With the economy thriving, many law firms find themselves with a budget surplus for the first time in several years. If you are one of these firms, consider investing some of those funds in achieving long-term growth.
Investing vs. borrowing
Borrowing can seem like the preferable option, but borrowing comes with costs. Even in a time of relaxed regulation, many banks have strict lending and underwriting policies. Some partners may want to go the financing route to avoid cutting into their profits, but lenders can have surprisingly tough expectations regarding partner-invested capital.
In addition, lawyers are often private people. Financing means opening up the firm to oversight and reporting to the lenders. Lenders also might require personal guarantees from the partners.
So, what should your firm invest in? This is a great time to build up your bench of talent, whether by adding experienced lateral hires, bringing on attorneys fresh out of law school or adopting some combination of the two. The former requires upfront investment in recruiter fees, while new attorneys require an investment in training.
New lawyers and laterals can help a firm fill holes in lucrative practice areas, line up successors to Baby Boomers eyeing retirement and build new practices in emerging areas. It all comes at a cost, but it is essential in order to maintain or increase revenues.
Law firms have long sought to plant offices in new markets and expand facilities in existing markets. Office-related costs — such as buying, leasing or establishing virtual offices — remain significant and are better taken on when a firm is in the black.
Technology costs also continue to rise. Firms cannot afford to fall behind in today’s tech-driven business and legal environment. Firms sitting on a surplus should re-evaluate (or develop) their technological plan to stay current with recent advances and client requirements.
However, technological investments can rapidly become obsolete. Realistically assess your current and medium-term needs and conduct extensive research before sinking money into new tools. With informed investments, a firm can likely improve both its delivery of services to clients and its back-office work (for example, billing, invoicing and document drafting).
It has been said that you must spend money to make money, and that is certainly true for business development efforts. Gone are the days when informal networking on the golf course was enough to generate sufficient new business.
Savvy firms now invest heavily in business development. This includes purchasing proven customer relationship management technology, hiring marketing professionals and advertising where appropriate.
Play the long game
Attorneys often fixate on annual profits, viewing vital investments that promise long-term returns as short-term expenses that cut into their immediate bottom line. For your firm to remain competitive and sustainable, strategic investment is essential.