Law Practice Management Asked and Answered Blog

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Oct 02, 2012

Law Firm Governance and Structure – Impact Upon Competitiveness

Question:

Our firm is in Nashville TN and we currently have 12 attorneys – 7 partners and 5 associates. We are an eat-what-you kill law firm. In essence we operate as separate profit centers and operate in our own silos. We all have to come together and agree on any and all management decisions. Our management team consists of "all partners". We do not have a office administrator, office manager or even a managing partner. We all have the freedom to do as we please and there is very little accountability to each other. Recently we have been discussing the pros and cons of why we might want to change our governance and overall structure. I would be interested in your thoughts.

Response:

I believe that law firms that are "firm first" team based firms and organized along these lines have (or will have) a competitive advantage with respect to clients, legal talent, and merger partners. As law firms grow the "lone ranger" confederation approach no longer works. Decision-making is too time consuming, partner time is wasted, and opportunities are missed. Synergy (where one plus one equals three or four) is not achieved and the firm achieves little more than any one of the attorneys could achieve in solo practice.

Recently I was working with a similar size firm in Chicago that was looking for a merger partner. When the other firm learned that my client was a "lone ranger" firm they discontinued discussions. Larger firms that are "team-based" are not interested in merging with "long ranger" firms – they tend to cherry pick key talent from these firms rather than pursuing mergers or combinations.

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

 

Sep 26, 2012

Hiring Entrepreneurial Associates That Can Eventually Become Equity Owners or Partners in a Law Firm

Question:

We are a Toledo, Ohio law firm with ten attorneys. We have four partners – all of which are in their 60s and approaching retirement. While our six associates are great lawyers – none bring in business nor do any of them seem to really be interested in partnership. It seems that we hired a bunch of folks that just wanted jobs and have no interest in owning a law firm. I would be interested in your ideas and thoughts.

Response:

Years ago it seemed that all the associates working in law firms wanted to eventually become a partner in the law firm. This has changed as a result of the new mix of women and men graduating from law schools and entering the legal profession, changing attitudes toward work life balance, other opportunities outside law firms, and other variables. While partnership/ownership is still important to many – don't assume that all the associates that you hire will even want to be equity partners – especially if it means a hefty capital contribution and signing personal guarantees for a large amount of firm debt.

A question that I would ask – have you really discussed with your associates their interests in equity ownership? As a group? Recently an associate, whom the firm had written off, advised me that while he was not interested now due to his present situation in life, he would be in maybe five years – especially if others also were brought in as well – in other words he did not want to have the responsibility alone and be an equity owner by himself.

I suggest that you talk with your people and see where they really stand. Help them to begin developing client development skills. Depending on you and the other partner's retirement timeline – you may have to consider other options such as laterals or merging with another firm.

A key suggestion is to look for entrepreneurial associates when you hire. The desire for ownership of a business if often in a person's blood. Don't start the interview with a discussion from law school until the present. Dig deeper into hobbies, family, etc. that will provide clues as to whether you may be hiring someone that just wants a law job or someone that eventually wants to own or be a partner in a law firm.

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John W. Olmstead, MBA, Ph.D, CMC 

 

Sep 17, 2012

Law Firm Production Metrics for Part-Time Associates and Paralegals

Question:

I am a partner in a small estate planning/administration law firm in Louisville, Kentucky. We are having a hard time getting a handle on determining the productivity of our associates and paralegals. Many of our associates and paralegals work part-time and the typical metrics such as 1500-1700 annual billable hours, etc. don't work for us. Do you have any thoughts or suggestions?

Response:

You might want to consider using a billable/worked ratio which is the ratio of billable hours logged to hours worked. For attorneys and paralegals that are totally focused on providing client services a good benchmark is 70%-73%. If an attorney or paralegal works 30 hours a week – you would hope to see 21-22 hours billable per week. Based on 50 weeks per year this would equate to somewhere around 1050 billable hours per year. For a full-timer working 8 hours a day or 40 hours per week – 50 weeks per year this would work out to around 1400+ hours per year. Most full-time attorneys work closer to 50+ hours a week and are expected to log between 1500-1700+ hours per year. The expectation for full time paralegals is around 1400 hours.

