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Dec 18, 2012

Law Firm Start-Up – First Steps

Question:

I am a non-equity partner in a large law firm in LA. I have been practicing for 15 years and with the recent economic turmoil we have experienced in our firm, downsizing, and overall uncertainty I have recently been considering starting my own firm. What are initial steps in starting up a law firm?

Response:

While there is an entire list of start-up steps that need to be taken when launching a law firm here are a few to get you started and the order to be taken:

  1. Create a business plan – even if only a few pages – for the firm. Your plan will serve as a roadmap for your practice. Your mission should address what services you are selling, where you are selling them, and to whom. Your plan should address your competitive strategy – how you will be different than your competitors. It should also identify your core values. A vision for 5 years out into the future as to where you would like to see the firm and specific goals and objectives should be formulated.
  2. Select your firm name. Think long and hard about your firm name. What name will have staying power as you grow? Will it play well with internet search engines? Can you get your firm name as a internet domain name? Determine organizational form and incorporate into firm name and branding.
  3. Staffing. Determine whether you will hire staff initially and your staffing needs going forward. Incorporate into your office space, furniture and furnishings, and equipment needs.
  4. Office. Decide on office space, negotiate your lease, and obtain your business address. Commence on the process to make space ready and furnish and equip.
  5. Business Identity. Hire a graphic design firm to begin the design of your business identity and carry this design plan into all of your collateral marketing materials including web site, letterhead, office signage, business cards, etc.
  6. Banking and Registrations. Obtain FEIN number(s), register business with required organizations, file organizational documents, open bank accounts.
  7. Website. Develop a first class web site that demonstrates expertise.
  8. Furnishings and Equipment. Begin selecting office furniture and furniture as well as equipment, computers, software, etc.
  9. Insurance. Obtain all needed insurance including premises liability, malpractice insurance, medical, life, workers compensation, disability, etc. Insure that you obtain appropriate tail coverage with your malpractice insurance.
  10. Start-Up Project Plan. Maintain a project plan for all of the activities and tasks and monitor weekly as the plan unfolds.

Good luck on your journey!

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

Dec 11, 2012

Law Firm Management – Planning Ideas for 2013

Question:

Our 16 attorney firm is having our first planning retreat next week to plan for 2013. I have been charged with putting together the agenda and program. Do you have any suggestions that we as a firm might consider or think about adopting? 

Response:

  1. Take a serious look at the firm's present position in the marketplace. Review financials, compare against financial ratios, compare with both firm past history and against law firm benchmarks. Examine how well the firm is competing. Is the firm too dependent on a narrow base of clients? Is the practice at risk? Conduct a client survey and obtain client feedback both on firm performance as well as possible unmet needs and opportunities. Consider a comprehensive management review.
  2. Formulate business goals and develop a strategic business plan as a roadmap for the future. Design and simplify business reports designed to measure the goals identified in the strategic business plan. Strive for a one page summary as the primary report.
  3. Require all timekeepers in the firm to submit personal one page business plans which in addition to outlining goals for the year provided fee revenue goals with an element of stretch. The goals should have a stretch component but yet be realistic and attainable. These plans should be approved by the Executive Committee, Managing Partner or the Partnership.
  4. Find ways to focus the firm and foster accountability from all.
  5. Undertake a few projects at a time that can be realistically accomplished. Delegate tasks across the firm.
  6. Law firms must adopt management structures that enables the firm to act decisively and quickly. Structures that do not support such a culture must be replaced.

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

Dec 04, 2012

Ideas For Law Firms Desiring to Take On More Contingency Fee Work

Question:

Our firm is a 18 lawyer general practice firm in the western Chicago suburbs. Recently, we are beginning to take on more personal injury cases on a contingency fee work which is creating some cash flow strain. Do you have suggestions regarding firms doing contingency fee work?

Response:

Contingency-fee work can pose major risks for law firms, as they earn no fees if they lose those cases and sometimes have profits deferred in protracted litigation. In addition, cases can be lost with no fee whatsoever recevied. Whether your firm is considering "big deal" litigation or bread and butter run of the mill personal injury litigation you may want to consider the following:

  1. Don't dabble in contingency fee work. Take it seriously and insure that your case portfolio is adequately diversified.
  2. Reduce case portfolio risk and improve case profitability by implementing a sound case intake system to insure that you are selecting quality cases.
  3. Realize that you have to spend money to make money and that you simply may not have the financial resources to take on certain cases. Learn how to say no and when to refer these cases out to others.
  4. Insure that you have an adequate portfolio of cases (number of cases, size and type) to insure diversification and manage risk.
  5. Analyze the profitability and return on each case and ascertain what can be done differently on future cases. Typical metrics include effective rate and/or LODESTAR.

