Law Practice Management Asked and Answered Blog

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Apr 18, 2017


Law Firm Succession/Exit Plan – Merger, Selling, Laterals, or Promoting Associates to Equity

Question:

I am the owner of a small estate planning firm in Worcester, Massachusetts. I have three associates and three staff members. I am fifty five and am wanting to begin putting in place my succession/exit plan. I would like to retire and exit the practice in ten years. Would I be better off selling to another firm or attorney, merging the practice, bringing in laterals, or selling to one or both of my associates? I am interested in your thoughts.

Response: 

The biggest challenge for many firms, is finding the right WHO.

The who dictates the what – the actual succession/transition/exit strategy. In other words, many law firms find that they start down one path and end up on another. Not all non-equity partners and associates want to own a law firm. Not all lateral and merger candidates will be a good fit for your firm and culture. The key is the right relationship and sometimes that takes the form of making someone at the firm a partner, bringing in a seasoned lateral, merging with another firm, or selling the practice. Therefore, succession/transition plans have to be flexible and often the key is not get stuck in creating complex succession plans at the onset. Establish timelines, outline a general course of action, generate some momentum and see where that takes you. Then build the plan when you can see where the firm is headed.

Unless the retiring partner in a larger firm has a unique practice that requires the firm to conduct a search for lateral or merger candidates, larger firms will not have to embark on a search. However, solo practitioners and often sole owners will have to explore their options and conduct a search for the following:

This search and exploration often is the most time consuming and difficult part of the process and often the options identified through this process ends up dictating the succession/transition/exit strategy.

If a firm has associates, does the firm have the right associates on the bus for the long term? In other words, has the firm hired associates that want to be business owners and own a law firm? Many owners and senior partners in law firms are approaching retirement age and are beginning to think about succession strategies. As they examine their associate lawyer ranks, some partners are often surprised to learn that there may be few takers. While their associates may be great lawyers, they may not bring in business and may not be interested in ownership or partnership. Such firms have hired a bunch of folks that just wanted jobs and have no interest in owning a law firm. While this hiring approach may have satisfied the firm’s short-term needs – it may fall short in the long term.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

 

Apr 11, 2017


Client and Management Transition in a Larger Law Firm

Question:

I am a member of the executive committee of a seventy-five attorney firm in Houston, Texas. We are a first generation firm. Several of our founders are in their sixties and we have recently begun discussing succession planning and how clients and management duties will be transitioned. We would appreciate your thoughts in these areas.

Response:

In larger firms, clients are more likely to be large sophisticated clients, possibly Fortune 500 companies, which refer many matters to the firm during the course of a year. Often such clients may be both a blessing and a curse for the firm. A blessing in that their business provides the firm with huge legal fees during the course of a year. A curse in that their business represents a large percent of the firm’s annual fee collections and a significant business risk if the firm were to lose the client. An effective client transition is critical, takes time, and must be well planned.

Successful client transition – moving clients from one generation to the next – is a major challenge for larger firms. Shifting clients is not an individual responsibility but a firm responsibility. To effectively transition clients the individual lawyer, with clients, must work together with the firm to insure the clients receive quality legal services throughout the transition process. Both the individual lawyer and the firm must be committed to keeping clients in the firm when the senior attorneys retire. Potential obstacles include:

In larger firms, partners may have management responsibilities as well as client responsibilities. A retiring partner may be a managing partner, executive committee chair or member, or serve as a chair or member on other firm committees. Retiring partners will have to transition these responsibilities to other partners in the firm.

Transitioning client relationships and management responsibilities effectively can and where possible should take a number of years – preferably five years – typically not less than three years. For this reason, many firms use five-year phase down programs for retiring partners. These plans provide detailed timelines and action steps for transitioning client relationships and management responsibilities.

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John W. Olmstead, MBA, Ph.D, CMC

 

Apr 04, 2017


Law Firm Retreats – Including Key Staff Members

Question: 

I am a partner in a forty-five lawyer firm in Memphis and a member on the firm’s executive committee. We are planning on having a two-day planning retreat in June of this year. We have had these retreats every year for the past six years. Past retreats have only included attorneys. This year we are considering including staff members. We would appreciate your thoughts as to whether this is a good idea.

