Question:
I am a non-equity partner in a four attorney personal injury plaintiff law firm in Newport Beach, California consisting of the firm owner, two associates, and myself. The owner is planning on retiring and has provided me with a proposal to sell me his practice. How do I determine whether this is an opportunity or a potential curse? You advise is appreciated.
Response:
I would start by asking yourself if you have the desire, inclination, and ability to manage a business – a law firm? Do you have the self discipline required? Do you have the needed capital or access to appropriate level of credit line? A personal injury firm will have to fund client advances as well as operations until cases are brought to conclusion and this will require capital or a credit line. I would check with the firm’s bank and other banks to see if you will be able to obtain the same credit line that the firm has enjoyed in the past.
Ask the owner for the following documents:
I would then prepare a firm financial profile spreadsheet spreading the revenue, total expenses, net income, owner earnings, and balance sheet summary over the five year period. Using the headcount data calculate fee per lawyer, expense per lawyer, and net income per lawyer and compare to general benchmarks. Hopefully fee revenue is in neighborhood of $400,000 or more per lawyer. Examine what the owner’s earnings have been over the five year period as well as the assets and liabilities on the balance sheet. Keep in mind that accounts payable and the firm lease are not usually reflected on a case-basis balance sheet. Consider the information that you have gathered and ask yourself the following questions:
This review will give you a good idea of whether this is a deal that makes sense for you.
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John W. Olmstead, MBA, Ph.D, CMC
Question:
I am a partner in a twelve attorney firm in Houston. The firm has five partners and seven associates. We are a first generation firm and we, the partners, have never practiced in other law firms. Currently, the partners have equal ownership interests and are compensated equally. We are experiencing issues with the present method of partner compensation and we are giving some thought to considering other approaches. One of the issues that we are trying to get our heads around is how to measure each partners’ performance – value – and overall contribution to the firm. Do you have any suggestions?
Response:
The first step in a partner’s compensation plan is to develop a system for measuring each partner’s performance. Measuring performance involves selecting the appropriate: (1) performance measurement factors, (2) performance measurement programs, and (3) performance measurement reports.
Performance Measurement Factors
Each firm must decide on its own particular basis for rewarding quality performance by its partners. Factors must be selected against which each partner’s performance can be measured. Then the firm must decide how much weight to assign to each performance factor. The performance factors commonly used to measure partner performance include: (1) professional competency, (2) business development, (3) productivity, and (4) profitability.
Professional Competence
A partner’s professional competence is usually the most important factor in measuring partner performance and is the most difficult to measure because it cannot be easily quantified and it has to be determined subjectively. In addition to technical proficiency professional competence also includes leadership ability, associate mentoring and development, management contribution, and other contributions made to the firm.
Business Development
In many firms a partner’s ability to generate new business is an important performance factor in measuring partner performance. Client origination can be measured in terms of fees generated from new clients and fees generated from new business for existing clients.
Productivity
A partner’s productivity can be measured by determining a partner’s: (1) chargeable hours related to client matters and (2) nonchargeable hours related to those firm matters which the firm has recognized an important partner responsibilities. Another approach is measuring billed or collected fees. Another measure of a partner’s productivity is his or her pyramid of responsibility – the number of associates chargeable hours or collected fees for which the partner is responsible.
Profitability
A partner’s profitability can be measured using three factors: (1) fees billed to clients, (2) realization of fees billed and (3) speed of collection of fees billed. Other measures include collected, effective rate per hour, etc.
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John W. Olmstead, MBA, Ph.D, CMC
Question:
I am a partner in a eighteen attorney law firm in Jacksonville, Florida. Our business development committee is requiring all attorneys to submit annual personal business development plans and become more involved in business development. I have been thinking about writing a book. Is such a goal worth my time investment? I welcome your thoughts.
Response:
While writing a book is not terribly difficult, it takes time and commitment and it will consume some non-billable hours. However, as David Maister often states,”attorneys should consider their billable time as their current income and their non-billable time as their future.” In other words non-billable time is an investment in your future – the long-term. I believe that authoring a book is an excellent way of building your professional reputation and brand and it will pay dividends in the long-term. Authoring a book can create opportunities that could change your whole life.