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

Nov 27, 2012

Law Firm Financial Improvement Plan for 2013

Question:

Our 17 attorney firm has had less than stellar revenues and profitability for the last several years. Our billing and realization rates are in line, we have a good mix of partners and associates, we have managed our expenses effectively, and our accounts receivable are at satisfactory levels. The culprit is utilization – billable hours. Partner annual billable hours are around 1100 hours and associate billable hours are around 1300.  Everyone seems to be working hard. I would be interested in your thoughts?

Response:

Sounds like you have given the RULES (rates/realization, utilization, leverage, expenses, and speed/collection) formula careful thought and analysis. I agree that you have a problem with utilization. General guidelines for partners and associates for annual billable hours are in the 1700 range with litigation firms being much higher and smaller general practice firms being lower – sometimes in the 1500 range. However, 1100/1300 billable hours is a problem and should be looked into to determine the exact nature of the cause. Causes could be any one or a combination of the following:

  1. Insufficient work – lack of business
  2. Poor work ethic – not working hard enough
  3. Poor time management habits – lack of focus, goals, plan
  4. Poor time keeping habits – not recording the time and getting it captured in the system

Each attorney in the firm may have different problem areas. For some it may be they need to work harder. Set expectations and enforce them. Others may need more work and if work is not available their non-billable time should be focused on marketing and other firm building efforts. For those that have time management and or time keeping problems training/skill development should be provided.

Suggest you conduct a review and discussion with each attorney in the firm to identify causes and engineer an agreed to plan with each to work on appropriate problem areas. If habits need to be changed – be patient – changes in habits take practice and time.

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

Nov 13, 2012

Law Firm Succession: Approaching 70 – What Now

Question:

We are a two lawyer firm in New Orleans. We are both partners in the firm. We have 5 staff members. My partner is 68 and I am 63. Recently, we have starting thinking about what we are going to do with the practice in the next few years and we aren't sure where to start. Do you have any thoughts along these lines?

Response:

You will need to consider whether you should consider merger, sale of the practice to an outside buyer, or sale of the firm to the other lawyers in the firm that you bring in and grow over the next few years. You need to find ways to institutionize the firm so that in additional to professional goodwill (your personal reputation and goodwill) you develop practice goodwill (goodwill of the firm that will remain after you have left the firm). If you bring in other lawyers develop them and create a desire and motivation for them to want to be owners/partners in the firm. Develop your staff and practice systems. Diversify and stabilize your client base.

If you decide to sell to attorneys in the firm – begin the process early so that most of the buy-in is completed before your actually leave the firm. The longer the planning horizon – the easier they buy-in burden will be for others.

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

 

Nov 06, 2012

A Backup Up Plan for Small Law Firm Owners – Using Practice Continuation Arrangements

Question:

I am a 52 year old solo practitioner in Memphis with one non-attorney staff member. While I do have some concerns about my long term succession exit strategy my immediate concerns are more short term in nature. How do I cover and serve my clients if I take vacation, get sick, or get busy and need help? What are your thoughts?

Response:

Sound practice continuation arrangements can solve this dilemma and preserve practice value
and can help prevent a lawyer’s spouse or immediate heirs from facing a hasty sale or disposition of the practice in an emergency. A practice continuation arrangement can also give lawyer practitioners, their staff, and their family’s peace of mind.

A practice continuation arrangement is an arrangement – typically in the form of an agreement or contract – made between an individual lawyer or a small law firm and another lawyer or law firm. The arrangement describes a course of action to transfer a lawyer’s practice and sets payment for its
value. In the event of vacation, temporary or permanent disability, or death, a practice continuation arrangement protects the practice, the business interests of the lawyer or law firm’s clients and the financial interest of the lawyer and his or her family.

There are different kinds of practice continuation arrangements. Typically a lawyer enters into a one-on-one agreement with another sole proprietorship, partnership, limited liability company, or professional corporation in the community. Agreements can range from simple “dual coverage for each other” for vacation or other temporary absences to sale of the practice in the event of long term disability or death.

Look around for another solo practitioner or law firm that you can partner up with.

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

 

 

 

Oct 31, 2012

Developing a Law Firm Associate Career Progression/Partnership Admission Program

Question:

Our firm is a 14 lawyer firm in Phoenix, Arizona. We are a new firm (formed 8 years ago) and we have 5 equity partners and 9 associates. Several of the associates have been with us since day one (8 years) and are asking us about partnership. We want to be fair and keep our top talent. What are your thoughts on this topic?

