In 2006 Dechert was facing a potentially budget-busting task: During the next 18 months, it would need to relocate its three largest offices. Capital expenses were expected to skyrocket from single-digit percentages to a third of annual earnings. But instead of turning to a bank loan to cover the cost of the moves and gut renovations, the firm went to its partners. For three years before the moves, partners kicked in more capital, producing a surge in cash on Dechert’s balance sheet. The firm didn’t have to borrow a penny.
Dechert’s fixed-asset expenses returned to normal levels in 2008. But the firm held on to its higher capital requirement, evidence of the lengths to which it still goes to avoid bank debt. Today, equity partners must maintain 44 percent of their current compensation level in their capital accounts, up from 30 percent in 2002. That capital cushion, combined with other cyclical cash management techniques, has allowed the firm to avoid even short-term borrowing during a period of high growth. "We were going to cancel our line of credit, but the bank convinced us to keep it," says Andrew Levander, chair of the firm’s policy committee.
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