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Bracing for Troubled Waters

By Michael Roch
February 28, 2008

Few doubt that the U.S. economy is either dangerously close to a recession or already in one. There is equally little doubt that other global economies are weakening as liquidity further tightens and new bank write-downs emerge. There is a common perception that law firms also suffer when the economy goes bad. While it is true that transactions-oriented practice groups fare worse during times of economic slowdown, law firms generally fare well, irrespective of economic conditions, when compared with other business sectors. Both managing partner and CFO will instinctively return to the basics of law firm economics. To a degree, reviewing the basic drivers of profitability is a helpful exercise ' but this provides part of the answer. Irrespective of whether your firm is on the winning or losing side of a looming recession, undoubtedly the firm's finance department will be involved heavily in anticipating solutions to 'shore up for troubled times ahead.'

Watching New Matters

How far are we already into this slowdown? One of the key indicators of the future is the number of new matters by work type that the law firm opens. From which clients do they come? Which clients have decreased the number of matters they provide? Are certain industries more affected than others? By providing basic data on new business, the firm's finance department can provide useful insights into the future revenue of the firm. The finance department also can use this information as ammunition for a recession program ' require each partner to speak to those clients that constitute 80% of that partner's revenue about future business ' and use the opportunity to evaluate where the firm can add even more value.

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