Market conditions can have an impact on the operation of a law firm. The inflation rate is one area of trouble for most law firms today post-pandemic.
The reality is that the cost of goods and services has increased steadily since the pandemic. Many economists believe that a return to pre-pandemic prices will not occur soon.
How Has This Impacted Law Firms?
In terms of the impact on law firms, most have seen their overhead increase exponentially in many ways. Costs, including office supplies, rent, insurance, utilities, and internet, have increased.
Not only have law firms have seen their costs go up, but the employees working for the law firm have seen their personal expenses go up. Most employees have found that their budget has been blown up, whether it be gas, groceries, utilities, mortgage rates, insurance, etc.
Many attorneys were also able to deter their student loans during the pandemic. But the reality is these deferments are about to end for many. Thus, many lawyers find themselves in a problematic financial crunch.
What Can Law Firms Do?
Trying to deal with inflation is troublesome for most law firms. Most law firms cannot simply absorb the increased costs that are out there without making some changes. For every law firm, the situation is different. But most law firms cannot just stand pat with the current state of the economy.
Below are some possible suggestions for law firms to consider:
1.) Raising Prices – Unfortunately, many law firms must increase their hourly rates and retainers/initial deposits. While clients are never excited about increased rates, there is often little choice when a law firm’s overhead goes up. Often, the only way to make the numbers work is to incrementally raise the prices at or near the inflationary levels.
2.) Cuts – Cutting items in the budget that are not needed can also be necessary. For many law firms, they might be paying for unnecessary things. They also might have more office staff than they need. They might have office space that is too big. It may be time to make cuts and/or downsize if something is optional.
3.) Raise Salaries – While this can be difficult for most law firms, the truth is that lawyers and legal personnel will not likely work the same salary they made pre-pandemic. With prices rising, most employees need more money to deal with the rising costs. Thus, most law firms must figure out a way to pay employees more. Otherwise, they may have a tough time recruiting and keeping key employees.
4.) Generate More Business – When prices are rising, the other solution is generating more new business. New business can come through increased marketing efforts, new expansion, greater networking efforts, and/or adding another practice area into your firm’s repertoire. If more revenue can be brought in this way, without raising the amount spent to get the new business too much, it can often help fill the gap in terms of the higher head.
5.) Better Collection Efforts – Another possibility for some law firms is to increase collection efforts. For many law firms, there is a significant accounts receivable problem where a certain number of clients are not paying their bills. To increase revenue, it might be time to better the collection efforts. That could be done through billing more regularly, sending collection letters at a set interval, or designating an employee as the Accounts Receivable Director at your law firm. Remember that using collection agencies can be ethically troublesome in some states. Thus, law firms should be careful in using an outside collection agency.
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