Stagflation is settling in as the economy faces the twin challenge of slowing growth and high inflation. Here’s how you can keep your firm profitable even in the face of a looming recession.
Stagflation (stagnation + inflation) is an economic situation wherein inflation remains high, but economic growth sputters. In a stagflation situation, unemployment rises, consumer demand slows, and business activity starts to wind down; however, input costs remain high as the effects of the recent inflationary period continue.
The Canadian economy’s recent boom is coming to an end. With inflation out of control and the Bank of Canada raising interest rates in response, major banks like RBC are now predicting that a recession will hit in the first quarter of 2023 – much earlier than expected. While the COVID-19 pandemic created unprecedented economic challenges, Canadian professional services firms enjoyed a long run of strong growth prior to the pandemic; Canada’s economic recovery was also faster and stronger than expected, particularly in industries that were able to move operations online.
Now, though, the Canadian economy is becoming a victim of its own success as the central bank works to constrain inflation; in essence, Canada is now entering a period of stagflation. As stagflation sets in, the coming months will test many firms’ resilience and adaptability to new economic conditions. Here are some of the ways your firm can prepare for the emerging economic headwinds and weather the oncoming storm.
Professional services firms have benefitted from the recent boom in economic growth, acquiring new business and finding new markets to serve. In 2021, the average law firm in Canada reported a 44% profit margin, according to Industry Canada. The legal industry in particular has seen significant growth, with worldwide demand for legal services at an all-time high. This means law firms and other professional services companies have enjoyed an era of budgetary surpluses, enabling firms to spend substantial money on luxuries like expensive meals and client gifts.
While there’s nothing wrong with enjoying the finer things in life, the coming economic headwinds mean firms will need to assess their budgets and determine which line items are needs and which line items are wants.
For example, with the professional services labour market still very tight, investing in employee retention is a must. It’s considerably more expensive to hire a new employee than it is to retain an existing employee, so employee retention can enable your firm to maintain – or increase – its workload without overburdening staff.
In contrast, expenses like travel can easily be eliminated using videoconferencing tools. You can set up a cost-control “tower” by performing a detailed review of your costs, cutting those that are non-critical, and then scheduling a monthly review meeting to assess your budget. Trimming the fat from your budget now means you’ll have extra cash reserves to deploy when stagflation hits its peak – and that’ll put you ahead of competitors who waited too long to implement cost-control measures.
If your firm is experiencing the effects of stagflation, it’s a good bet that your clients are as well. Your clients are likely looking for ways to increase revenue, boost productivity, or cut unnecessary costs; that means if your firm cannot demonstrate itself to be an asset in the fight against stagflation, you’re at risk of losing clients.
One of the best ways to build your firm’s economic resilience is to roll out new services packages that can create value for clients in a time of economic uncertainty. These packages should aim to help your clients with their must-have line items. In hockey terms, it’s time to help your clients play defence. How can your firm help your clients to improve regulatory compliance? What service offerings or packages can you roll out to cut costs or reduce risks? Implementing a defensive business strategy built on stagflation-oriented offerings means your firm will stand out from your competitors; it also enables you to be seen as a value creator and an important budgetary asset in a time when most organizations are looking to make cuts.
Leverage AI & Automation Technology to Boost Productivity
In times of economic uncertainty or struggle, firms often find themselves in a position where they’re forced to do more with less. That means finding innovative ways to expand work capacity without adding permanent costs to your budget.
This could mean bringing on contractors or specialists to perform matter-specific work on an as-needed basis – or, it could mean using artificial intelligence and automation software to reduce the amount of time your team spends on each file.
One of the best ways to cut costs and boost productivity in the stagflation era is to assess all of your processes and determine where technology can make a difference. Take stock of everything your firm does in a day, and look for tasks that could be done in less time or with fewer mistakes if you had a tech solution for it.
Are you still sending out invoices manually? An Accounts Receivable automation solution can accelerate your AR and free up your accounting department to manage more files in less time. Still doing manual contract review? AI and outsourced contract analysis solutions can accelerate your contract review process while minimizing errors.
And of course, if you’re still drafting documents by hand and managing physical hardcopies, then a cloud-based document and workflow automation suite is a great way to reduce time spent on each file, minimize errors, and cut your costs. With a professional services AI suite like Appara, for instance, your team can instantly auto-generate documents, update minute books, and eSign & eFile from within the platform, saving time and eliminating the need for paper records.
(In one case, Appara client RDM Lawyers LLP 2X’d their incorporation work while cutting time spent per task by 75%. Discover how Appara helped RDM Lawyers fend off a staffing shortage in our case study.)
Stagflation is settling in across Canada and the United States. High costs, stagnating growth, and a recession on the horizon are all contributing to the most challenging economic climate since the 2008 global financial crisis. While the 2008 crisis caught the world by surprise, this time, there are ample warning signs that trouble lies ahead. That means your firm can prepare to weather the coming storm and come out the other side intact and ready to thrive. By reworking your service offerings, implementing cost controls, and taking advantage of productivity-boosting technology, you can trim the fat without resorting to layoffs and position your firm to come out of the stagflation era stronger than it was before.
Is stagflation threatening your firm’s growth? AI and automation technology could be the silver bullet that controls your costs. For a free trial and to discover how Appara can help your firm stay resilient, contact us.
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