Law Practice Management Asked and Answered Blog

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November 2018

Nov 28, 2018

Associate Attorney Mentoring and Giving Feedback

Question:

I am the owner of an elder law firm in Jackson Mississippi. There are three associate attorneys working in the firm that have been with me under five years. All three were hired directly out of law school. While I try to mentor and train each of the associates as needed in “real time” I also conduct annual performance reviews with each associate and provide them with a written performance evaluation. I am getting frustrated as it seems that the feedback that I provide them does not stick and they continue to make the same errors and mistakes. I welcome any thoughts that you may have.

Response: 

You may need more frequent discussions that are scheduled. I have some law firm client owners  that have an ongoing scheduled meeting with each associate twice a month. You may also want to examine how you actually provide feedback to your associates. Often owners beat around the bush and don’t really provide meaningful feedback.

Giving meaningful feedback contributes an essential component to effective associate management. Whether you give feedback informally, midway through the work or at the end, or formally through a scheduled  evaluation process, it gives you a powerful management tool, assisting individuals in professional development, teaching those you manage to work more effectively, and giving recognition and showing appreciation when deserved.

Effective feedback should be:

Praise you associates when deserved. Praise provides an effective motivator for most associates and should include:

Provide constructive criticism when deserved. It should include the items listed above and you should give it:

Use the following outline when giving constructive feedback:

Try to implement some of these ideas and go from there.

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

Nov 21, 2018

Client Feedback from Law Firm Clients

Question: 

I am the owner of a four attorney, myself and three associates, estate planning firm in Charleston, West Virginia. I spend the majority of my time managing the business and developing business and very little time servicing clients. This has been intentional as I enjoy the business aspects of the practice more than providing legal services. I conduct comprehensive written and face-to-face performance reviews with my associates annually and in real time as needed. These reviews are used as an associate performance management tool and a client service quality control tool. While the performance reviews include a performance rating category for client satisfaction I have no real way of determining client satisfaction. Do you have any thoughts on how to measure this?

Response: 

Much can be learned by soliciting feedback from your clients. Structured telephone interviews and other forms of surveys conducted by a neutral third party can provide many surprises as well as answers. Client satisfaction surveys can be the best marketing investment that you can make. In addition, client satisfaction surveys can be used to quantify and measure client satisfaction with individual attorneys in your firm.

Our law firm clients have found their clients to be impressed that the firm cares about their opinions. It is good business to listen to your clients. Understanding what bugs people about your services and those of your competition can be the most valuable input to strategy development you can get your hands on.

Many of our law firm clients that represent individual clients use a short two page survey document that is mailed or provided online at the conclusion of a matter. The survey poses a series of specific questions that addresses performance in several categories and rates performance on a 1-5 scale which allows a performance grade to be calculated for the firm and the attorney handing the matter. The survey also includes an area for comments. Paper surveys mailed back from clients are compiled in spreadsheets and a running score determined for the firm and individual attorneys.

If you use a paper survey mailed to clients I suggest:

  1. Send a cover letter with the survey attached with a postage paid return envelope.
  2. Thank the client for their business.
  3. Ask them to think of you again when they have future needs.
  4. Ask them to refer business to you.
  5. Ask them to complete the survey and return to your office.

A better approach, if your clients are e-mail and computer friendly is to use an online survey tool such as Survey Monkey and send clients an email with the contents listed above with a link to the online survey. Client feedback would automatically be compiled and would save you the cost and effort of mailing out surveys, postage, staff cost of compiling the surveys in a spreadsheet, and make it easier for clients.

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Click here for our article on client satisfaction

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

Nov 14, 2018

What Does it Cost to Operate a Law Firm?

Question: 

Our firm is a four attorney personal injury plaintiff law firm with three partners and two associates located in upstate New York. Could you advise us as to what the expected cost range per year is for an attorney to practice? Assume the attorney generates gross revenue of $500,00 per year. What should he/she expect to earn as gross income based on that revenue?

Response: 

Depends on the type of practice, whether the firm does extensive advertising, etc. In general, the average range of margins are running from 35%-45%. In other words the partnership pie – profits available to partners whether in the form of W2 salary or net income. If a partner were practicing alone with minimal overhead and maximizing the use of technology the margin could be better. In general a lawyer generating $500,000 in revenue in a firm such as yours with typical overhead -hopefully 35% – 45% margin – $175,000 – $225,000. I have worked with some firm such as foreclosure law firms where the margins are 15% margin and some high volume advertising PI plaintiff firms at 20% margins.

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

Nov 08, 2018

Selling an Owner’s Law Practice to an Associate Gradually

Question: 

I am the owner of an elder law firm in Phoenix, Arizona. I have one full time associate, one part-time associate, and three staff members. I am earning around $300,000 a year from the practice and my full time associate’s salary is $100,000 a year. I am sixty and would like to retire and be out of the practice in five years. I would like to begin phasing down and working part time in the next year or two. My full time associate has been with the firm for ten years and she is an excellent attorney and has an excellent relationship with our clients and referral sources. While she has not brought in many clients through her own referral sources she has done an excellent job signing up new clients from the firm’s referral sources, website, and seminars that she has conducted. I have talked with her in general terms about her buying my practice when I retire and she has expressed an interest.

I feel that I should be entitled to some sweat equity from the practice in the form of retirement compensation or buy-out. With this said I would prefer that my practice “stay in the family” and be sold to my associate rather than selling my practice to an outside buyer. I would appreciate your suggestions.

Response: 

One of the issues today with many associates is they have large student loan debt and have little in the way of capital and little or no borrowing capacity. As a result many firm owners in your situation have to get much of their payout from future earnings after their retirement if they wait too long. Your best bet is to start selling shares as soon as you can based upon a valuation method that you determine. You have five years remaining – ten years would have been better. In essence you determine the value of the firm, determine the price per share, determine how many shares that associate will acquire, and then calculate the price for the number of shares being acquired. For example, let say you practice is valued at $600,000. Divide by 100 = $6,000 per share or percentage point. For an initial twenty percent interest or twenty shares the buy-in price would be $60,000. Then over the next five years gradually sell the associate additional shares. Upon your retirement you would have sold all of your shares.

Typically the problem is the associate does not have any cash or ability to borrow on their own. You may be able to help the associate borrow the money from your bank. If you can – this would be the preferred approach. If the associate cannot raise the capital they you will have to finance the buyout. For a $600,000 buyout a five-year timeline will be impossible for you to have all your cash by retirement. How you structure your compensation as you begin working part time and your associate’s compensation as a partner will have a bearing on capital that your associate will have available. Be careful that you are not funding your own buyout. You will more than likely have to get a large portion of your payout after retirement via a secured promissory note with the associate for the balance.

The sooner you start the better your chances for a successful outcome.

Click here for our blog on practice sale

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

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