Feeling the pinch of erratic cash flows, many small firms and solos are slicing costs to keep their bottom lines in the black.
The economic downturn is squeezing firms of all kinds, from bread-and-butter general practices to those that provide more specialized “niche” legal services.
Joan E. McNichol, a Smithtown, N.Y., family law practitioner, has found that many long-time clients cannot pay her customary rates. So she renegotiates her bills on a case-by-case basis. Sometimes, she charges only a nominal fee.
“If I’ve represented somebody in the past I usually end up taking on the matter,” she said. “If there is a long-standing relationship, I just don’t feel right abandoning that person.”
Meanwhile, “The sale of artwork has slowed to a grinding halt,” said Jaime Wolf of Manhattan, who represents private dealers and art galleries in multimillion dollar transactions that involve shuttling entire collections throughout the art world.
“There were deals made back in the end of September for expensive works and art collections, and then November and December came around and there was still no money,” Wolf said.
With cash drying up, Wolf has begun considering accepting works of art in lieu of fees, an approach he has used from time to time in the past.
“I do collect artwork, so bartering is something I’m seriously considering,” said Wolf, a partner in Pelosi Wolf Effron & Spates in Manhattan. One client he has contacted “seems excited by the idea.”
So far, Wolf’s five-lawyer firm has been able to avoid significant cutbacks. Many others have not been as fortunate. For example, McNichol has trimmed clerical help and is doing more routine office tasks herself at the five-attorney firm of Coffman & McNichol.
In making cuts, lawyers face a delicate balancing act: bringing expenses in line with shrinking revenue without sacrificing essential business functions, such as marketing, along with client and community good will.
Sponsoring athletic events, donating to charities and hosting client parties — all staples of promoting a practice in years past — are becoming rarer as firms streamline their budgets.
“It’s like a prizefighter getting down to their fighting weight — you are looking to see what you can cut,” said Jon P. Getz, a partner in the three-attorney Rochester, N.Y., firm of Muldoon & Getz, which focuses on criminal defense, appellate work and civil litigation.
For Getz, advertising in the phone book was the first to go. Now, the firm relies primarily on client referrals, long-term client relationships and its Web site to generate business.
The firm also is watching credit card bills much more closely and requiring that clients, especially those facing criminal charges, pay up front.
The hardest decisions loom ahead: whether to cut back on health care for the firm’s six employees, or keep the health insurance package and take the money out of the retirement fund to which the firm contributes.
The firm is doing well now, Getz said, but the economic reality is that legal bills take “years to get paid off while expenses go up.”
Health care expenses are a “very serious line item” in the firm’s budget, rivaling a year’s worth of rent for the office, which tops out at more than $40,000.
“For a small firm, that’s a lot — and I’m not really seeing the value,” Getz said, adding that he has contemplated pulling the plug on the insurance premiums and paying his employees more instead. Fortunately, he said, the firm’s business has picked up since it slowed to a crawl in December and January, allowing him to put off decisions on further cuts.
‘MORE CONSCIOUS OF COSTS’
Small firms and solos — regardless of location, practice focus and size — are doing what they can to cut costs without alienating their client base.
“In 15 years, we’ve never had to make any layoffs or cutbacks due to economic changes but there is no certainty,” said T. Andrew Brown, managing partner of Rochester’s Brown & Hutchinson. “I’m much more conscious of costs and expenses than I’ve ever been in recent years.”
Those costs and expenses include matching contributions to 20 employees’ 401(k) accounts and providing health coverage, with premiums increasing annually.
“The rates went up again this year, they go up every year, so it’s just getting more expensive,” Brown said.
“We don’t anticipate cutting back, but as any smart employer knows, if the economy gets bad enough you have to do whatever is necessary to protect the larger interests of the business and any employer who says otherwise is misguided,” said Brown, the president of the Monroe County Bar Association.
The corporate litigation boutique counts several Fortune 100 companies among its clients and spends significant dollars — around $40,000 annually — on advertising, buying ads in trade journals and radio spots. That is a necessary cost, according to Brown, as “our target markets are companies that are not based in New York.”
The firm also has numerous sponsorship commitments and donates to various not-for-profit organizations. Brown said it does not plan to eliminate donations entirely, but “we think that we may well cut back on the level of giving — if we gave $2,500 to an organization each year in the past, we may cut that down to $1,500.”
Katz, Bernstein & Katz, a Syosset, N.Y., tax law boutique, sponsored up to nine golf outings each season in years past to drum up business. It will halve that number this year, according to partner Neil D. Katz.
“To spend three or four or five thousand dollars for a one-day golf charity event is a difficult thing to justify when the economy is the way it is and collections are the way they are and people are losing jobs,” Katz said.
The firm has turned to other business development methods, such as networking and attending bar events to find new clients. The four-attorney firm is staying busy, as state and federal tax authorities are aggressively pursuing tax collections due to their own budget shortfalls.
But while there is plenty of work, clients are slower to pay their fees, resulting in a cash-flow problem that the firm has had to solve by cutting some costs.
“Collections of our billing are slower, so we have taken significant steps to reduce expenses and overhead,” said Katz, who chairs the Suffolk bar committee on solos and small firms. This includes cutting back on office supplies and striking a deal with service providers to pay up front for the entire year at a reduced fee, rather than pay monthly installments.
For her part, McNichol, the family law practitioner, said she has cut back on charitable donations and attending fundraising dinners, relying instead on client referrals and word-of-mouth for business.
Her firm also has a law school student helping with answering phones, sending faxes and taking care of clerical work. And subscriptions to legal publications and periodicals may be on the chopping block.
Theodore Blumberg is a Manhattan entertainment lawyer who counts director/actor Stanley Tucci and actor Ving Rhames among his clients. Since people are drawn to the movies as an escape in hard times, his business remains relatively strong, so strong that he recently hired an associate, he said.
Nevertheless, Blumberg said he keeps a watchful eye on costs. He has gotten rid of his Westlaw and Lexis accounts and switched to a cheaper service. Lately, he has also worked from home, both out of convenience and to save commuting costs, all in an effort to keep the bottom line from ballooning out of control.
“I try to run the practice efficiently … . I’m really not able to cut a lot of corners,” said Blumberg, of Manhattan.
And if the financial bottom drops out completely?
“I’ll be tending bar,” he said.
TIPS ON PRACTICE MANAGEMENT
Gary Muldoon and Jon P. Getz, partners in Rochester’s Muldoon & Getz, a pair of experienced trial and appellate lawyers, share their insight on practice management and client retention in a tough economy:
• Ultimately, in our profession we must never give up and remember that we are trying to help clients in need.
• As long as we keep the focus on our clients, we will have steady work.
• Try to eliminate any frivolous or discretionary expenses.
• Put off major technology upgrades until cash flows can cover them.
• Keep in mind these two tips from famous historical figures:
Things may come to those who wait, but only the things left by those who hustle.
- Abraham Lincoln
Be kind, for everyone you meet is fighting a hard battle.