Markets don’t like uncertainty. Most cliches are rooted in truth, and this one is no different. And although there isn’t always a correspondence between individual experience, profit margins, and market performance, uncertainty is one driver that cuts across every industry, including legal: nobody likes it.
It isn’t hard to see why uncertainty is so unpopular. Having clear projections provides a sense of control, and making a plan can help individuals and businesses cope, even if circumstances are far from ideal.
For some, uncertainty can be paralyzing—and 2020 has offered plenty of opportunities for paralysis. Thankfully, budgeting under these conditions isn’t impossible. With some careful analysis and a deliberate strategy, you can feel confident in your law firm’s preparations, regardless of what happens.
Here’s how to plan for the future during an uncertain present.
The first step in planning for 2021 is budget analysis. This is particularly tricky this year because benchmarking—the practices of looking at last year’s budgets to anticipate future performance—holds little value when conditions are in flux.
What you can do is take stock of 2020, and you might be surprised by what you find. Even if your revenues went down in 2020, you shouldn’t assume that your margins are lower. Common expenses like meals, entertainment, and travel have also decreased this year, and many firms have seen static or increasing profits despite modest increases in revenue.
The next step is determining what to prioritize. First, recognize the emotional effects of uncertainty and set them aside—budget decisions should be rational, not fear-based.
Secondly, turn the abstract into the concrete by mapping out possible scenarios. While you might not know exactly what next year will bring, including a range of possible outcomes can give you a high degree of certainty that whatever happens will be something you’ve considered. This will allow you to design a budget that will put your firm in a strong position regardless of what unfolds.
Flexible Work Technologies
A strategic investment should add value no matter what happens, which is why firms are increasingly turning to technology. Investments in technology can provide value under a variety of circumstances.
For example, possible scenarios for 2020 work environments include fully remote work, partially remote work, or a slow return to in-person work—and technologies can be beneficial in every case. This is particularly true of cloud-based technologies, which offer more flexibility than local software installations.
Cloud-based solutions can streamline remote work and allow for easy transitions between remote and in-person set-ups if circumstances change. During a partial or full shutdown, cloud-based technologies will be your firm’s only option for making sure everyone has access to the files they need. Should things return to normal, these technologies can seamlessly integrate into your document and matter management plan while giving the benefit of all the features they provide.
Money in the Bank
Flexibility is also about building a financial cushion. Financial possibilities for next year include an economic downturn, a slow recovery, or a faster recovery—and being prepared for any outcome might mean holding some cash in reserve or cutting back on expenses to increase the percentage of annual operating budget on hand.
Technology can also offer cost savings for firms, which makes investing in it good insurance against potentially tightened budgets. By automating processes like billing and reporting, technology can free up staff to devote hours elsewhere, ultimately lowering overhead. Additionally, the right technology can increase margins by facilitating client development and allowing digital marketing efforts to continue during a pandemic—even when other marketing efforts must stop. In the event of an economic downturn, client development will be critical for long-term financial health.
Keep Calm and Spend Wisely
Budgeting for 2021 shouldn’t be about saving every last penny. Instead, it should involve thinking clearly and rationally about possible outcomes and making informed decisions about what to invest in.
The right investments will provide value regardless of what happens. When budgeting for next year, look for tools that can keep your firm running smoothly and efficiently during a downturn and improve your daily operations when things return to normal.