Practice Management

Boy, have we had a rough time in Houston, Texas of late.  Not only are we dealing with the terrible economy, but we were hit by hurricane Ike not long go.  As for me it meant the lost of about three weeks worth of income, lost time, and an even larger delay in other attorneys getting around to discussing settlement.  Trials have been put off, and business is still not coming in the door like it was for most of the year.  At the same time, at least for me, the university three of my children attend was hit by the hurricane, but they do not really care to delay or make other arrangements concerning tuition payments.  Let's just say the last couple of months have not been the most pleasant.

I tell you this because regardless if you were in the path of Ike, you might be feeling the pinch of the sour economy as well.  And, nobody can really deny that hurricane or no hurricane we all run into these money pinches all of the time.  There are statistics that show that people would rather talk about their sex lives than their money situations.  It is that private.  Either that or money is really pornographic.

The news among Big Law is not much better.  Most are reporting that they will take on fewer lawyers, and most will offer fewer internships next year and beyond.  Sure there may be exceptions, but most firms that I know of are actually letting attorneys go.  They are, in short, cutting back.

Most law firms, big and small, and most solo practitioners, are entering what is known as the "cost-cutting mode" in that they now find themselves stuck between rising costs and stagnant business.  Most have cut capital spending to the bone for now, and many will start to reduce inventories -- read lawyers, staff, consultants, etc.  The theory is that by making cuts early and controlling costs early, that you can avoid a more serious problem later.  All firms have to get and keep their earning and overhead ratios in check.

If they do not keep these ratios in check then they may very well enter the so-called "death spiral".  Law firms and lawyers who cannot or fail to control costs will run up debt.  Then the servicing of that debt becomes even another cost they cannot afford, which requires the firm to take on even more debt.  There are lawyers and law firms that will implode, and possibly file bankruptcy, in a few years, but the problem started now.

So, am I trying to scare you?  Not really.  I am making it despite these set backs, even if they are not pleasant.  The point is that you have to start eliminating waste.  Now all of us probably disagree on what represents real waste.  My views are pretty dramatic.  But, the truth of the matter is that once you start to eliminate waste -- things you really do not need to earn a proper living -- the extra money trickles straight to the bottom line.  Sometimes it even flows into savings accounts.

What these difficult times yield in the way of insight is that shrinking your law practice or law firm is often more profitable, in terms of real profit or the amount of money actually leaving your practice and making its was into your wallet or purse.  The key, I think, is to start looking at your law practice as yourself, and not as a firm.  What is in your best interest?  Quit living for everybody else, and start working for you and your family.

I work at home most of the time.  I work with a cell phone and a notebook computer.  I sometimes have to drive to court or to meet with referral sources.  But, apart from some expenses like a virtual PBX and a subscription to Basecamp, a little bit of paper still and some printing cartridges, what I earn is not much higher than what I keep.  My point is that as bad as bad times can be on you, they are never as bad as when you have little or no overhead.

Shedding your office, your staff, and the fake trappings of success, you can save a lot of costs.  Maybe you will not earn as much, but if you choose your remaining cases well, you will almost always get to keep as much or more than you did in a large firm.

It is really a stop gap situation.  In a home based or a Third Wave practice, if times get tough your earnings can fall to zero.  When things pick up, you might have to start over, but you do not have to start from behind.  That is almost never true in a traditional practice.  The reason is that when times get tough, the income stops but the outflow does not stop.  Your staff still wants to get paid, the landlord still wants the rent, the utilities for the office still want to get paid, then there are equipment leases and the like.  The real possibility is that you fall below zero.  You go below ground level in the bad times.  Then if you survive, you are not just starting off new, you are starting from behind.  You have to earn a lot of money just to get to zero.  You have to yearn even more money just to get to broke.

I would ask you to take some time during this tough economic period to reevaluate your situation and figure out everything you can cut.