recession coming, I’m not sure what I should do. Any advice?”
Unless you were admitted before about 2005, you haven’t practiced law going into a recession. A huge number of lawyers are facing something they’ve never seen before. And if you’ve gone out on your own and established your own firm since the recovery, you don’t have older partners to rely on for help and advice.
So, I’ll step into the breach.
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What Should You Know About Practicing Law During a Recession?
I have some good news, some bad news, and then I’m going to give you some more good news.
First the Good News
The legal industry is, to some extent, recession-proof.
People are going to continue to get divorced, die, and need their will probated. They will continue to have accidents, try to cheat the government on taxes, commit crimes, get evicted, screw up medical procedures, and fire people (with or without cause). Their companies will do something stupid and get sued, and they will need to declare bankruptcy. Basically, life will go on, which means people will still have a need for the law and for attorneys.
Here’s the Bad News
Just like with the pandemic, there will be a slowdown.
People will hunker down. Money will be a little scarce for a while. The courts won’t close down, but the divorce rate will drop for a bit. And people might not be so quick to file lawsuits because they won’t have as much money.
Things will get tight. You need to prepare because the recession is coming.
Here’s More Good News
The slowdown will turn around sharply.
Some people call it the boomerang effect. I think of it as pent-up demand.
So, while people might not have extra money to file for divorce at the beginning of a recession, part way into it they will want out of the marriage so badly that they’ll find the money. Then, hold onto your hats — divorce attorneys’ phones will be ringing off the hook.
A bust is always followed by a boom.
It is the natural order of things. Unfortunately for now, with everything we did to try to keep the economy afloat during the pandemic, the bill has come due. We are headed for rough waters.
So What Can You Do to Prepare for the Recession?
What did I tell my client about opening a new office?
- Pay down high-interest revolving debt. Revolving debt is things like credit cards and anything else that does not have a fixed payment amount each month and no set date when the debt will be paid off. These interest rates often fluctuate and will continue to rise and rise quickly.
- Stop overpaying on low-interest loans. I talked to a prospective new client yesterday who is trying really hard to get out of debt. That includes paying off a 2.3% SBA mortgage she has on her building. Stop paying that off and hoard the cash.
- Make sure you have a Line of Credit (LOC). Think of a LOC as free insurance. Talk to your banker and find out how much they will give you. Do it now while you are still riding high on all the backlog from COVID and your firm is doing great. Banks only want to loan money when you don’t need it. So ask now. And don’t worry about rates going up. That is something you can’t control, and I promise, a LOC will always have better rates than your credit cards.
- Start looking at your expenses. Which ones don’t you really need or don’t give you a good return on investment? Check your contract dates — when can you cancel things? Calendar dates so you don’t get stuck in an auto-renewal.
- Look at your team. This might seem mercenary, but for the past few years, we have been dealing with a very tight labor market. As we move into a recession, people will lose their jobs. This means you might be able to upgrade your team. You won’t be able to save money, but you might be able to get better quality than you currently employ.
- Stockpile cash. The more cash you have the easier it will be to weather the storm.
Had you known the pandemic was coming (taking out the illness and court closures) what would you have done to prepare? The COVID shutdown was a short yet deep preview of the coming recession. Apply the lessons you learned from it and use them going into this recession.
Head Into Next Year With Your Eyes Open
The best advice is to be prepared, go into the next year with open eyes, and don’t be afraid to make quick decisions.
Hanging on too long — to expenses, to people, to the old way of doing things — can sink your firm.
Being flexible and open-minded can help you get through the recession to the boom on the other side — and it can help you come out stronger. Ideally, you want to be ready to take advantage of the coming opportunities.
Illustration ©iStockPhoto.com
Read more from Brooke Lively:
“Law Firm Overhead — What It Is and What It Isn’t”
“How Are Law Firm Owners Paid? Total Compensation vs. Salary”
“Funding Growth: Are You Starving Your Law Firm?”
