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Year-End Considerations for Law Firms

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Year-End Considerations for Law Firms

By: Dean Dorton | December 3, 2020

On October 2, 2020 we hosted the Forensic Accounting for Attorneys webinar. This article summarizes some of the key takeaways from the webinar, as law firms begin planning for an unpredictable 2021.

Business Valuation | Cybersecurity | Litigation Support | Litigation Support - Family Law

Recently, Dean Dorton hosted its 2020 Forensic Accounting for Attorneys webinar. The purpose of the event was to teach pertinent fundamental tools and practical tips that attorneys can use to help their clients achieve favorable financial outcomes in a variety of settings. The webinar covered a variety of topics including the impacts of COVID-19 on business valuation, IT management and cybersecurity, and a panel discussion on best practices for working with financial experts.

As the year 2020 begins to wind down, here are a few takeaways for law firms planning for 2021 and beyond:

  1. COVID-19 and Business Valuation – Economic and Industry Considerations COVID-19 had a clear impact on the economy which ultimately affects business valuation. Consumers have reacted to COVID-19 and related shutdowns with decreased activity and more online purchasing. This consumer behavior has caused many businesses to try to adjust to new patterns. National analysts are projecting it may take a several years to fully recover from the coronavirus pandemic and related shutdowns. However, that impact is not universally downward. Many industries such as groceries and technology have boomed while others such as restaurants, hospitality, and entertainment have struggled. Careful consideration of the facts and circumstances of each business are required as many rules of thumb have been upended and market prices quickly become outdated in business valuation calculations. Continue reading to find out what this means for business valuation calculations and the business valuation income approach.
  1. COVID-19 and Business Valuation – Income Approach to Valuation ConsiderationsPrior to COVID-19, many valuations under the income approach were completed using capitalized earnings (one period) models. Due to the nature of the economic and industry impacts discussed above, valuation experts have to consider the need to address changes in Company cash flows that might occur over the next few years. Where historical results were stable and could be used as an indicator of the future, COVID-19 has changed that assumption for most businesses. The past may not be as strong of an indicator of future cash flows. This has created the need for the use of a discounted cash flow model, which relies on company projections to address changes in future cash flows over a multiple year analysis. Some valuation professionals are creating multiple scenarios, weighted by probabilities, when forecasting future cash flows. This allows the valuation analyst to consider the different impacts the virus may have on the economy and the specific company in the future. We recommend working with a certified business valuation professional in order to provide your clients with the most accurate data.
  1. IT Management and Cybersecurity IT management and cybersecurity are crucial to keeping your law firm running but have you done enough? The quickly evolving industry of data protection makes it unwise to assume that your data and information (both your law firm’s information and your client’s information) are protected from a cyber-attack. As technology continues to advance at a rapid pace, it is ever more important for businesses to secure their sensitive information. Standards are quickly becoming stricter with client expectations rising and many states adopting strict reporting standards, especially for law firms working with those in an insurance-related capacity. It is pertinent to make cybersecurity a top priority. Doing so does not mean you have to spend six-figures on cybersecurity. Prioritizing budget money for cybersecurity means utilizing tools like Dean Dorton’s cybersecurity assessment and scorecard to determine where you have cyber security weaknesses. This will help you identify your greatest areas of risk, and allow you best address them within your budget and timeframe.
  1. Expert Testimony – Three of our Dean Dorton expert witnesses, Elizabeth Woodward, John Herring, and Missy DeArk, have been busy throughout the year despite the impacts of COVID-19 on the legal system. The rapid change to virtual communication and testimony led to some advantages, including convenience and decreased travel time/expenses. Disadvantages noted by our team members include potentially longer trial times, exhibit presentation challenges, and issues with technology not working. Some tips for using expert witnesses in virtual testimony moving forward based on our team members’ experiences include:
  • Having a practice session between the attorney and the expert witness
  • Familiarizing yourselves with various video conferencing systems such as the popular Zoom and Cisco Webex platforms
  • Investing in the necessary tools to deliver a high quality experience

As your law firm continues its planning for 2021, it is worth your time to consider the items listed above and how they will impact your clients and your firm.

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