Unlike thousands of businesses in the manufacturing, consumer cyclical and retail sectors, professional services firms will likely weather this pandemic in fairly stable (if not strong) financial shape.
Depending on your firm’s area of specialization, however, clients may become more cost conscious and judicious as to how they utilize your services. Therefore, it’s critical for you to conservatively approach what is still a very uncertain future—in hopes of protecting jobs and preserving the financial stability of your firm until we all get back to normal (whatever that ultimately looks like).
One of the principal challenges resides in the fact that legal practices typically carry extremely thin balance sheets. You have your accounts receivables and work-in-progress, but very little in the way of tangible hard assets. By far, your greatest asset is the intellectual capital of the dedicated professionals working at your firm.
So, how do you go about protecting that asset? How do you balance the financial health of your business, while at the same time fostering a continued high level of professional engagement amid a prolonged crisis?
Adjusting the financial levers
In an environment where business may experience a major retraction and clients may soon begin to “slow pay,” you still need to work and pay the bills. Certainly, exploring any stimulus opportunities is your first order of business. But you also may want to explore drawing down on any existing and available credit facilities. Over the course of the pandemic, we’ve witnessed a number of national firms pull back on a variety of compensation levers including:
- Temporary salary reductions that scale down in magnitude from partners to non-equity attorneys, associates and even support staff
- Deferring partner distributions until 2021
- Delaying bonuses and salary reviews
- Suspending matching retirement plan contributions
Several larger firms have even furloughed both professional and support staff, as well as introduced optional reduced-pay sabbaticals and part-time work arrangements.
Preserving your human capital
As you explore various financial strategies for navigating your firm through the remaining COVID-19 storm and aftermath, it’s vital that you view each potential solution through the prism of how it might impact the engagement and well-being of your professional team. You’ve already taken the most important step—protecting their physical health by working remotely. But what happens if social distancing remains the de facto “new normal” for the foreseeable future? How will you go about addressing some of the longer-term challenges such as:
- Maintaining or even improving productivity while working remotely
- Mentoring future partners from a distance
- Insulating the rank and file of your firm from any significant changes that may occur at the top of the house
Despite the current financial uncertainty, don’t overlook continued investment in your technology infrastructure. Ensuring that you are far enough along on the journey from a paper-based to a digital ecosystem may take on even greater significance over the next few years. And the same holds true for your firm’s cybersecurity and data integrity. As conducting business online assumes a greater role in our daily lives, so too will the need for enhanced digital security.
Avoiding permanent outcomes to temporary problems
Ultimately, the decisions you make about protecting your firm’s short-term financial health will need to be weighed against long-term viability concerns—ensuring that you maintain sufficient capacity to execute on deal flow or client engagements/mandates once the dust settles on this pandemic.
While some of you may have gradually started returning to our offices, the impact of COVID on how you conduct business in the months and years ahead can’t be underestimated.
At Truist, our Legal Specialty Group works exclusively with a wide range of national and middle market law firms as a trusted advisor and strategic sounding board. From supporting you with financial guidance and solutions to helping you foster a continued high level of engagement—such as our Momentum onUp® industry-leading workplace financial wellness program—we’re here to support you during and after this profound human and economic crisis.