Thankfully, the year 2020 is coming to an end. Despite the trying circumstances, it’s important to keep moving forward and planning for 2021. With year-end rapidly approaching, you’ll want to have a solid plan in place to help start the new year off on the right foot.
Having a strategy will assist your firm in navigating this next year successfully, even in the face of challenging times. Start the process by mapping out the answers to these four questions:
- Where does my firm stand currently?
The year 2020 brought sweeping changes in the legal system that no one could’ve predicted. The COVID-19 pandemic and resulting shutdowns forced rapid adaptations to be put in place, leaving law firms to adjust their own protocols accordingly.
Perhaps you’ve moved to a mostly remote workforce but are still carrying the cost of your office space. Maybe you’ve seen a decline in case intake or resolution because of the slowdown in the courts. Or alternatively it could be that the transition was less of an undertaking and your law firm is operating (mostly) as normal.
Whatever the circumstances, you must first fully understand where your starting point is, before you can move on to planning for the future.
- What do I want to achieve in 2021?
Looking ahead to next year, pinpoint your law firm goals. Have you seen a drop off in case acquisition and want to focus on bringing in more cases? Did 2020 negatively affect your firm and you want to gain financial stability? Or have you maintained your pace and want to grow your firm in the coming year, with the addition of staff or expansion into a new practice area?
Whatever your goals look like for 2021—and they may look drastically different this year—the first step to solidifying them is to write them down. Research points to precisely defining goals as a major driver of accomplishing them. Additionally, sharing your goals with other trusted members of your firm can play a role in your success, as accountability has been shown to enhance reaching the goals you set forth.
- What resources are necessary?
In times of uncertainty, budgeting is a key. Not only do you need to know exactly where you stand with firm revenue and expenses, but you should also track how those have changed over the last year in light of a global pandemic. Then, with the help of your trusted accountant, bookkeeper or CPA, forecast what your needs will be in 2021. There is likely to be a healthy dose of uncertainty, but having a baseline will allow you to adjust in certain areas as necessary.
It’s imperative you know how much it actually costs to run your practice. Be sure to include “fixed” costs—rent, payroll, insurance, office leases, utilities, etc. and “variable” costs—office supplies, advertising, auto and travel expenses in your budget.
You probably also incur miscellaneous costs that are often overlooked but need to be accounted for, like liability insurance, bonuses, income taxes, accounting fees, property and other taxes, annual bar dues and CLE fees.
As you build your firm’s 2021 budget, specify how much capital you will need for each initiative throughout the upcoming year. It’s also wise to build in a cushion—or a reserve—in the event that the legal or economic climate fluctuates substantially.
Be sure to tie your anticipated spending back to the goals you set forth in Step 2, in addition to the costs associated with maintaining firm operations.
- Do I have the capital to run my firm and meet my goals?
Having adequate resources in place before you need them is imperative to keep your firm’s operations running smoothly. Now more than ever, you should have access to a stable source of capital in place to bridge any gaps you may experience in firm cash flow.
There are many options out there and as a contingent-fee law firm, it’s important to assess what type of financing works best for your firm. It may be tempting to take on more capital than you ultimately need, however that could potentially hurt your firm in the long-run.
A law firm line of credit is a solution that allows you to secure a substantial amount of capital, should the need arise, but allows you the flexibility to pay interest only on the money that is drawn at any point in time. This way, you can be quick to adapt to changing needs, especially given the current legal environment. Alternatively, there may be other financing source better suited to your firm’s business model, such as a non-recourse advance or a post-settlement loan.
As you continue to monitor the ever-present changes amidst this global health crisis, and plan for the future of your firm, keep in mind the ability to be agile positions your firm for success in the long-run. Having a plan in place that can be modified as necessary, and the capital securely in place to support those modifications when necessary, will only serve to keep your firm strong and abate any interruptions in service to your clients.