Securing Your Practice’s Future: A View On Investments

Small law firms must create a strategic plan with specific long-term investment goals to secure the future of the practice. Setting realistic, achievable, and honest goals is a crucial step in any strategic planning. But investment plans bring an interesting challenge to the debate, as they are designed to drive and gather useful resources that will sustain the firm's future. So how does a law firm decide whether to save money and earn interest on a crypto savings account or to spend it on technology solutions? The first question to ask when it comes to resource allocation and purpose is: How long will it take before the investment's return appears and becomes usable?

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Business strategists agree that investment strategies must be able to provide returns at different stages, whether you seek short-term or long-term results. There are two main reasons why every investment plan has to include various strategic durations. Firstly, planning and investing in the future comes at a cost that needs to be recovered partially or fully in order to achieve the dream of a prosperous future. Secondly, some investments can immediately transform into physical and functional resources for the business, which can significantly contribute to how fast positive returns can become available. Therefore, the most effective investment strategies must learn to combine long-term and short-term resource allocation to create a sustainable return harvesting process.

It isn't possible to set goals for the future of the practice without committing time to achieve these very goals. Time is a complex resource in a firm. As the business adage goes, time is money. In a law firm, time as a resource refers to the allocation of cases and work to the team. Business growth means taking in more work in order to increase revenue. Yet, time is the determining factor for growth. When the team is overstretched with work, the time individuals can physically commit per assignment decreases, which affects the chance for business growth. To free up more time, the business must inevitably consider investing in the future in a sustainable manner. Hiring a new member of staff is not a viable solution: An untrained member of staff costs both time and money. Therefore, investment planners suggest unlocking new growth potential with short-term strategies such as investing in dedicated legal technology for new communication and collaborative benefits. From automation to voice technology, saving time makes room for growth, which, in turn, enables the team to finally grow in size. Technology investments in a law firm deliver short-term results once they have been implemented and mastered by the team. While they may not recoup their costs at once, they are instrumental in establishing better resource management and fueling real-time growth.

But while the practical aspect of short-term investments with rapid returns is evident, the need for long-term investment plans remains. When law firms reach out to financial planners to create a passive income investment portfolio, they often bring conflicting priorities. Growth feeds growth. Indeed, you wouldn't consider starting an investment portfolio without first bringing the business's financial health to the next level. In other words, the law firm must first develop short-term returns to unlock the necessary capital for further investments. However, growth also comes at a cost, including more expenses and new cash flow requirements.

Cash flow is key to running a financially healthy legal business. Law firms that move to long-term investment plans can freeze their assets for a prolonged period of time, and they are likely to put their cash flow at risk and face financial challenges. So, it is essential to make cash flow improvement a priority before approaching and building long-term investment portfolios. Decisions such as transforming and enhancing payment terms, such as bringing additional payment methods or using evergreen retainers, can help maintain cash flow levels. For instance, according to the 2019 Legal Trends Report, over half of the law firms accepting credit card payments are likely to get paid the same day the client receives the bill. Additionally, developing dedicated payment plans can also reduce the risk of unpaid bills or overdue payments by making legal fees more manageable for clients. Payment plans also reduce cash flow fluctuations between busy and low periods, as funds can be collected over several months.

Which long-term investments a law firm should consider will depend entirely on its available capital and objectives. Small firms typically work with financial planners to determine the best opportunities for their budget. A typical long-term investment portfolio for a small law firm can include interest saving business accounts, long-term stocks with dividends, and real estate crowdfunding. On the other hand, a large firm can also add reliable passive income strategies that guarantee monthly returns, such as commercial property ownership.

Regardless of the choice and needs for an investment strategy, it makes sense for legal firms to focus in priority on resource investment before they can consider moving their capital toward financial activities. An investment strategy is part of a sustainable financial plan defining long-term financial objectives and the activities to achieve them. Like a building block tower collapses if the foundations are weak, the investment strategy relies on the accuracy and solidity of surrounding blocks: revenue goals, financial projections, budgets, and cash flow statements.

In a post-pandemic environment, the main challenge for all revenue-making businesses is to get back on the financial track and serve customers profitably. Law firms face new problems and difficulties in 2022, which will inevitably affect their financial plan. The move toward the digital trend is necessary and has been crucial to preserving the business during the pandemic. However, the digital transformation also drives new clients' expectations and increases cyber risks. Additionally, thriving in a hybrid or fully remote work environment can also be difficult for teams. Technology investments are an indispensable element of the 2022 financial plan. Yet, security, monetary, and team culture consequences can be long-lasting.

Furthermore, the shift toward a remote work environment has also contributed to high turnover rates across all industry sectors. Law firms are also struggling with talent retention, which affects their forecast, budget, and revenue expectations. In a shifting legal environment, it is worth wondering whether investment strategies should become a priority to fund the work and effort necessary to meet the new clients' and employees' expectations.