Law Practice Management Asked and Answered Blog

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Jul 26, 2011

Law Firm Succession and Retirement Options

Question:

I am the senior partner in a six attorney firm in Los Angeles. I am 68 years old and thought that it was  about time I begin thinking about retirement and begin discussions with my other partners. We have no partnership agreement and no plans in place to effect the transition of partners. What are some of the methods being used by law firms effect the retirement of partners?

Response:

There are almost as many approaches as there are law firms – ranging from partners that just leave and give their practices to the others partners to various methods for buying out the departing partner's interest in the partnership. In the final analysis the optimal approach is what makes everyone happy and a solution that everyone can live with. Here are a few illustrations:

Fully Funded Retirement

50 Percent Wind Down Option – Then Retirement Payments For Live 

Pension For Life

Mandatory Wind Down

Five Year Retirement Benefit Payout Based On Earnings

More and more firms are avoiding payouts for life and even moving toward funded buyouts.

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

Jul 18, 2011

Law Firm Management Projects & Implementation

Question: 

I am the managing partner of a 35 attorney firm in Washington D.C. Governance consists of the full partnership on some management matters, myself at the next level, and a firm administrator. The administrator and I meet regularly to review accomplishments – but it seems like initiatives take forever to get implemented or never get implemented at all. Some are initiatives on my plate and some are initiatives on the administrator's plate. What are your thoughts?

Response: 

I assume that you are a part time managing partner and that you are also servicing clients full time as well. It it difficult serving two masters – the firm (non-billable time) and your clients (billable time). Firm management issues always seems to take a back seat to client priorities. To do otherwise requires that you be very focused and effective time manager. You must balance both balls at the same time. Your administrator has a similar problem. His or her priorities are often focused on day-to-day operations management and there never seems to be time – especially large chunks of time – for long term projects. Law firms have a hard time getting long term initiatives or projects such as the following implemented:

  1. Firm strategic plan
  2. Partnership agreement
  3. New partner compensation system
  4. Case management system
  5. Website
  6. Employee handbook
  7. Standard Operating Procedures Manual (SOP)

A starting point is to recognize that managing long term projects such as those listed above requires a different approach and tools than does day-to-day operations management. Projects involve all the work that is done one time and ongoing operations represents the work we perform over and over. Every project has a beginning and an end. They unique and temporary. Work that is unique and temporary – projects – requires different management disciplines.  

Successful projects are those that:

  1. Schedule – Are completed on time according to a schedule or timeline
  2. Cost – Are on budget
  3. Quality – High quality – meet expectations

Suggest that you and your administrator read up on project managment and try to apply some of the concepts to your longer range projects. A good book on the topic is "The Fast Forward MBA in Project Management", by Eric Verzuh, available at Amazon.com in book or e-book format. Another good book is "Legal Project Management: Control Costs, Meet Schedules, Manage Risks and Maintain Sanity", by Steven B. Levy, available at Amazon.com in book form. You may also want to consider using an online project management system such as Basecamp or Teamwork We use secure onling project management software to manage all of our projects and provide client access to their projects on the portal.

Your long term initiatives must be managed as projects and managed differently than ongoing operations. 

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

Jul 12, 2011

Expanding Law Practice into Insurance Defense

Question:

I am an 11-year attorney practicing at a small firm on the west coast. We currently focus on business litigation, employment litigation, corporate formation, bankruptcy, wills and trusts, and personal injury. We are trying to expand our practice into the area of insurance defense.  To that end, I have been sending out correspondence to insurance companies offering my services in defense of general liability, property/casualty, and employment practices claims.  My goal would be to develop a regular stream of business from these types of cases, and to cross-market our other services to clients that come through insurance defense referrals. I am not sure if I am going about this the right way, and would like to seek your counsel.