Response:

A common complaint that we hear from our interviews of associates is lack of feedback on short term performance and what is takes to "make partner" and how they are progressing toward eventual partnership. During a recent interview an associate told me – I would like to know:

  1. What does it take to become a partner – consideration criteria? What do I have to do?
  2. What is the timeline for consideration?
  3. How am I doing – am I partnership material?
  4. What does partnership mean in this firm?
  5. What are the mechanics of admission? (Is there a buy-in)

I suggest that you and your partners consider developing what I call a Law Firm Associate Career Progression/Partnership Program and put it in writing. Here is an approach you might take:

  1. Determine if you want more partners? How many – evaluate the appropriate ratio.
  2. Consider non-equity partners as a first step and determine what that means.
  3. Establish a minimum number of years for consideration – i.e. seven years.
  4. Determine competencies and expectation for associate development and document.
  5. Develop an associate performance evaluation form and conduct formal annual evaluations.
  6. Develop partner admission criteria (associate to non-equity and non-equity to equity partner) and document.
  7. Write-up an overall program document and include as attachments the competencies document, the performance evaluation form, and the admission criteria document.
  8. Present the program to associates in a live meeting format to launch the program.

Regarding equity partnership – make the criteria tough – and require a buy-in or capital contribution. Business development and a client following should be required by most firms for the equity tier. 

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

 

Oct 23, 2012

Redesigning a Law Firm Compensation System – 8 Attorney Firm – 4th Year of Practice

Question:

We are an 8 attorney law firm in Evansville, Indiana. We have five members and three associates. We started our firm four years ago. Each member has an equal share for both ownership and compensation purposes. We cut the pie equally. After four years some of the members feel that the equal sharing approach is no longer working and we need to consider a different approach to compensation. I would appreciate your thoughts on how we might get started on modifying our approach.

Response:

Virtually all successful compensation systems feature two common qualities that are linked to
each other and stand the test of time.

First, a successful system must be fair and be perceived as fair by the partners who
are  essential to the firm’s economic success and reputation.  The perception of fairness is critical.  To determine if a system is fair, partners can ask the following questions:

  1. Do  I understand the system?
  2. Does the system recognize what individuals contribute to the organization?
  3. Are the rules clear?
  4. Are the rules followed and applied in a consistent manner from person to person from year to year?
  5. Are the compensators individuals who are trusted and respected?               

A second quality of successful compensation systems is that of simplicity.  Research has shown that there is a direct correlation between the simplicity of compensation systems and the degree to
which partner understand how their compensation is determined.

The challenge is structuring a compensation system for a law firm is in selecting the best mix of appropriate compensable criteria and the right amount of participation that is consistent with the firm’s needs and its culture. 

Before you go very far you should address what type of firm you are trying to build – Lone Ranger (a group of individual practitioners) or firm-first (a team-based firm). In other words "are we in this together." The answer to this question will provide a clue as to whether eat-what-you kill or other approaches to compensation will be appropriate.

Changing your compensation system is difficult and should be approached carefully and thoughtfully.

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

 

Oct 16, 2012

Maximizing Law Firm CLE Investments

Question:

We are a 18 attorney firm in Wheaton, Illinois. We have started the preparation of our budget for 2013 and are looking for ways to maximize the benefits from our CLE and other training and education investments. Any ideas?

Response:

Training and skill development is not easy. Studies reveal that 90 percent of the people who attend seminars and training sessions see no improvement because they don’t take the time to implement what they learn. Practices create habits and habits determine your future. Up to 90 percent of our normal behavior is based on habits. The key to skill learning is to get the new skill to become a habit. Once the new habit is well developed it becomes your new normal behavior. This requires practice. Unfortunately, law firms do not give employees time to practice and experiment.

Research on memory and retention shows that upon completion of a training session, there is a precipitous drop in retention during the first few hours after exposure to the new information. We forget more than 60 percent of the information in less than nine hours. After seven days only 10 percent of the material is retained. Most memory loss occurs very rapidly after learning new information. Your attorneys and staff can improve their memories by:

Skills become automated through practice. The more we perform a set of actions, the more likely we are to link those actions into a complete, fluid movement that we do not have to think about. With enough practice, employees can become fluent in many different physical and mental skills.

Provide your attorneys and staff with time to practice and experiment. Schedule lunch and learn programs. Provide ongoing training in small bite size chunks relevant to the needs of the firm in a just-in-time fashion.

Use it or lose it!

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

Oct 09, 2012

Survival Tips for Law Firm Legal Administrators

Question:

I am the Director of Administration with a 45 attorney firm in Des Moines, Iowa. I am new to this position and could use some pointers on what I need to be successful in my role. This is my firm law firm.

Response:

Few things are as important to an administrator’s future as that person’s ability to influence the decision-making process and effect change.   Skills and competencies are important, but so are results. To transcend to the next level and enhance your value to your law firm, you must help your firm actually effect positive changes and improvements and improve performance. This requires selling ideas to partners in the firm, and having them accept and actually implement those ideas. To succeed, you must achieve three outcomes:

1.  You must provide new solutions or methods.

2.  The firm must achieve over time  measurable improvement in its results by having adopted the
     solutions, and

3.  The firm must sustain the improvements over time.

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

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