When I wrote my book I had 142 non-billable hours invested in the book and I had some content available from past articles that I had written over the years. Often a good starting point is to start writing articles around a particular topic/theme and later tie them together in a book. This is a good way of taking “baby steps.”
During the writing process, authoring a book may seem like anything but freedom. However, it is a trade-off. Work for the book now and it will work for you later.
Your published book can generate income for years while you are doing something else. In addition to financial rewards, other payoffs for writing a successful book include:
While your law firm may be doing all the right things to build the “firm brand” I believe that each attorney must build their personal brands as well. Clients advise us that they hire lawyers – not law firms. This is not totally true as in many cases the law firm’s brand may get the firm on a prospective client’s short list – but after that it is more about the lawyers handling a client’s matters. This is why prospective clients ask for the bios of all the attorneys in the firm.
Writing a book can assist you in achieving your business development goals but it is a long-term investment and not a quick fix.
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John W. Olmstead, MBA, Ph.D, CMC
Question:
I serve on the management committee of our sixteen lawyer firm in Columbus, Ohio. We do not currently have a strategic plan and been discussing whether we should spend the time developing one. However, we are not sure what a strategic plan would do for us or why we should invest the time in developing one. We appreciate any thoughts that you may have.
Response:
One of the major problems facing law firms is focus. Research indicates that three of the biggest challenges facing professionals today are: time pressures, financial pressures, and the struggle to maintain a healthy balance between work and home. Billable time, non-billable time or the firm’s investment time, and personal time must be well managed, targeted and focused. Your time must be managed as well.
Today well-focused specialists are winning the marketplace wars. Trying to be all things to all people is not a good strategy. Such full-service strategies only lead to lack of identity and reputation. For most small firms it is not feasible to specialize in more than two or three core practice areas.
Based upon our experience from client engagements we have concluded that lack of focus and accountability is one of the major problems facing law firms. Often the problem is too many ideas, alternatives, and options. The result often is no action at all or actions that fail to distinguish firms from their competitors and provide them with a sustained competitive advantage. Ideas, recommendations, suggestions, etc. are of no value unless implemented.
Well designed strategic plans are essential for focusing your firm. However, don’t hide behind strategy and planning. Attorneys love to postpone implementation.
A strategic plan is useless unless it is used. Don’t create a plan and simply file it. You must actively work your plan. Involve everyone in the firm, delegate action items, and require accountability. Consider it a living document – revise it – update it – change it as needed. Refer to it weekly and incorporate action plan items into your weekly schedule.
Use your plan as your roadmap to your future.
Good luck on your journey.
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John W. Olmstead, MBA, Ph.D, CMC
Question:
I am the owner of a five-attorney estate planning practice in Denver. I have four associate attorneys of which three have been with the firm for over twelve years. Last year an associate that had been with me for many years left the firm and started his own practice. I thought I was paying him well by virtue of a competitive salary and discretionary bonus in additional to other benefits. I do not want to lose other seasoned attorneys. What should I do to provide more incentives for them to stay with the firm?
Response:
Our experience as well as research over the years by our firm and others has demonstrated that the following, in priority order, are the key drivers of associate attorney job satisfaction:
While compensation often is considered the primary factor related to associate satisfaction, I often find that opportunities for career growth and promotion play a significant role. Associates do leave law firms for less money for career growth and promotion opportunities in other firms or in some cases starting their own firm.
A key tool that law firm’s should be using for managing attorneys is a well-defined career path/track. The critical components of a career track include well-defined levels, roles and responsibilities at each level, promotion criteria, and compensation plans for each level. Typically these are outlined and documents in a career advancement program policy document. For example:
I suggest that you give some thought to developing such a program. As you start with levels you will have to do some soul searching and confront the most burning issue – is partnership an option for associates in your firm – do I want partners – and go from there.
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John W. Olmstead, MBA, Ph.D, CMC