The 70-73% ratio is ambitious – but is achievable. For paralegals this goal will not be possible if they are loaded down with administrative duties. Excellent time management and time keeping skills and practices will need to be in place as well.

While billable hours is a starting point you also need to examine the impact of write-downs of work (adjustments prior to billing) and write-offs of bills that have been rendered to clients. In other words – what got billed and what actually was paid. Examine the billing and collection realization percentages and or the realization or effective rates for these people as well.

In addition to dollars you should also factor in quality and speed of work as well as client satisfaction scores from your end of matter client satisfaction surveys.

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

Sep 12, 2012

Job Description for A Bookkeeper – 5 Attorney Law Firm

Question:

I am the owner of a five attorney firm in Chicago. Including staff we have a total of 13 people working at the firm. As we have grown our approach to handling billing and accounting has been piecemeal. We have a combination of several people handling various tasks including a couple of outsourced vendors as well. Frankly it is a mess. I want to restructure and consolidate all the tasks and responsibilities into one bookkeeper position. Do you have a job description that would help guide me in my search?

Response:

Here is a job description that might help get your started.

Position Summary

The primary function of this position is to perform the billing, bookkeeping and accounting functions of the firm. This position requires an experienced and accomplished person with a strong bookkeeping and computer background. The position requires skills and experience in bookkeeping, accounting, law firm billing and QuickBooks software as well as Microsoft Office Products. The position requires experience in a law or other professional service firm environment.

Reporting Relationship

This position reports to the firm owner.

Required Knowledge, Abilities and Skills

1.  Must have at least 2+ years bookkeeping experience as a full-charge bookkeeper with responsibilities including client billing in a law or professional service firm environment.

2.  Must have successfully completed coursework in bookkeeping/accounting. An associate degress in bookkeeping/accounting is desirable.

3.  Must have experience with law firm billing or other professional service firm (TimeSlips or appropriate software that the firm is using) and accounting software (i.e. QuickBooks) as well as Microsoft Office Products.

4.  Must possess strong administrative and organizational skills.

5.  Must have strong interpersonal and communications skills.

6.  Professional appearance and manner.

Duties

1.  Perform all bookkeeping functions

2.  Performs all client billing functions and other accounts receivable functions

3.  Pay vendor bills and manage accounts payable.

4.  Perform all data entry of cash receipts and client costs in billing and accounting systems.

5.  Perform all data entry of cash receipts and disbursements for the IOLTA trust account in the accounting systems.

6.  Process credit card transactions.

7.  Reconcile bank statements.

8.  Work up and make bank deposits for the operating and IOLTA accounts.

9.  Handle payroll.

10.  Handle Insurance

11.  Provide all required financial reports to the firm owner on a monthly basis.

12.  Filing.

13.  Coordination with the firm's accountants.

14.  Management and oversight of the billing and accounting systems.

I hope this helps you get started.

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John W. Olmstead, MBA, Ph.D, CMC 

Sep 05, 2012

Selling Your Law Firm – Readying It For Sale

Question:

I am a sole practitioner in Bloomington, Illinois. My practice is general practice and most of my clients are either individuals or small businesses. I have one legal assistant and one paralegal that works for me. I am 62 and am starting to think about what to do with my practice and what I need to be thinking about concerning selling my practice. I would be interested in your suggestions.

Response:

I would start by asking yourself when you actually want to retire or quit. Do you really want to stop practicing law or do you want to work forever? Over two thirds of the solo and small firm lawyers that I speak with advise me that they want to practice forever – maybe not full throttle – but on a continued but scaled back schedule.

Review Rule 1.17 – Illinois Rules of Professional Conduct to insure that you understand the method and the restrictions involved in sale of a law practice.

If you want to continuing practicing determine whether selling your law practice is your best option given Rule 1.17. Some of our clients are exploring other options including bringing in other attorneys and forming partnerships or merging with other firms.

If you determine that selling the practice is the route you want to go here are a few ideas to begin readying it for sale:

  1. Decide when you want to retire and leave your firm.
  2. Determine who your would like to transfer the practice.
  3. Determine the your goals for sale of your practice and the priority and what is most important to you. (clients, staff, money or sweat equity, etc.)
  4. Determine how much the practice is worth today.
  5. Begin finding way to institutionalize the firm so the client and other relationships are less uniquely you.
  6. Begin implementing management practices that will systemize your firm and improve it's future value. (written procedures and policies, checklists, forms, automated case management systems, organized client files, accounting systems, etc. ) Document everything.
  7. Draft and implement a succession/exit plan and implement same. Insure that it incorporates safeguards for your clients, employees, and family if the unexpected happens to you.

