Harvard Law issued an article (see link at the bottom of this page) that highlighted a simple format that firms follow that leads up to collapse. Interestingly enough, they were able to actually track major firm collapses and were able to derive a pattern the developed in nearly all cases.
The most surprising part? The firms were still profitable when they collapsed.
The other surprising part? This applies to law firms of all sizes.
An overly simplified synopsis is that firms make a profit. A year later, the profit margin goes down to 90% of what it was the year before. In the third year of the cycle, the profit margin goes down to 80%. The interesting part is that the firms are still profitable and still current on debt payments.
Harvard Law noted that this starts a cycle of decline that, once it hits the 80% threshold, ends up with catastrophic consequences for the firm. Upon analysis of the data provided, if you are in a firm with multiple partners, some of them will start to leave. Those who do remain will ask for increased compensation to remain. This spirals into debts going from current to behind – all due to a slight decline in profits over an extended period of time.
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Link to the Harvard Law article: