Law Practice Management Asked and Answered Blog

Category:

« Earlier | Later »

Mar 05, 2013

Law Firm Partner Conflict: Ideas for Resolution

Question:

We are based in Kansas City, Missouri. We have two partners, two associates, 5 staff members, and have been together for 6 years. The firm is the result of a merger of each of the two partner's practices a few years ago. The integration has not gone well. We are quite polarized. Each partner operates as a separate island, does his own thing without regard for the other partner, and staff follow suit. Each partner has very different practice values, approaches to practice, and goals. Conflict has escalated to the point when productivity and profitability has suffered and everyone is miserable. Would you share your thoughts?

Response:

Conflict is not always bad – sometimes conflict can actually be productive if it can be effectively managed. Destructive conflict on the other hand can destroy a small law firm. I often try to look at conflict from both a micro and macro point of view.

From a micro perspective I would look at the individuals themselves. Are their personalities compatible? Do each of the partners have the same vision for the firm and share similar core values, propensity for risk taking, need for control and tolerance for ambiguity?

From a macro perspective I would look at some of the organization and structural characteristics of the firm. This might include internal communications systems, interdependence of work tasks, clarity of job roles and responsibilities in the firm, decision-making, resource sharing, etc. Often people are stepping over each other and if we change some of the structural elements we can resolve the source of the conflict.

It is easier to fix and resolve macro level conflict than micro – individual – personality caused conflict. Your situation sounds like micro – individual – personality caused conflict and general incompatibility. Unless your firm wants to operate as a "long ranger" firm operating essentially as independent practices you may want think long and hard if it makes sense to continue the partnership.

Click here for our blog on partnership matters

Click here for articles on other topics

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

Feb 24, 2013

Mentoring Law Firm Associates: Getting the Basics Right

Question:

I am the chair of our three member executive committee. We are a 20 attorney firm in Atlanta. We have 5 partners and 15 associates. We have done a terrible job of mentoring our associates and we need to do better. Do you have any ideas?

Response:

A law firm's greatest asset is its people and your associates are your firm's future. Lack of mentoring is one of the biggest complaints that we hear from associates in on-site interviews.While you may be too small for a comprehensive formal mentoring program you should at least explore an informal program. Start with baby steps and go from there. 

The keys to successful mentoring relationships involve the mentor and mentee deciding on the logistics up front. Many potential mentoring pairs fail to form because the parties did not agree
on the little things up front. Below are tips designed to help both participants in formal and informal programs:

1. Meeting schedule:  Decide on an approximate meeting schedule. Suggest that meetings be scheduled at least once a month.

2. Means to schedule meetings: Share the best way to get on each other’s calendar.

3. Scheduled meetings: Don’t wait until the end of one meeting to schedule the next. Always have the next two or three meetings on the calendar.

4. Length of program/partnership: For formal programs; the firm may suggest a length of time to meet (usually a year). For informal mentoring, suggest having a date on the calendar to review goals and examine the relationship.

5. Confidentiality: Mentors and Mentees need to discuss what confidentiality means to them. It is the foundation of trust, which is the basic currency of mentoring.

Click here for our blog on career management

Click here for articles on other topics

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

Feb 20, 2013

Selling a Law Practice – How do I Value My Practice

Question:

I am the founder and owner of a law firm in downtown Cincinnati, Ohio. I have three other attorneys and 4 staff members. We represent primarily business and civic organizations. Our fee revenues are around $735,000 per year and I take home $175,000 to $200,000 from the practice. I am looking to sell the practice to either the associates in the firm or another law firm. Do you have any idea what my firm might be worth?

Response:

There is no one “right answer” when valuing a law practice. There are different types of valuations performed by different advisors for different reasons. Valuations can be extensive or ballpark estimates. 
 
While law firm owners and partners would like a simple “plug and play” approach to establishing a value for their firms, such an approach does not exist in the real world. There are too many variables that come into play. At the end of the day it comes down to what someone will pay you for your practice and the terms. Often the terms are as important as the price or value.

What a potential buyer is really the future cash flow (earnings from the practice) I suggest that you use the rule-of-thumb approach to get started. Multiply one year’s gross revenue by a factor of x. The result will be the stream of income’s value.

We usually suggest that you average the firm’s gross fee revenue over the past five years to even out any peculiar ups or downs in the revenue stream. Then multiply this average year’s gross fee revenue by a given factor. The factor varies with the industry and even with geographic location. Accounting firms, for example, are valued at 1.0 to 1.5 times (100 to 150 percent) annual gross fee receipts. A well established standard is still in its infancy in law firms. Some argue that the multiplier for the rule-of-thumb method for law practices should be between 0.5 to 3.0. However, based upon what we have seen in recent sales of law practices, the multiplier for the rule-of-thumb method for law practices is ranging between 0.6 to 1.0 (60%-100%) of annual year’s gross fee revenue. Another way to look at it would be 1.2 to 2.0 (120% to 200%) times net income. (Based upon partnership method of accounting and not including owner’s compensation as an expense) Whether the multiplier is in the lower or higher level of the range depends on the following:

  1. Quality of owner earnings
  2. Quality of personnel
  3. Location
  4. Practice area and types of services
  5. Financial performance
  6. Nature of clients
  7. Fee Structure (hourly rates charged)
  8. Repeat or one-time clients
  9. Referral sources.