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

 

 

Aug 29, 2012

Keeping Law Firm Clients Happy

Question:

I am managing partner with a 12 attorney general practice firm in St. Louis. As part of our marketing program we recently completed an informal client survey and were surprised at some of the feedback. The feedback was less positive than expected. Our clients advised us that our services took longer than expected and fees were also higher than expected. We work hard for our clients and I don't see how we can improve turnaround or reduce legal fees. I would appreciate any thoughts that you have.

Response:

Based upon client satisfaction surveys (telephone interviews) that we do for law firms we find that one of the biggest problems is that the attorneys are doing a poor job of managing client expectations. Your clients get frustrated when you promise one thing (timeline or fees) and the result is very different – especially when the work takes longer than promised or the fees are higher. Even though you don't structure it as a promise your clients take it that way. The key is to under promise and over deliver. I suspect that upon the initial client meeting you are under estimating the timeline and low balling the fee range. Reduce the promise – increase the - timeline and fee range and then shoot to deliver under that range. This will do wonders for improving the client relationship.

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

Aug 22, 2012

Admitting New Law Firm Partners

Question:

Our law firm is located in San Antonio, Texas. We have a total of eighteen attorneys which includes me and two other equity owners that founded the firm and contributed capital, three equity partners that were made partner that did not contribute any capital, two non-equity partners, and ten associates. The original three partners control the firm and make all of the decisions with little involvement or input from the others. They are not provided with financial statements or reports. The original three partners bring in virtually all of the business. We are faced with some hard decisions concerning partnership admission – non-equity to equity, associates to non equity, etc. Our compensation cost for attorneys is eating away at our earnings for attorneys that are worker bees and don't bring in any business. Your thoughts?

Response:

You may want to ask yourselves whether you want employees or partners. It sounds like the other three equity partners are not part of the inner circle and are not really functioning as part of the partnership. What is the criteria for becoming an equity partner? Is client development part of that criteria? Should they contribute capital? If they are not adding value to the firm – growth – you are diluting the earnings pool and reducing the size of the pie for yourselves. Personally, I think in a firm your size criteria for becoming an equity partner should, among other things, include client development and a capital contribution. They should have some skin in the game, contribute capital, and signup for their share of the liabilities. I also believe they should then be included in the inner circle.

I would start here by addressing these issues with the three equity partners. They I would develop non-equity and associate career progression plans – associate to non-equity partner and non-equity partner to equity partner – outlining timeline for consideration, the consideration process, the criteria, and the respective and expectations for each. (What it means)

Make the criteria tough and resist the temptation to make everyone a partner.

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

Aug 14, 2012

Law Firm Management Roles – What Do I Need To Be Good At?

Question:

I am the owner of a 12 attorney firm in Dallas. We have 26 people including attorneys and staff. I founded the firm 20 years ago. While we have an Accounting Manager – I am responsible for the management and direction of the firm. While we have done okay over the years – I often feel deficient as a manager and am not always sure that I am covering all of the bases. Is there such thing as management 101 for guys like me?

Response:

Mention management 101 and I think of the five functions of management. Each of these roles must be performed by someone in every law firm and business if it is to be successful. In a small firm such as yours you must perform each of these functions and be reasonably good at all of them.

Here are the five functions:

1.  Planning

Deciding in advance what to do, how to do it, when to do it, and who is to do it. Planning bridges the gap from where you are to where you want to go. It makes it possible for things to occur which would not otherwise happen. Planning is often referred to as business, long range, or strategic planning.

2.  Organizing

Creating an intentional structure of roles, duties and responsibilites, and accountabilities. Defining  what is to be done, by who, and how? Sometimes this involves establishing departments or practice groups.

3.  Staffing

Manning the jobs which involves hiring, performance management, training, mentoring, and development of people to fill the organizational roles.

4.  Directing

Directing employees involves motivation, communications and leadership.

