Financially Legal

Five Ways to Shore Up Your Law Firm's Finances Now

Posted by Dan Lear on March 23, 2020
Dan Lear

Our lives and livelihoods have changed dramatically over the last two weeks. We’re all hopeful for a swift and significant rebound, but proactive measures will carry the day. Action in crisis can provide a feeling of purpose and normalcy amidst the potentially overwhelming uncertainty. It can also be the difference between going under and thriving.    

 

Here are five things you can do in the short and medium term to strengthen your firm’s financial position.  

 

  1. Start accepting electronic payments. Like, yesterday. Last week we spoke to a litigator in a large US city that was on lockdown. Unable to access their PO Box, his firm has no way to deposit all of their revenue arriving in the form of physical checks. Some have said this crisis may be the tipping point for tech competence in law, but people, seriously? Even if you rely on checks as your main method of payment, there is no reason not to be set up to receive money electronically. PayPal and Venmo are easy to set up, but they can be expensive (in the case of the former) or not particularly private (latter). You need to look no further than the disciplinary notices in your local bar journal (here are some from Washington, for example) to learn that financial and trust account management are among the top reasons lawyers lose their licenses (even Quora agrees). You’re better off going with an electronic payments provider who understands the quirks, idiosyncrasies and rules of the legal sector. Besides, getting set up with these providers is easy and inexpensive. [1]

  2. Shift costs of electronic payments to clients. At first blush asking a client to pay the processing fee for the convenience of using a credit card may feel a little slimy. But the truth is that large card brands like Visa and Mastercard don’t want consumers to know the actual cost of their airline miles, cashback, or vacation points. Consumer advocates have been fighting the card companies for years to allow businesses to expose the actual cost of credit and debit cards, so that consumers can make more informed decisions about which payment methods they use. Unsurprisingly, bar associations and other legal ethics experts have waded into the debate as well. There are only a few ethics opinions or rules or professional conduct that take the anti-consumer position of prohibiting the exposure of different processing fees to clients, (I’m looking at you Alabama and Michigan with your opinions from 1993(!)) but most other states permit it explicitly, haven’t taken a position, or allow legal-sector-agnostic state laws and court decisions about merchant best practices to govern. We at Gravity Legal have put together this handy guide to help you determine if you can pass along processing fees to your clients, saving you as much as 3% of your revenue.

  3. Use your trust account and/or leverage alternative fee structures. Lawyers find lots of reasons to avoid using their trust account: the burden of trust account management, the risks, their practice doesn’t lend itself to trust account usage, and many others. But the 2017 Clio Trends Report looked at family law firms and found that those who use their trust account improve their collection rate by 15% and realization rate by 18%, meaning not only did they bill for more of the hours worked, they collected more of what they billed...by a lot!. This means the non trust account-using firm only gets paid 70% what the trust account-using firm does for the same work. If your practice is one in which trust accounts are used more traditionally, but you’ve been avoiding it, WHAT. ARE. YOU. WAITING. FOR? If yours is a practice that hasn’t traditionally used trust accounts, have you considered flat fee, installment, or subscription billing? Depending upon the model and your local rules you can leverage your trust account and/or alternative fee structures (as appropriate) to get paid upfront and increase your collections.

  4. Explore a lifeline. Everyone needs a little help sometimes. Especially when uncertainty is high, the future unclear, and business far from usual. Just in the last week dozens of state and local governments as well as private companies have instituted programs to provide financial grants and loans to small businesses. We at Gravity Legal have compiled a list of Coronavirus-related financial resources and relief programs that lawyers can share with their clients (or to which they can apply themselves; pro tip: law firms are businesses too).

  5. Find community. One amazing thing about the last 10 days has been the outpouring of community and connectedness I’ve seen not only in my legal circles but beyond. Groups and leaders are springing into action to provide assistance and resources to their friends, colleagues, and even strangers. Seek out community. Talk about what you’re going through. Look for the silver lining and for opportunities to position yourself and your firm best for the future. Here are just a few examples of past and future opportunities to learn, connect, and expand your horizons as you grapple with this new, hopefully temporary, reality.
    1. Clio put on a fantastic and well-attended AMA webinar on remote work. They’ve promised a recording will be forthcoming.
    2. On the heels of their Corona-cancelled Connect conference (talk about alliteration!) we’re working with AltLegal on a webinar that will cover the topics of this post in greater detail. Watch our blog or AltLegal’s for more information.
    3. I spoke this week with the folks at Lawyerist who, in about 24 hours, completely transformed their March LabCon event from an in-person one with content they’d been planning for months to a virtual one focused on marketing and operating a firm in our new reality.
    4. Mike Whelan is working on rebooting LawyerForward. Watch this one. It’ll be fun.
    5. Bob Ambrogi’s list of products and services offered by companies for free to support the work of legal professionals during the Coronavirus crisis is truly impressive. 
    6. Finally, starting Monday March 23rd, How To Manage a Small Law Firm is offering five hour-long webinars, one each day in order to, in classic RJon style, help “small firm owners find the opportunities buried in this enormous pile of $#!+.” We’ve attended one of How To Manage’s quarterly meetings and we like the cut of their jib. Register here.

The size and nature of this shock to our economy and society is largely unprecedented. The future right now is unclear. But positive action can help ease frazzled nerves, provide an important sense of purpose, and position your firm for the bounce-back. Like most small law firms, we’re a small company navigating these crazy waters along with you. Give us a shout if we can help. You got this!



[1] Speaking of inexpensive, to do our part to help law firms, Gravity Legal is providing firms with up to a year of free bank transfer (ACH) acceptance to help reduce the costs of accepting client payments. 

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Topics: Firm Financials, Credit Card Fees

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Decoding the Finance of Law

Financially Legal is a twice-monthly podcast on the finance and economics of entrepreneurial law firms and lawyering. Host, Dan Lear, talks with law firm leaders, academics, business professionals (both in and outside of law) and thought leaders to provide compelling and provocative content at the intersection of finance, economics, and law.

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