Law Firm Finances: Better, Worse, the Same?

Answer: All of the Above

The question of law firm finances is much-discussed, especially by those who practice in, work at or sell to lawyers and law firms.  Just as the country as a whole cannot decide in a comprehensive manner if things are getting better or getting worse or staying the same, the legal profession cannot consistently make sense of what can only be called mixed signals.

There are encouraging trends.  Revenue is up (see generally Altman-Weil law firm finance archive). Productivity is up, and in some cases rates have risen, though there is some indication that this development may come from adjusted leverage ratios brought about by the disappearance or scarcity of young associates.

There are neutral signs, including a mixed law firm merger picture, i.e. while activity is up, some of it is because of financial distress, some of it is driven by regional factors and some of it is of the Wilmer Cutler-Hale and Dorr “let’s get together and go kick some butt” merger model (AmLaw Daily blog).

And there are distressing signs as well.  The Bureau of Labor Statistics reported that legal employment in the U.S. continues to stagger along a not-quite-straight line.  Another report in the AmLaw Daily blog on a bad September for legal employment offers a terse and not very encouraging summary: “After a see-saw first half of the year, the legal sector has seen a net loss of 1,500 jobs so far in 2011 and has shed 3,500 jobs since September 2010, according to the BLS report.”

Noted law firm finance expert Dan DiPietro was very optimistic at the beginning of the year about law firm profits, but by the middle of the year he was less cheerful, for a very ominous reason: law firm expenses were now rising faster than revenue, as firms found that cuts made in 2009 and 2010 could not be sustained and in some cases had to be atoned for throughout 2011.

So why does all this show up in a Fastcase blog?  It’s simple.  We can help.  And we can help in an area of the firm to which clients are very, very sensitive: legal research costs and results.  And that will be part two of our discussion.  Stay tuned.

Contributed by Charles Lowry of Fastcase

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