Response: 

A firm invites all key staff to a retreat when they can play a major role in identifying problems and developing solutions. A firm retreat is an excellent forum if the partners or management have determined that individuals at different levels within the firm are having communication problems – for example – where communication is inadequate between:

Having these individuals participate in solving their own communication problems at the retreat usually produces better results than those obtained when the partners hand down orders that may not deal with the real issues. Staff participation can help identify problems and can involve more firm members after the retreat in the implementation of solutions – improved buyin.

As a rule, it is very productive to include individuals from nonprofessional or non management levels at a retreat when they are eager to be involved in problem solving efforts on a day to day basis.

A retreat solely for partners at the senior level is conducted to review firm progress and to deal specifically with financial, compensation, conflict between partners, growth planning, business development, or unique problems with staff members.

Some firm hold separate meetings for each level of staff in addition to combined meetings with attorneys.

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John W. Olmstead, MBA, Ph.D, CMC

Mar 29, 2017


Improving Law Firm Profitability

Question: 

I am the managing partner of a six lawyer general practice firm in Chicago. We have four partners and two associates and have been in practice for twenty years. While we are holding our own and doing okay financially we would like to do better. The partners have never earned more than $175,000 – some years not even that. What can we do to improve profitability?

Response: 

Profitability can be increased by increasing revenue, decreasing expense, or increasing leverage – ratio of associates to partners. Most law firms do not have an expense problem – they have a revenue problem. Profitability improvement programs tend to be more successful when they concentrate on improving profits through increased revenue versus programs than focus on reducing expenses. A program that focuses on increasing revenue such as increasing billable hours, raising billing rates, and improving realization rates will yield better results. Programs that focus on expense reduction often do not yield satisfactory results in the long-term.

Improvement in leverage usually can only be achieved as part of a long-term program. Sudden sizeable increased in the number of associates may prove to be counterproductive if there is not sufficient client work to keep associates busy. Another option would be to reduce the number of partners  through retirement and other options must be carefully planned and I am sure is not an option that your firm is looking for.

I suggest that you review your expenses to insure that they are in line and if they are not make reductions that make sense. Then focus on the revenue side of the equation. Review your client base, practice areas, billing rates, flat fee rates, billable hours being worked by your partners and associates, and realization rates. Then identify problem areas and chart out a course of action.

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John W. Olmstead, MBA, Ph.D, CMC

 

Mar 21, 2017


Retaining Valued Associate Attorneys – Conducting Exit Interviews

Question: 

Our firm is a fourteen attorney law firm in San Diego, California. We handle business transactions and litigation for business firms in the area. I am a member of the firm’s three-member executive committee. We have been experiencing associate attorney turnover for the past two years and don’t know whether it is due to more opportunities in the job market as the economy has improved or whether we have internal issues. We would appreciate your thoughts on the matter.

Response:

I suggest that in the future you conduct structured face-to-face exit interviews when associates resign their positions. You may want to even interview associates by phone that recently resigned and left the firm. Exit interviews can provide an opportunity to find out how you can retain your valued associates. Departing lawyers that are willing to be open regarding their experience with your firm can provide valuable feedback and information as to how your firm is viewed by your associates, why your associates are leaving, and what the firm can do to resolve issues and improve retention.

I suggest that you conduct either face-to-face or telephone interviews or as a last resort written confidential voluntary questionnaire. Questions might include:

  1. What influenced your decision to join the firm?
  2. Has the firm met your expectations? Describe?
  3. Were your work assignments aligned with your personal and professional goals and interests?
  4. Did you find your work assignments interesting and challenging?
  5. Were there particular individuals who had a substantial impact on the quality of your experience here? How did they impact your experience?
  6. Did you receive timely and quality feedback regarding your performance?
  7. What experiences did you find the most positive?
  8. Least positive?
  9. Is there anything that the firm could have done to improve your experience here?
  10. Were you satisfied with your compensation and benefits?
  11. Why did you decide to leave the firm?
  12. What factors influenced your choice of the new firm that you joined?
  13. Other issues or recommendations that you feel would be helpful for the firm to know.

After you have solicited feedback via exit interviews it is critical that you look into any issues reported, determine whether there is merit, and take appropriate actions that can be taken to resolve issues and improve retention.

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John W. Olmstead, MBA, Ph.D, CMC

Mar 14, 2017


Sixteen Characteristics of a Successful Contingency Fee Law Firm – A Guide for New Managing Partners

Question:

I am a newly appointed managing partner for an eighteen attorney law firm in Dayton, Ohio. We are a employment law litigation firm that represents plaintiffs on a contingency fee basis. We have been in business for five years and we are facing severe cash flow and profitability challenges primarily due to lackluster contingency fee outcomes. Do you have any guidelines or suggestions as to what we should be aiming for?

