By Kelly Anthony, Esq. | Deputy General Counsel
Attorneys often state that they “practice law,” but they don't frequently recognize that managing a law firm is also managing a business. Like any corporate entity, a law firm requires planning and oversight of all administrative, financial, and operational issues.
With proper forethought and preparation, a law firm can operate smoothly even in the face of rapid change, as seen during the recent COVID-19 pandemic. If your firm experienced any roadblocks during that time, think about the following:
How can you manage your firm and its growth potential effectively under all circumstances?
A good place to start is to be sure that your firm has a stable funding source. A significant issue for many contingent fee firms is having sufficient working capital to finance the practice. It is important to consider:
• The ability to maintain firm operations throughout the peaks and valleys intrinsic to contingent fee practice; and
• The capacity to take advantage of opportunities as they arise and act on new ventures when they present themselves.
You may have an existing bank loan, or you may be utilizing specialty funding or leveraging personal assets to run day-to-day operations.
However, using firm or personal assets can be costly in lost opportunities and loss of the ability to grow personal net worth. Further, reinvesting after-tax dollars into the firm may cost more than traditional debt sources in the long run.
If you have financing, in terms of repayment, make sure you consider how long the debt may be outstanding. Is this a short-term solution or a long-term business plan? Banks, while a viable option, generally will not value your contingent fees as assets. You may be severely restricted in the amount you can borrow and the repayment terms, thereby limiting your firm’s growth potential.
A line of credit from a specialty financing company can be a great resource to your firm because it enables you to better manage the uneven timing of receipt of fees and expenses coming due. It affords you much greater borrowing power because your contingent fees will be valued, and will provide you enhanced flexibility and better terms. Plus, you will only be charged interest on the amount you borrow, while having a significant facility at your disposal that can allow you to respond to new opportunities immediately.
What if you are considering a new business venture? Given recent isolation practices and the new “remote” workplace, you may consider taking your practice in a different direction. One such instance may be to go out on your own rather than continue with your current firm. Or perhaps your firm is the regional office of a national firm, and you are entertaining the concept of an independent practice on your terms and timetable that follows your vision.
These scenarios, too, necessitate not only a solid plan and budget to execute upon, but also a stable and reliable funding source to lend confidence to take the leap to independence.
Important questions to ask yourself include:
There are so many nuanced considerations that require proper attention to start your practice. A funding company that has intrinsic knowledge of contingent-fee litigation understands the nature of your business and has substantial experience in funding law firm “spin-offs” to help guide you through the process while ensuring you are fully resourced.
Perhaps, however you’re facing a situation — as many firms may, given the COVID-19 crisis and fallout — where you feel it may be prudent to explore a different solution to potential challenges your firm is facing. It may benefit your firm to contemplate the idea of a joint venture with another firm in your network, or even the possibility of being absorbed by a larger, more stable firm. In environments of rapid change, such as those in recent months, all options should be considered because the best solution for your firm and equally as important, for your clients, may be one you hadn’t thought of before.
Financial professionals like Counsel Financial and others can provide your firm with financing solutions from $500,000 to $50,000,000+ specifically tailored to plaintiffs' firms. Whether you are seeking working capital, portfolio financing, single-case financing, post-settlement funding, or non-recourse options, a financial product that can be customized to fit your firm’s individual and unique needs. Moreover, you'll have a team of attorneys (with more than 200 years of collective litigation experience) and financial professionals who have loaned over $1.5 billion to the plaintiffs' bar in the past two decades. Just remember, your firm is more than a practice — it’s a business — and financial professionals can help to make it successful.