Surviving the Pandemic: Your Firm’s Financial Well-being
Ensuring your physical health and that of those around you is critically important during the COVID-19 pandemic. This should be your first order of business.
Protecting your firm’s financial health is also essential to ensuring that your practice survives the crisis. It is important to think about what you can do now to make sure you can continue to operate your business once the crisis passes.
The following are some practical tips and actions you can take to protect your financial health during these uncertain times.
According to a survey by the Canadian Federation of Independent Business, roughly one-third of small businesses in Canada are unsure they will be able to reopen their doors after COVID-19. Law firms are businesses too, and some may unfortunately fall into that one-third.
Small firms are not the only businesses struggling. Baker & McKenzie has already closed 11 offices in North America due to the pandemic, and two national firms in Canada recently announced substantial pay cuts for their employees and even greater cuts for partners. Other national firms are considering taking similar action.
This is not just a Canadian problem. In the UK, the Law Society has reported that 55% of barristers’ chambers believe they will not survive six months without financial aid. This rises to 81% who do not think they could last a year. The criminal bar expects to be hit even harder, with 90% believing they will not survive a year without support.
It is important to start thinking now about how to protect your firm, clients and personnel.
Prepare for the Worst
Running through “what-if” scenarios can help you prepare. Ask yourself:
- How can your practice can meet its financial obligations if revenues drop significantly and do not recover for several months? If 30% or 50% of your fees disappear because clients have trouble paying their legal bills, how will you pay your bills, your staff and yourself?
- What will you do if a major client goes out of business while owing you money? If your couriers, IT and HR providers and e-discovery service are sidelined, will you still be able to advance your clients’ causes and bill for your work?
If you have not already done so, it is important to contact your bank.
Inform your account manager about the impact of the crisis on your practice and mitigation steps you are taking.
Some banks have established special loan programs in response to COVID-19. Ask your bank if they have relaxed credit terms for their customers and what options may be available to you, such as bridge financing or lines of credit.
If you secure funding and never use it, your planning will provide some peace of mind. Leverage your credit rating and relationship to maximize your finances now, in case you do not qualify for funding later.
Preserve Your Cashflow
Some examples of what you can do to preserve your cashflow are:
- Reducing or eliminating discretionary spending, like travel and professional development.
- Seeking inexpensive marketing options, such as social media rather than paid advertising.
- Reducing or suspending partners’ draws.
- Negotiating relaxed payment schedules with your landlord and other suppliers.
- Reviewing insurance policies, office and equipment leases and other agreements for ‘force majeure’ clauses that may let you reduce or eliminate expenses.
A variety of federal and provincial plans are available to help businesses meet overhead during the crisis.
Contact your accountant to gather more information on what assistance is available and how to apply.
More details about federal programs are available here and provincial programs are available here. This includes information about deferring corporate income tax, job protected leaves and Employment Standards. The CFIB has a resource page about government assistance here.
Once you familiarize yourself with what is available, use this information to support your clients. Helping clients with their applications for emergency funding is beneficial for both your client and your own firm.
Consider the well-being of your staff and their families and do what you can to support them. It is the right thing to do, and your business will need their extra support when the recovery begins.
If you do have to scale back, understand the differences between layoffs, leaves of absence and termination. Each of these options may have a different effect on health benefits and eligibility for employment insurance, so it is important to research the distinctions for both your firm and staff.
Review Termination Issues: Who is Responsible for Professional Fees? and Articling Students: Paid Employees Under Employment Standards on the Law Society website.
Take the time to understand the challenges your clients are facing and how you may be able to support them.
Touch base with a text, email or phone call. Take a careful look at your existing accounts receivable. Send clients who owe you money a quick email or text to see if they can forward payments, even if just in part. Offer discounts as incentive for prompt payment for any new or outstanding statements of account. You can also consider offering clients alternative methods of payment.
Be prompt about recording all prior work in progress. Even if some clients are not able pay your bills right away, an unissued bill will never get paid.
Consider adjusting your billing practices to billing monthly or weekly, instead of accumulating significant WIP before billing a file.
It is also important to set expectations with new clients about the anticipated cost of your work and when you will need to be paid.
Take the time to explain to new clients that you expect a major increase in workload once the peak passes, and that having a retainer in your trust account will enable you to start work on their files right away. Request retainers upfront or set up automatic credit card payments to build and refresh retainers automatically.
Returning to Business
To help ‘flatten the curve’ of the effect of the pandemic on your business, learn how to use Zoom, Skype and other programs and begin video conferencing now. Keep in touch remotely with clients and opposing counsel. Conduct questioning, mediations and other steps remotely wherever possible.
As lawyers return to business as usual, they may be competing for the same meeting rooms and participants’ availability.
If you have been forced to postpone meetings or applications, book new dates right away for the summer or fall. This will help avoid scheduling delays and you will be able to advance your clients’ files once again without delay.
If the pandemic continues for longer than anticipated, these new dates could themselves be rescheduled.
For more information, see also 18 Recommendations for the Business of Law Amidst COVID-19 and COVID-19 FAQs on the Law Society web site.
Written by: Len Polsky, Manager, Practice Management