Response:

In general I find that successful contingency fee law firms are:

  1. Sustainable over the long term
  2. Are disciplined, have order and common vision, and manage the firm like a business.
  3. Have long-term talented people that are passionate and team players.
  4. Organized and have structure.
  5. Have the right people on the bus and in the right seats.
  6. Meet on a structured basis.
  7. Have a long-range plan.
  8. Have a budget.
  9. Have fee goals for each producer.
  10. Have a marketing plan.
  11. Are consistently profitable.
  12. Have solid cash flow.
  13. Use metrics to manage the firm.
  14. Are financially stable.
  15. Have a succession plan.
  16. Are diversified – both practice areas and case portfolio.

I would use this as sort of an initial performance checklist. You may need to examine your case portfolio and your contingency fee case risk profile and look for ways to diversify your case mix.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

Mar 10, 2017


Law Firm Merger – Are We a Suitable Candidate

Question: 

Our firm is a two partner firm in Columbus, Ohio. We have two staff members. There are no other attorneys in the firm. We have been in practice together for seventeen years. I am sixty two and my partner is in his fifties. My practice is limited to intellectual property and my partner’s practice is limited to medical malpractice defense. Recently, as a result of lack of coverage, our unwillingness to hire associate attorneys, and our frustrations with dealing with management issues we have decided that we would like to merge with a larger firm. However, we are concerned that our numbers may not be satisfactory. Our five year averages are as follows:

Since we split the pot evenly we each made $130,000 on average.

With these numbers are we a suitable candidate or are we just whistling in the wind? We would appreciate your thoughts.

Response: 

Obviously these are not great numbers. Depending on firm size and type of practice – most firms (small firms) are looking for revenue per lawyer in the range of $360,000 and up. Many firms are looking for books of business that will keep the candidate and an associate busy – $750,000 plus.

However, law firms are also looking for new sources of business (clients) and lawyer talent. There are firms out there that have the work and need help with the work and might be interested in your talent and skills as well as the clients that you could bring in. You may not be able to join the firm as an equity partner but may be able to join as a non-equity partner. (Depends on firm size) Due to the very different practice areas that each of you have you may not find opportunities in the same firm.

I encourage you to look around, start your search, and see what happens.

I have seen many situations similar to yours that have resulted in successful mergers and lateral or Of Counsel positions.

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John W. Olmstead, MBA, Ph.D, CMC

 

Feb 28, 2017


Personal Injury Law Firm TV Advertising – Prerequisites to Launching a Program

Question: 

I am the owner of a plaintiff personal injury law firm in Arlington, Texas. I have three associate attorneys, six non-lawyer case managers, and three other staff members. Our marketing consists of our yellow pages program and our website. I am considering TV advertising and I would appreciate your thoughts concerning venturing into this arena.

Response: 

This is a big step. TV advertising does work for personal injury plaintiff firms and can take your firm to the next level if you can afford it and are willing to stay the course. A few years ago the managing partner of a a very successful personal injury plaintiff firm stated to me “if I could only afford to do one marketing thing it would be TV advertising.” You can’t dabble with advertising – you must invest for the long haul and have the proper infrastructure in place to process new client inquiries, book appointments, and handle new client intake appointments. If this foundation is not laid you should not invest in a TV advertising program. Here are a few thoughts and observations:

  1. Establish your advertising goals and objectives.
  2. Retain a top notch media consulting firm with law firm expertise.
  3. Establish an advertising budget for at least six months – one year is better.
  4. Secure adequate capital to finance your advertising budget.
  5. Be prepared for borrow money.
  6. Develop your operational infrastructure. This consist of everything from your advertising tracking database, case management system, website, call center/telephone system, call scripts, documented intake process and procedures, dedicated intake call operators, designated people to take in new cases, and case evaluation protocols.
  7. Have a process in place to handle and respond to new case calls after hours and on weekends including attorneys on call able to meet with prospective clients during these times.

We have all seen personal injury plaintiff firms that dabble in TV advertising – on TV today and off-air tomorrow. They spent a lot of money and were hoping for immediate gratification. When after running ads for a month or two and they have few or no new cases they concluded that TV advertising does not work. The truth is they were not prepared to stay in the game long enough. This does not work.

