How can law firms stay afloat through the novel coronavirus crisis?
When it comes to figuring out what to do with your law firm in the midst of the COVID-19 pandemic, there are two things lawyers should be thinking about: Who has legal needs and an ability to pay.
“The first thing you need to do is figure out if your business is a viable model right now. Marketing something people don’t need or can’t afford is very problematic, because you’ll be spinning your wheels,” says Lawrence Kohn, a Los Angeles-based business development coach who works with lawyers.
If you are a lawyer whose practice has frozen in light of shelter-in-place orders across the country, or you do have work but your clients have lost their ability to pay you, now is the time for brainstorming, with a focus on how you can keep your business afloat.
Staying in business might include creditor negotiations on your own behalf, and keeping track of new business grants and loans, according to Jialan Wang, a finance professor at the University of Illinois at Urbana-Champaign’s Gies College of Business.
“This is truly an unprecedented crisis. Preserve as much cash as you can, but if you need a loan, get a loan, and worry about everything else later. The no. 1 priority for a small business is to stay alive,” Wang says.
She also advises asking landlords and creditors to negotiate on payments, and setting aside a certain amount of time each day to follow news services to see what, if any, sort of COVID-19-related small business grants are available from municipal, state and federal agencies.
“Maybe small law firms can band together and have a Google doc or email list to keep informed of really important politics being rolled out,” Wang suggests.
In terms of business loans, she says creditors usually want to see applicants’ credit histories and how much money their companies have brought in. Also, because law firms tend to be light on collateral, lenders might consider partners’ personal assets.
In addition, she says community banks and credit unions could offer the best business loan options, and lawyers also might want to consider nontraditional lenders.
“Think out of the box. Amazon and PayPal have become huge lenders for merchants on their website. They could be much faster than banks,” Wang says.
Whether a nontraditional loan would violate any attorney professional regulation rules depends on the terms, according to Lucian Pera. A Memphis, Tennessee, partner at Adams and Reese, he frequently advises attorneys on professional responsibility rules and is a previous chair of the governing board of the ABA Center for Professional Responsibility.
“Assuming these are plain-vanilla loans, with ordinary commercial terms, I don’t see any issues that would be different from a loan from a traditional lender. I would, however, see the opportunity for lenders who handle client payments to lawyers to come up with creative terms or tools that might run afoul of some ethics rules,” he wrote in an email to the ABA Journal.
If you already have a cash flow problem, taking out more debt is sometimes a bad idea, depending on loan terms and cash expectations, says Robert Markoff, a Chicago lawyer who represents creditors.
“If you’re in a hole, stop digging,” he advises, saying negotiating forbearance with creditors is a better idea. In addition, many creditors have stopped outgoing collections work this week, and lawyers might want to consider taking the same approach, Markoff says.
“We must understand that consumers’ first concern is for the safety of themselves and their families. We’re talking about food and shelter,” Markoff says. “Don’t just think of today, think of tomorrow. What will give you a better relationship with your client? Give them some breathing room if they are having some trouble.”
In terms of attorney downtime—since most of the courts are closed and deals have stopped being done—Markoff advises reaching out to former clients to see how they are doing and to find out if they have any legal needs. That’s something Kohn suggests as well, but he advises being cautious.
“It’s a balance between being compassionate and helping people but not getting sucked in by people who can’t pay you,” says Kohn, whose website includes an app that helps people with things such as analyzing innovation skills.
“We teach people to document every possible idea you can come up with, not, ‘I’ll think of that later.’ You won’t; our minds are rushing now,” says Kohn, adding that his app asks basic questions about the ideas, such as, “Why do you think it’s a good idea’” and “Is it it a good idea for now, or maybe later?”
Also, the good ideas could get better by discussing them with others.
“You need systems to stay engaged in the brainstorming process. The most important thing is to talk to people you trust. That means calling everyone you can and filing whatever time is possibly available with that,” says Kohn, adding that brainstorming could be combined with networking.
“Create brainstorming video conferences, putting together five or six people and making an appointment to share ideas,” he advises.