The Benefits of Planning Ahead AJS

Ebbs and flows, highs and lows – the waves of doing business in today’s busy and often volatile economy.

It’s referred to as the “economic cycle”, which is part and parcel of the larger business cycle that goes through periods of economic growth before the market enters a period of contraction. A sort of, what goes up, must eventually come down scenario. It’s business 101. 

And put into context this means – at least as far as South Africa is concerned – and according to Deloitte – 

“For near- to medium-term growth, South Africa’s prospects remain constrained due to subdued export prices, low demand, a weaker rand, and the mentioned supply-side constraints to growth, together with high sovereign credit risks that increase borrowing costs and limit investment and growth. High domestic interest rates also dampen consumption expenditure growth.

However, the domestic growth outlook may turn around and improve if loadshedding is reduced and rail and port infrastructure constraints are resolved, given the results of initial reforms in these sectors, and if cost-of-living pressures are reduced due to moderating inflation and potential rate cuts toward the year’s latter half.”

Which means instead of being in an expansion or growth cycle, South Africa quite naturally is in a period of contraction. 

Looking across the pond (in the U.S.) and according to J.P. Morgan – 

“We expect real GDP growth to walk the line between a slight expansion and contraction for much of next year, also known as a soft landing. After tracking to a better-than-expected 2.8% real GDP growth in 2023, we forecast a below-trend 0.7% pace of expansion in 2024.”

Periods of contraction seem to be on the cards for countries around the world and this means less spend, less output, less service delivery. In fact a period of contraction according to the Federal Reserve Bank of St Louis is 

“a period when economic output declines. During this phase, the economy is producing fewer goods and services than it did before. When fewer goods and services are produced, fewer resources are used by firms—including labor. As firms decrease their output, they will hire few or even no new workers and often lay off some existing workers. As a result, when output falls, employment tends to fall as well.”

That sounds great and all and an economics lesson is exactly what we all signed up for (said sarcastically) – but what does this have to do with law firms?

Future proofing your law firm

Well, a lot actually.

With the above information in hand, we understand that consumers will – in times of contraction – spend less, choosing not to or not being able to purchase flashy new cars or luxury goods, not looking to move houses, not getting themselves embroiled in protracted and costly litigation seeking settlement of matters out of court instead. Generally being more risk averse. Choosing to stay on the safe side, where they cannot incur any unnecessary expenses. 

This means that certain areas of legal practice may naturally fall to the wayside as a result. But the trick is to provide a balanced service offering so that your law firm remains relevant no matter what economic cycle the economy is going through. 

That means planning for a possible contraction/recession period by undertaking the following steps – 

1.         Practice a balanced approach – just like the economy goes through cycles so does a law firm. During growth and upturns in the economy where there’s more spend, and GDP is on the rise, the conveyancing department is likely to see an uptick in transfers. Likewise in periods of contraction, when spend is low, law firms are likely to see an increase in family law matters and debt collection. Everything has its place and its time. By having a law firm that speaks to and can offer service delivery in a variety of matters you are able to service clients regardless of the economic cycle of the time. This also means ensuring that each department is provided with the required supporting legal tech to effectively serve clients more effectively, more efficiently and in less time.  

2.         Diversify – we spoke about this in our article Innovation and the Law Firm but diversifying – at least in our opinion – means innovating and this can look like perhaps providing ancillary services around your focus areas. For example, RAF Attorneys could provide scheduling services for doctor’s appointments. Or it could be client engagement apps where clients are provided with an interactive, self-serve type portal with real-time dashboard applicability. Using technology in a way that attracts clients in a completely out-the-box kind of way. Perhaps diversifying is contracting lawyers across different jurisdictions to collaborate on a particular matter that then needs access to real-time case information to view and provide updates, collaborate internally and externally, and track the work that has been done for accurate billing and invoicing regardless of where or how they work. Cloud-based software provides the accessibility and security needed to implement these new revenue streams without increasing their current resources. Diversifying could also simply mean looking into expanding services into “recession-proof” practice areas such as civil litigation, bankruptcy, debt collection, or family law. Whichever way you choose to go remember this – diversifying allows your firm to deliver more services in more ways to even more clients, resulting in greater and more diversified revenue streams.

3.         Be smart about expenses – being smart about your business expenses means being aware of costs during good times as well as bad. Law firms must take regular inventory of their excess expenses. They should regularly analyse their budget in order to get their law firm in order economically. What is your net income? What are the unnecessary expenses in your firm? Who are your top performers? How can you increase your top and bottom lines? By taking an in-depth look at your law firm and its parts, you can better determine which factors are key to your firm’s overall performance and success; and which factors can be eliminated in order to run lean before the next crisis comes around.

4.         Collect on receivables – every law firm that has ever billed a client has issues with accounts receivable. Most law firms have clients that are behind on payments or, worse still, have clients that have never paid at all. But with AJSs integrated billing function – regular, easy-to-understand invoices are delivered to your clients, so they always have a timely and current bill. It’s also easy to identify delinquent clients for quick follow-up. When you do, offering some clients a discounted payoff is beneficial, enabling you to collect something when you’d otherwise collect nothing. Using technology to act quickly and not allow these overdue balances to linger helps you recoup some losses.

5.         Invest in the right technology – this may seem trite. We have spoken about investing in the right technology countless times. But it’s worth repeating for the very fact that it’s true. That it’s important. That is obvious. Quite simply put by Legal Talk Network“By being forward-thinking and investing in the right technology for your firm, you can save money, be more efficient, better serve your clients and better focus on the day-to-day activities that contribute to your bottom line.” And the truth is, in an economic downturn, legal technology is crucial for the very fact that you can do more in less time and you can do so from any location. Because if attorneys and staff members cannot focus on the work that drives revenue for a law firm and instead have to focus on manually providing case updates, time tracking, and collaborating, that law firm is more likely to struggle in the face of economic disruptions. But if you employ the right legal tech, such as document and contracts management, time recording, FICA management, integrated process automation, a user tasks and notification tool all as part and parcel of a real-time web-based solution, you will be well on your way to meeting all of your clients’ needs, especially during economic downturns. 

6.         Don’t reduce headcount, build your culture instead – during any economic upheaval it’s tempting to streamline your workforce. Cut the fat, so to speak. But that would be a mistake. Your team will be the ones who will steer you through the storm. So, instead of a knee jerk reaction, focus on creating a strong culture your people believe in and are prepared to defend.

This is not meant to be a doom and gloom article. G-d knows we have had plenty of those – memories drift back to COVID. 

The truth is periods of contraction – or recession, perhaps we should call it what it really is – happen. They are inevitable, just as periods of growth are. Remember – what comes up must eventually come down. And vice versa. It’s the nature of things. The yin and yang of life. And of the economy. 

The purpose of this article is to future proof your law firm so that it operates no matter the economic conditions. So that it remains relevant regardless of outside events and that it thrives no matter what. After all, it was John F. Kennedy that said – 

“The time to repair the roof is when the sun is shining.”

So, think of this article as your “sunny day” and go repair your roof long before the proverbial rain has a chance to dampen your prospects!

To find out how to incorporate a new tool into your existing accounting and practice management suite, or how to get started with legal tech,  feel free to get in touch with AJS – we have the right combination of systems, resources and business partnerships to assist you with incorporating supportive legal technology into your practice. Effortlessly. 

AJS is always here to help you, wherever and whenever possible!

(Sources used and to whom we owe thanks: Investopedia; Deloitte; J.P. Morgan; Federal Reserve Bank of St Louis; Legal Talk Network; Boss Digital and LEAP).

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