Many experts believe the U.S. is in a recession or will be in one shortly. The economic downturn has almost certainly already impacted your law firm. If and when a full-blown recession manifests, the effect on your practice may further exacerbate.
Now is the time to plan recession-proof pivots and changes that will keep your firm in the black. Your legal practice areas are critical to assess, as they might be the key to weathering the storm in a less volatile manner.
Identify Profitable Practice Areas
Before making any changes, it is crucial to determine which practice areas offer the highest profit margin. Smokeball law firm insights provide analysis to quickly see which clients and practice areas are most profitable for your firm, so you can focus on developing your business to support those kinds of cases. In addition, you will be able to determine whether you benefit most from hourly billing or flat fee arrangements and if your current rates accurately reflect the value of your work so that you may adjust accordingly with precision.
Diversification Protects Your Firm
The more your law firm can diversify, or the more practice areas you can offer, the more likely your firm will remain stable through economic unrest. However, it’s unreasonable to think you can quickly pivot from practicing criminal law to IP, for example, if you have no experience. Instead, assess areas of law where your firm already has the experience and spend your marketing dollars in areas most likely to succeed in a recession.
If you do want to expand into new areas of law, consider one of these three approaches:
Negotiate referral agreements
Negotiate referral fees with other firms. Referring out cases brings you referral fees with minimal time. Smokeball’s leads management system makes managing incoming clients easy.
Hire contract lawyers
Bring contract attorneys on board in new practice areas for you and evaluate the feasibility of expanding into those areas. Law Clerk can help you hire contract attorneys, and Get Staffed Up can provide virtual assistants. This approach allows you to expand or get the support you need without a big commitment.
Hire associates with experience in new practice areas so you can expand your practice with dedicated staff.
Recession-Proof Practice Areas
Consider these practice areas as you weigh diversifying your practice areas.
While divorce rates went down during the Great Depression due to the economy, a decrease in filing during the Great Recession was in line with the decreasing number of divorces. One study found that high foreclosure rates are associated with higher divorce rates, at least for people with more than a high school diploma, indicating there may be an increase in divorces coming.
Whether or not divorce rates increase, a recession impacts people’s finances, resulting in modifications of spousal and child support, increasing the need for family lawyers. Divorces may also be more financially complex as real estate prices fluctuate and layoffs occur. If you already practice family law, consider expanding your services to include mediation, which is in demand as a more cost-effective strategy by many clients. At the very least, a referral agreement with a mediator can improve your bottom line.
People and companies look more closely at their finances during a recession. They are more likely to use the legal system to recoup losses or to protect themselves from financial responsibility. Cases in state and federal courts are increasing in high-demand areas such as personal injury, commercial litigation, insurance defense, class actions, employment law, and regulatory actions. Positioning your firm to emphasize these practice areas can bring in more clients and increase your income.
August, September, and October of 2022 saw significant bankruptcy filings increase across the board. As consumers face increased foreclosures, heightened healthcare costs, and rising costs, bankruptcy will continue to be an important legal practice area for firms seeking to increase their revenues. Additionally, economic forces are pushing many businesses to seek restructuring, further increasing the possibilities in this field.
Although the economy might be stalling, specific sectors are growing quickly, and green tech, renewable energy sources, environmental litigation, and climate change are crucial growth areas. Firms that position themselves as experienced in sustainability policies and climate-friendly initiatives have broad possibilities for revenue increase.
Foreclosures are in a distinctive upward trend, with 113% more beginning in September 2022 than in the year before. Much of this is due to the end of the Covid foreclosure moratorium. However, as consumer costs continue to increase, the trend will continue. If employment dips, this will also keep foreclosure numbers on the upswing. There is a substantial opportunity to leverage some of your firm’s marketing and staffing to fill the huge market gap.
Labor and Unemployment Law
Although the U.S. unemployment level has remained stable in the past few months, a recession signals increased layoffs due to corporate cost-cutting. Big tech has already begun layoffs, with more expected in the coming months. When the economy is solid and unemployed workers can quickly find new jobs, but with an uncertain economic outlook, more consider litigation. Firms that can represent workers and employers in these cases are strategically situated to expand their revenues.
Intellectual Property Law
No matter how the economy turns, we are in a period of tremendous creative growth, both in the tech sector and in creative fields such as entertainment. Legal professionals with the skills to represent inventors, artists, writers, musicians, and businesses in these quickly burgeoning areas have a bright future as intellectual property law is historically recession-proof.
Despite what happens with the economy, organizations and law firms must always meet regulatory deadlines. This judicial system will continue to chug on, regardless of extenuating circumstances, so this practice area offers stability and dependable work.
Practicing law is no longer an act of chasing physical papers. Instead, it’s evolved to become an electronic endeavor. Electronically stored information (ESI) is now at the heart of nearly every case. Therefore, developing your firm’s electronic discovery skills places you at the forefront of legal innovation. Identifying, locating, collecting, preserving, processing, producing, and reviewing ESI is a way to leverage the digital world to your advantage. In addition to increasing your firm’s tech skills, becoming adept with e-discovery rules makes you more marketable.
Learn Where You Can Increase Profits
Smokeball provides a complete cloud-based case practice management system that simplifies and organizes your practice and gives you the tools to identify your most profitable practice areas. Our legal insights dashboard holds the key to your ongoing success. Get started today.