5.  Controlling

Measurement of accomplishments of events against the standard of plans and the correction of deviations to insure attainment of objectives according to plans. In essence this involves reviewing your business, long range or strategic plan or budget against actual performance using metrics and dashboards/reports to determine how well you are making progress. If you are falling short of firm goals – determine problem areas and take corrective action to get performance back on course.

Use the above functions as a report card. Ask your self – how good are you at performing each of these roles? Are you performing them at all?

In addition to these roles you need to have a working knowledge of accounting and finance and be able to manage the financial affairs of the firm "work the books" as well as being good at getting the right people on the bus (hiring right) and keeping them there.

As you continue to grow you will eventually need to hire management talent to delegate some of these functions to perform.

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

Aug 08, 2012

Law Firm Owners and Partners – What is Your Primary Focus – Business Person or Lawyer?

Question:

I am an attorney in Chicago. I am the sole owner of an estate planning practice consisting of 4 other attorneys, 4 paralegals, and 2 administrative support staff members. We have reached a size where I am having problems handling and balancing the demands of serving my clients and managing my firm. It seems I am working day and night and have no time for anything but work. I am frustrated and it is driving my crazy? I would appreciate any thoughts that you may have.

Response:

You are not alone. This is a common problem in law and other professional service firms. I have similar problems in my own firm – it is very difficult to serve two masters – serving your clients and managing your firm. Eventually you have to pick one – client service (doing legal work) or managing and running your business – as the area that receives your primary focus. This is not to say that you should not do both – but you select the primary area that you are going to focus on and get help with the other area.

A question that I typically ask my new law firm clients – what do you want to be or do – be a business person or a lawyer. The answer to the question often provides a hint to how you should structure your firm. If you want to be more of a business person – hire legal talent to help with serving clients and performing legal work and spend more time working on your firm rather than in it. If you want to be more of a lawyer and do legal work and serve clients hire a legal administrator or business manager (this is more than an office manager) to manage and run your firm.

I have more and more owners of small law firms that are managing their law businesses and not practicing law. I believe the appropriate direction is what makes you happy and what type of work you enjoy doing. You practice should support and fulfill your personal goals, what you want out of life and what makes you happy. If that is managing – then manage. If that is doing legal work – do legal work.

Two great books on this subject are – The E-Myth Revisited and The E-Myth Attorney – available on Amazon. The theme of both of these books is:

Small business owners often spend too much time being the technician (i.e. lawyering) and not enough time managing and innovating.

Think about where you want place the priority of your focus – working on firm (business) or in it.

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

Jul 31, 2012

Using Law Firm Economic and Other Surveys

Question:

I am the firm administrator for a 16 attorney in Memphis. I am new to the field and just started with this firm. I have been asked to conduct some preliminary law firm economic research and obtain – purchase if necessary – survey data on the subject. Do you have any suggestions concerning using such surveys?

Response:

The use of sound secondary research surveys can be invaluable and can assist firms in their quest for “best practices.”  While law firms should strive to use surveys that meet the test of sound research, this is not always possible since no other source of information may be available. In other words – some information may be better than no information at all. In such situations law firms may decide to use research surveys that do not satisfy sound research guidelines. Such information can still be useful for exploratory analysis and when the information will be used for “benchmark” purposes. However, it is important for the firm to keep in mind the limitations of the study.

Many of the national law firm management surveys are designed to provide the information necessary for law firm management to evaluate their firm’s performance relative to comparable law firms. Statistics included in these studies represent broad performance benchmarks against which an individual firm can be measured. Law firms can use this information to compare their firm’s performance with other firms as a whole, as well as with firms of similar size, geographic location, population, practice specialty, etc. Keep in mind that the objective of such comparisons is
to identify potential “red flags” that warrant additional investigation. Deviations between your firm’s figures (for any performance measure) and figures in the survey is not necessarily good or bad. It merely runs up the red flag which alerts you investigate further. Information in these surveys should
be used as guidelines rather than absolute standards.

There are numerous considerations that should be investigated when acquiring and using secondary research. Due the extent and complexity of these considerations rather than outline these here is a link to an article that I wrote on the subject that provides a good outline, checklist and tool for using secondary research. How to Use Secondary Research to Manage Your Firm – A Primer

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

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