Comments on: The 3% Dissolution… http://thoughtfullaw.com/2008/09/26/the-3-dissolution/ Empowering lawyers to anticipate the changes, realize the opportunities, face the challenges and embrace the expanding possibilities of the application of practice management concepts to the practice of law in innovative ways that provide service excellence. Tue, 15 May 2012 17:36:33 +0000 hourly 1 http://wordpress.org/?v= By: admin http://thoughtfullaw.com/2008/09/26/the-3-dissolution/comment-page-1/#comment-9155 admin Thu, 02 Oct 2008 16:04:45 +0000 http://thoughtfullaw.com/2008/09/26/the-3-dissolution/#comment-9155 John: I wouldn't say that margins in law firms are that thin. Rather, the way they ran their office, the 3% drop was taken directly against partner income - I don't think they had any pad to cushion them against a turn in their economic fortunes. So combine declining revenues with an increase in accounts receivable (as you noted) and a large debt to be paid to the bank - and you have the recipe for disaster. The partners who are keeping the partnership afloat are the first to leave, since they have the most to lose. This only compounds the problem since the major cash flow producers have left and the firm then goes into a death spiral. The lesson in all this is to reduce debt down to a manageable level relative to partner equity and to increase the storehouse of 'cash' which then works as a shock absorber when you hit a rough spot. Cheers, Dave John:

I wouldn’t say that margins in law firms are that thin. Rather, the way they ran their office, the 3% drop was taken directly against partner income – I don’t think they had any pad to cushion them against a turn in their economic fortunes. So combine declining revenues with an increase in accounts receivable (as you noted) and a large debt to be paid to the bank – and you have the recipe for disaster. The partners who are keeping the partnership afloat are the first to leave, since they have the most to lose. This only compounds the problem since the major cash flow producers have left and the firm then goes into a death spiral.

The lesson in all this is to reduce debt down to a manageable level relative to partner equity and to increase the storehouse of ‘cash’ which then works as a shock absorber when you hit a rough spot.

Cheers,

Dave

]]> By: John Ryan http://thoughtfullaw.com/2008/09/26/the-3-dissolution/comment-page-1/#comment-9153 John Ryan Thu, 02 Oct 2008 15:54:02 +0000 http://thoughtfullaw.com/2008/09/26/the-3-dissolution/#comment-9153 It seems hard to believe that a business facing only a drop of 3% in sales would be enough to trigger a collaspe. Are margins that thin in the operation of law firms? I also noticed that their accounts recievable had climbed to over $110 million. So as you have said before David, have a good retainer agreement and get the money up front. It seems hard to believe that a business facing only a drop of 3% in sales would be enough to trigger a collaspe. Are margins that thin in the operation of law firms? I also noticed that their accounts recievable had climbed to over $110 million. So as you have said before David, have a good retainer agreement and get the money up front.

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