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Preparation can help you weather the storm during an economic downturn


Economic winter is coming.

Eventually. Probably. Maybe.

“I don’t want to say I subscribe to the idea that winter is coming; I’m not sure I do,” says the lawyer Mark Goldstein.

But that doesn’t mean that — even if he’s wrong — he wants to find himself one day saying he did not prepare for the worst. Other lawyers would be wise to take similar steps, Goldstein said.

It’s part of the reason he has started working with the business coach Tom Palzewicz, who helps law firms make hiring, marketing and budgeting plans that will put them in a position to be able to overcome the economy’s next slump.

“All of our clients face the same challenges,” said Palzewicz, managing partner of ActionCOACH of Elm Grove, which advises about 125 businesses.

“When times are good it’s, ‘What can you build? What can you create? And what can you sock away from a financial standpoint?’” he said. “When things go down — and they always do — they don’t do marketing. They don’t hire people. They batten down the hatches to weather the storm. And, then, when the storm passes, they say, ‘We’ve got to get back to business.’”

But, Palzewicz argued, you can increase your marketing budget during a downturn. You can hire people. You can be ready to turn hard times into an opportunity.

It just takes planning.

Unfortunately, Palzewicz said, “Most business owners don’t have a plan.”

This is especially true for small firms and solo practitioners, who are often so caught up in the day-to-day work of maintaining their practices that they forget to build their businesses.

It’s an assessment Goldstein can appreciate, even if it is hard to accept. And, he said, it seems especially true when it comes to money matters.

“I might be in the minority here or in the dark, but I would venture to guess most small- and medium-sized firms don’t have a sophisticated budget,” said Goldstein, who owns Goldstein Law Group in Milwaukee, a three-attorney firm that specializes primarily in business litigation and labor and employment law for small- and mid-sized businesses. “They talk about receivables and they talk about payables and then they do the thumb-on-the-scale thing every month.”

That’s why it’s important for attorneys to look closely not only at what’s coming and what they owe, but what their priorities will be when the budget gets tight.

“It starts with measuring everything,” Palzewicz said. “You can’t do it if you don’t measure internally, and you’d be amazed how many attorneys don’t measure billable hours.”

Goldstein agreed. “Even CLE costs, magazine subscriptions, bonuses — understanding what those things are and where you might tighten if you had to. In one sense it makes budgeting even easier, but I’m surprised at how many folks don’t even do that.”

For law firms, it’s important to track how much money each of their practice areas bring in and at what times, and then set salaries in accordance with the minimum billable hours for each of those areas. Then having a well-grounded plan becomes a matter of turning fixed costs into variable costs.

“So when the economy does change,” Goldstein said, “you’re not stuck with a fixed cost that you have to fund or people you have to fire.”

That is why Palzewicz advocates using bonuses and other forms of incentive compensation to reward employees who help drive up profits, rather than committing to higher salaries and other fixed costs.

“You’re creating a little bit of an accordion, so when things do shrink — and no one really can predict recessions; they just happen — you can squeeze,” Palzewicz said.

Goldstein says firms should maintain their access to capital, whether that’s a line of credit or cash on hand. These sorts of steps, he said, might seem counter-intuitive. More often than not, Goldstein acknowledged, cold, hard cash can be hard to come by in the money-comes-in-money-goes-out cycle that so many small and solo firms find themselves in from time to time.

signpostBut, Palzewicz said, a strategy of this sort is no more absurd than bolstering a marketing budget during a downturn — something he said every law firm should do.

“First of all, if you don’t have a marketing budget, create one,” Palzewicz said. “Measure your cost per lead and your cost per client; if you know how much it costs you to bring on a new client, now you can create a new marketing budget that says, ‘If I need to bring on 10 new clients this month, I have to spend this.’ And have that at all times.”

And if the economy does begin to sour, Palzewicz said, make sure to stick to your plans.

“Marketing costs go down during a recession because there is less competition, so you can get a better return on your investment.”

Palzewicz also encouraged attorneys to identify types of practice that might be expected to thrive during a downturn.

“There are always opportunities. It’s a question of what they are. It’s about taking a step back and figuring out what you do well and, then, when you do hit a downturn, what does the market need more of.”

The essential thing is to invest in opportunities when times are good.

“So then, when there’s a downturn, you’re prepared to handle that kind of business,” Palzewicz said.

The size of your staff is a huge part of that, which is why Palzewicz also encourages lawyers to consider hiring during a downturn. But that’s only if they’ve identified before times get tough who exactly they’re looking for. One way to do this is to keep a running list of candidates, personal and professional attributes, as well as practice areas they might want to add to their firms.

It’s advice that Goldstein has taken to heart. One benefit of these recommendations is that they can turn a reactionary business plan into a forward-looking one.

“If you have a very good sense of who you are and what you’re about and who fits well with the team you’ve built, then you’re not hiring based on who knocks on your door,” Goldstein said. “You’re hiring from a skill standpoint and a personality standpoint — things that, in the moment, when there’s anxiety, you might not be in a position to judge.”

Goldstein said he thinks about these lessons all the time, even amid his doubts about the supposed inevitability of economic winter.

“We’re reading all this stuff about Trump, about the global economy, what does it mean for me on a micro level,” he said. “And there is a lot of uncertainty and anxiety about the workforce, how that is changing, how what lawyers do is changing. A month from now, two months from now, things might look different. But, in this political and economic moment, it’s an especially good idea.”

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