Canadian Lawyer - sample

16 M A R C H 2 0 1 9 w w w . c a n a d i a n l a w y e r m a g . c o m E arly spring is traditionally a time when money is front and centre. The federal and provincial governments release their budgets, com- panies issue annual reports and prepare first-quarter numbers and law firms pay partners their previous year's profits. No doubt, managing partners are crossing their fingers and hoping that 2019 will match or exceed 2018. That's because industry observers note that last year was a prosperous year for law firms. Stephen Mabey, an accountant and principal at Applied Strategies, Inc., which provides business advice to law firms, says most Canadian law firms saw a three- to-five-per-cent increase in revenues, and they either made their budget or "were in spitting distance." That stacks up with the industry globally, notes law firm strategist Patrick McKenna, of McKenna Associates Inc. He says that 2018 "was a surprisingly good year" and most of the top foreign law firms experienced a five-per-cent increase in revenues, which he calls "pretty damn good." It also makes 2018 one of the top years in the past half-decade. However, McKenna notes that the industry is far off its peak of 2007. Bill- able hours in 2018 averaged 122 per month, below 134 per month prior to F O L L O W T H E M O N E Y LEGAL SPENDING IS UP By Jim Middlemiss the financial crisis. That's a difference of 144 hours per year, he says, which translates into decreased productivity of $70,000 per lawyer. While 2018 was a "bang-up year," McKen- na says, "we are nowhere near what we were doing back then," and whether 2018 reflects a "new normal" remains to be seen. One of the problems, Mabey says, is that while many Canadian law firms met or exceeded their budgets in 2018, it's mislead- ing, because they often weren't "real budgets" in the traditional sense. "A lot of law firms really don't do budgets," he says. Rather, they "do an expense budget and don't budget revenues and then wonder why expectations aren't satisfied. They never set the expecta- tions." They can get away with that when the economy is booming, but that can be a disas- ter when markets turn. That lack of attention to budgeting details, he predicts, will change as we move into 2019. Not because law firms will take advantage of more sophisticated financial software but because banks will start to ratchet down on credit lines and loan facilities thanks to rising interest rates, growing trade disputes, shaky capital markets and an upward economic cycle that is getting long in the tooth. Mabey is already seeing it with banks when it comes to law firm budgets. "They want a little more sophistication in the financial reporting, which is causing firms to scramble." Credit is getting tighter across the country, he says, and banks are once again demanding that partners provide personal guarantees. That's not to say it's all gloom and doom. @JimMiddlemiss While law firms saw an increase in spending in 2018, that trend could reverse in 2019 O P I N I O N

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