A report from Citi’s Global Wealth at Work Law Firm Group and Hildebrandt Consulting concludes that many law firms will see a decline in profitability by year’s end, as they head into 2023 with a “high” likelihood of a recession and a higher cost structure due to inflation.

Confronting those challenges, some law firms may take a number of measures within the upcoming months to increase efficiencies and maximize profits, including adjusting leverage, investing in highly-skilled staff such as pricing specialists, reducing office space, outsourcing more, and targeting strategic growth instead of opportunistic growth. Additionally, hiring may shift, as the market will likely favor firms with a tilt toward practices such as litigation or bankruptcy and restructuring.

The report also spells out reasons for optimism. Expenses are expected to moderate some in the fourth quarter. Practices such as litigation and bankruptcy could get a boost next year. And despite an overall 1.2% dip in legal industry demand so far this year, the majority of firms beyond the Am Law 50 have seen a demand increase.

Of course, several challenges are facing firms heading into 2023. That includes how to achieve growth in an unstable macro environment; continued competition for top talent, despite a slowing of the more aggressive war for talent seen last year; the development of hybrid work models; and rising costs brought on by inflationary pressures.