Start with a multiple of one and adjust for the above factors.

Based upon the figures you provided I would think you would have a difficult time getting a multiple of one for your practice due to the low margin of 24%. Peer practices average 35-45% margins. You might ask for around $700,000 but due to the low earnings, etc. $350,000 – $400,000 might be the best that you can hope for and that may be subject to a five year earn-out. The key is often to find the right person to buy the practice. Finding the right person could take a lot of work and time – so start early.

Click here for our blog on succession/exit strategies

Click here for articles on other topics

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

Feb 12, 2013

Mitigating Law Firm Case Portfolio Risk With a Firm Contingency Fee Case Selection System

Question:

Our firm – St. Louis, Missouri – handles personal injury cases on a contingency fee basis. All 6 attorneys practice in this area and we do no work on any other type of fee or billing arrangement. During the last couple of years cash flow has been tough, we have lost some cases, and we are looking for ideas on what we should be doing differently. We would appreciate any ideas that you may have.

Response:

A balanced case portfolio is critical for contingency fee firms. You must carefully select your cases. Here are some ideas for an effective case selection system:

1. Develop an evaluation/case rating tool to be used to determine risk and feasibility of taking on contingency fee cases. The tool could be a form with an brief write-up and synopsis of the case, potential fee (high and low), probability of success or failure expressed as a probability percentage, specific risks, how long case might be in progress, hours that it may take to staff the case, client cost investments, and other resources that may be required.

2. Determine criteria that must be met to accept or reject a case.

3. Require more than one head or set of eyes on a case before committing to accept a new case. You might want to require all contingency fee cases to be reviewed and discussed at a weekly team meeting before a case can be accepted by anyone – including. This will help keep any  one attorney from getting too emotional and close to a case and base acceptance upon business and economic considerations rather than emotional considerations.  This is routinely done in lot of my PI firms to help access and mitigate case risk.

4. Write-up and document the case selection system.

Click here for our blog on profitability

Click here for articles on other topics

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

Feb 06, 2013

Law Firm Expansion – Expanding Your Geographical Reach

Question:

Our firm is a 14 attorney firm in central Iowa. We have one office in Des Moines and have been considering opening an office in another city. We represent business organizations and very few individual clients. I would appreciate your thoughts and suggestions.

Response:

I hope this is part of an overall strategic planning process and not a random act. If it is then the first consideration should be the needs of your most important existing clients. The first questions you should address are:

  1. Where are your present clients located and how do they communicate with the firm?
  2. To what extent have the needs and demands of these clients changed due to advances in technology?
  3. Are your client relationships based upon direct contact and communication? To what extent are interpersonal relationships crucial to the maintenance of these clients?
  4. Are any of these key existing clients expanding into new geographical areas?

After giving some thought to the above questions determine whether the firm can meet the needs of key clients from existing geographical locations, or whether it must consider new venues. Then consider the following:

  1. It is necessary for the firm to be physically present where the client is located or is the firm better served utilizing existing resources to expand practically, while not physically?
  2. Is a physical presence required to practice in the new location?
  3. Would the firm be better served by utilizing technological resources instead of physical location expansion?
  4. Are there marketing disadvantages by not having a physical presence even if the firm can service the legal needs of the client with a local presence? Could the firm lose out of opportunities by being out of site out of mind?

A geographical strategy must carefully consider and weigh the importance of personal contact.

Think through the process strategically and as a part of your planning process – run the numbers on a few scenarios – and weight the pros and cons of moving into other areas.

Click here for our blog on law firm strategy

Click here for articles on other topics

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

Jan 29, 2013

Cash Flow in a Contingency Fee Law Firm: Re-Balancing Your Case Portfolio

Question:

I am sole owner of a law firm in Western Kentucky. My practice consists of myself, a legal assistant, a part-time bookkeeper, and a part-time contract attorney. The practice is limited to employment law – both plaintiff and defense side. Approximately 80% of my business is contingency fee and 20% is time-billed and or retainer. While the practice has done okay over the past fifteen or so years worrying about paying bills (cash flow) is a constant source of stress for me and my family. I do no marketing – all of my business comes from lawyer referrals. Do you have any suggestions?

Response:

Cash flow has always been a challenge for contingency fee practices. However, times are getting harder. For personal injury plaintiff firms insurance companies are refusing to settle cases, stretching out timelines for settling cases that they do settle, paying less, and becoming even harder to deal with. Other contingency fee practices are also facing similar challenges and everyone is finding it harder to find adequate lines of credit. Many firms that were once 100% contingency fee practices are looking for ways to improve cash flow implementing different fee arrangements or by adding non-contingency fee practice areas.