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John W. Olmstead, MBA, Ph.D, CMC

 

Feb 21, 2017


Law Firm Equity Partnership/Admission Requirements

Question: 

Our firm is a sixteen-attorney business law firm in Cleveland, Ohio – six equity partners and ten associates. We the equity partners have been discussing putting in place an associate attorney career advancement program and outlining equity partner admission requirements. Can you share your thoughts on what we should be considering and how we should get started.

Response: 

You might want to consider developing a competency model. Rather than using a timeline – how long an associate has been with the firm – base career advancement to senior associate, non-equity partner, and equity partner upon achievement of competencies at various levels. These include:

Examples of core competencies might be legal excellence, client orientation, leadership, career commitment, etc.

In addition to competencies typically required to be  a Level Three attorney equity membership has additional requirements and obligations. For example:

  1. Equity owners will be sharing in the risk and reward of ownership and will invest their time and capital in the firm. They will have a firm-first orientation and they will share the vision and core values of other equity owners in the firm.
  2. Equity owners must add value to the firm. They must not just be good worker bees – they must pay for themselves, cover their cost and their share of the firm overhead, and generate enough work to keep other attorneys busy.
  3. Equity owners must be client finder, minders, and grinders.
  4. Equity owners must act like owners of small businesses.
  5. Equity owners must contribute to management and marketing of the firm.
  6. Equity owners must mentor younger attorneys.
  7. Equity owners must follow firm policies, system, and procedures – no lone rangers.
  8. Equity owners should contribute capital and sign for the office lease, firm credit line, and share in other financial obligations of the firm.
  9. Finally, future equity owners must be good marriage partners considering the other equity partners in the firm.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

Feb 14, 2017


Law Firms Moving to the Cloud

Question: 

Our firm is a twelve-attorney business litigation firm in Sacramento, California. I am one of three members on our technology committee. Our IT infrastructure consists of an in-house Microsoft file server, a separate Microsoft Exchange e-mail server, document management as well as time billing and accounting software. Our documents are stored locally and managed by the locally installed document management software. Several of our partners have talked with other firms that are operating totally in the cloud. We would appreciate your thoughts on whether moving to the cloud is something that we should consider?

Response: 

It would be interesting to know the size of firms that your partners have been talking with. I am seeing many solo and very small firms operating completely in the cloud using cloud-based time and billing applications such as Clio, Rocket Matter, and QuickBooks online with their e-mail hosted using Microsoft Office 365. Some are using products such as DropBox and Microsoft One Drive to store their documents in the cloud. These billing applications do not provide the functionality and reporting that larger firms require and as a result larger firms are still using systems that firms have been using for years. Some firms that are using these systems are having them hosted in the cloud. These firms have no premises file servers. All of their data is hosted in the cloud – applications, documents, and e-mail. (Note this is different that cloud-based applications).

Firm’s your size are taking a more cautious approach to moving to the cloud. Many firms have large investments in their existing hardware and software and also have concerns about security and confidentiality issues. While it is tempting to look to the cloud as our savior from constant hardware and software upgrades as well as IT providers, moving to the cloud should not be explored without doing your homework.

Personally, I believe that in many cases the cloud may be more secure than the security that exists in many law firms on premises systems. Law firms and law departments are increasingly adopting the cloud. Fifty-six percent of the Am Law 200 firms polled in the Partnership Perspectives Survey use some form of cloud computing and 47 percent of those polled in the 2016 ITLA/InsideLegal Technology Purchasing Survey predicted that over a quarter of their firm’s software and service offerings could be cloud-based in the next one to three years. Sixty-one percent of small firms polled in the ILTA survey said that over half of their firm’s software could be cloud-based in the next one to three years.

Here are my thoughts and suggestions:

  1. Don’t rush off without doing due diligence on the application or hosting vendor. Checkout their security both while your data is in transit and at rest on their computers. Read all their whitepapers and contracts. Check references.
  2. Be careful of implmenting existing billing and accounting cloud-based applications. You may be going backwards until these systems mature and incorporate many of the features and reporting needed by larger firms.
  3. Don’t go with the new kid on the block. Insure that you go with a vendor that has staying power in the market.
  4. Take baby-steps – you might want to start with:
    1. Having your e-mail hosted.
    2. Later – implement a cloud-based document managment system.
    3. Later – have your existing billing and accounting applications hosted with a cloud provider.
  5. See where the time-billing and accounting cloud-based applications are in a few years and whether you should consider moving to such a system.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

 

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