I suggest that you evaluate ways that you might re-balance your case portfolio to say 60% contingency/time-bill mix. You might consider:

  1. Billing and collecting up front for all client costs even if the fee is contingent.
  2. Flat fee paid up front for a certain segment or phase of work – then contingency fees for the rest of the work.
  3. Actively marketing and targeting certain small business firms, establishing relationship, and seeking out defense employment work billed on a time-bill basis.
  4. Adding a different practice area that would not be billed on a contingency fee basis.
  5. Bring in a another attorney with a book of business in a complimentary non-contingency fee practice area.

Review your case pipeline report and your work habits to insure that you are putting the right effort and mix into the cases that you have so that when your time bill matters come up for billing at the end of the month – all can be billed.

Good luck!

Click here for our blog on financial management

Click here for articles on other topics

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

Jan 22, 2013

Lawyer and Client Referrals as a Law Firm’s Sole Marketing Strategy

Question:

I am the co-founder of an estate planning firm in Chicago. We have two associate attorneys, myself and my partner, and 6 support staff members. Our practice is limited to estate planning, estate administration, and elder law. Our marketing consists totally of referrals from other attorneys, past clients, and other referral sources. We believe that we have a successful practice with revenues consistently exceeding $1.8 million per year. We spend very little on business development and marketing. Should we be doing more?

Response:

If you have a good website, e-newsletter, and are meeting your revenue and growth goals you may not need to invest any more in marketing and business development. You have been blessed with the referral sources that you have and you should be grateful. However, don't take them for granted – continue to nurture them and give first class service to the clients that they refer to you. Your primary marketing investments should be designed to nurture and enhance these and future referral relationships.

Click here for our blog on marketing 

Click here for articles on other topics

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

Jan 15, 2013

Law Firm Owner Considering Bringing in a Partner

Question:

I am the sole owner of a law firm in Tucson, Arizona. I have 7 associates working for the firm. I have one very senior level associate that I want to consider for partnership. I want to do this to keep him interested (he has been approached by other firms) and I envision him being a cornerstone of my succession plan – 10 years out. How should I start the process with him?

Response:

It sounds like you have found the person – or whom you believe is the right person for partnership. However, just because he has been a good associate does not mean that he will be a good partner – the relationship will be different. But at least he is somewhat of a known quantity since you know him and have worked with him for several years.

Here are a few ideas of where you might start:

  1. Outline you goals and expectations for the relationship.
  2. Meet with your associate and identify his goals and expectations for the relationship.
  3. Determine how much control over the practice and decision-making are you willing to give up? Share?
  4. Determine how much and for how long you are willing to make less?
  5. Determine if the associate will be expected to bring in business? When/Timeline?
  6. Think about the firm you want to build – firm-first or lone ranger (team based or individual practices)?
  7. Decide on firm name – will it change? Should it? Impact on image, clients, etc.
  8. Decision as to capital contribution or buy-in? Yes or No? How much? Timeline for payment?
  9. Ownership percentages
  10. Voting
  11. Compensation
  12. Withdrawal arrangements

Once you can come to terms with some of the above issues craft a suitable partnership or operating agreement that you can both live with.

Good luck!

Click here for our partnership blog

Click here for articles on other topics

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

Jan 08, 2013

Focusing the Law Firm To Improve Profitability

Question:

Our firm is a 9 attorney firm in Joplin, Missouri. We have our first partner meeting this weekend and we are looking for ideas that we can implement this year to improve our practice and profitability. We would appreciate any ideas that you may have?

Response:

Based upon our experience from client engagements I 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.

I suggest the following:

Click here for our profit improvement blog

Click here for articles on other topics

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

 

Jan 01, 2013

Law Firm Lawyer Laterals: Best Practices for Evaluating Lateral Hires

Question:

I am the chair of our firm's executive committee. Our firm – located in downtown Columbus, Ohio – has 20 attorneys. In an effort to expand our practice and talent base as well as our geographic reach we are currently considering a seasoned lateral. We have a person in mind that currently works for a very large law firm. What suggestions do you have concerning starting the discussion and process?

Response:

Initially consider and decide upon the actual goals and objectives that you hope to achieve by bringing in the lateral and your particular requirements and specifications for the candidate. Start by focusing on the person – then move to the other areas that must be considered. It is critical that you get the right person on the bus.

Here are a few ideas to help you get started:

  1. Do some research on the law firm that the candidate is with now in order to understand the culture and environment in which he/she has been working, potential conflicts, referral issues, etc.
  2. What are the reasons that he/she is considering leaving the firm?
  3. Candidates experience and professional history.
  4. What practice area does he/she work? Clients served?
  5. Can the candidate bring clients?
  6. In the candidate's practice compatible with your practice and needs?
  7. Assemble a candidate financial profile – billings and collections past five years – working, originating, and billing attorney figures, realization, write-offs, etc. (If you can't get financials get what you can – at least get tax returns of candidate to determine what he/she has been making.
  8. Access financial health of client portfolio, if clients will be coming along with the candidate.
  9. Determine if a level of synergism will result as a result of the arrangement.
  10. Does a deal make business sense?

Click here for our blog on laterals and mergers

Click here for articles on other topics

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

Archives

Categories

    Subscribe to our Blog