Response:

In all honesty I  have more firms asking how to diversify out of insurance defense into more self-insured and direct representation work. If you want to pursue this market you will need to become part of the club and do more than just dabble in this area. You will have to get on the "approved lists" of the various insurance companies. Once you are on these lists you have to entice claims manager to use you as opposed to other law firms that are on their approved lists. In other words establish relationships with numerous claims manager throughout the company. This is harder than it used to be due to policies that many companies now have prohibiting various forms of networking such as dinners, gifts, ball games, etc. Now days it seems that educational venues is one of the few formats that is not frowned upon. You may also find that some companies reluctant to work with a firm your size. I have advise by insurance companies that they like to see a certain level of bench strength (backup). The firm does not have to be a large firm but often the insurance company likes to see a minimum of four or five lawyers in a firm. You will have to have a track record of success, understand the business, and be able to accomodate the unique billing (including electronic LEDES billing), case management, and reporting requirements that insurance companies require.

Here are a few ideas to get started:

  1. Become involved in every possible organization that involves insurance claims, ACCA, and other such groups.
  2. Join and become actively involved in these groups.
  3. Ofter to give speeches and presentations to these groups.
  4. Develop relationships with news reports and have an effective public program that insures that you get all the PR you can when you have successful outcomes in your cases.
  5. Speak at ACCA and RIMS (Risk Insurance Management Society) conferences.
  6. Form alliances with bigger regional and national insurance defense firms.
  7. Research target companies and make application to get on their approved lists.
  8. Obtain listings in Best and Martindale.
  9. Have a quality website that demonstrates expertise and a e-newsletter that provides information that will help claims managers and adjuster be more successful.

Good luck on your journey.

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

Jun 28, 2011

Effectiveness of Business Cards For Lawyers

Question:

I rarely use my business card anymore. Is there any value for a lawyer to have one anymore?

Response:

The business card is not what it once was. Years (decades) ago, the business card was the totality of your identity and contact information, and sometimes a little more information about you. Your name, firm name, address and phone number was everything needed to do business with you. For some, especially solos proprietors, it was your tiny firm brochure. Times change.

The past few years have seen some changes. Many of us work more virtually than before, communicate by email, and often change job titles and employers almost as fast as we can print up new cards. We pass along our contact information as part of our email signature. Considering the sterile, information-only business card of the past, isn't it time to reconsider what a business card can do for you.

Tip: Rethink (outside the box) what your business card can do for you. Because it isn't as necessary for contact information, use it to convey your brand, your image, your firm or practice "theme." Consider more graphical or iconic representations or other ways to leave an impression, not just information. Also, think about multiple business cards for different uses – maybe one for contact info, one for specific practice areas.

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

Jun 28, 2011

Model For Sustaining a Law Practice: Managing the S Curve

Question:

In a recent firm meeting the question was raised as to whether law firms hit a wall when they run up against new competitors, new technologies, new business models, or when their talent peaks. Is there a general model  of sustaining a law firm?

Response:

The mechanics of managing a law firm are too complex to address in this forum. It would be better to discuss what to tell you what to look for that tells you, well in advance of a fee revenue plateau, that your practice needs some work. Once you know where your practice is getting wobbly, then you will have a clearer idea of how to fix the mechanics.

We tell our clients that they are on an "S-Curve" in which slow and steady growth often occurs at the start of the law practice, followed by gaining momentum and rapid growth, then tapering off as practice areas get saturated or competitors enter the practice areas in which the firm is engaged. Watch these components for advance warning:

  1. Competition – any practice area attractive to you will also attract other law firms, so monitor new entrants starting to chip away at your clients.
  2. Capabilities – you created or bought some new technology, skills or other assets to start your firm/growth, but the distinctiveness of these eventually wears off and they are likely to be available to competitors once their value is clear.
  3. Talent – you had it when you started your firm, but attorneys and staff have become "free agents" and increasingly move between law firms more frequently and you may lose a key asset.

There may be other components unique to your practice and market. The point is that there is more than meets the eye in a simple growth curve. Figure out exactly what assets and activities are part of your particular growth and watch each one, as well as how each component affects the others (e.g., a departure of talent from your firm to a competing law firm, along with knowledge of specific major case or a key technology is a triple blow.)

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

Jun 21, 2011

Using Effective Firm Meetings to Improve Accountability and Boost Productivity

Question:

Our firm used to have weekly firm meetings to discuss management and operational issues. We discontinued them due to the excessive time being spent and questionable results and value. Now we are finding that we are totally unfocused and having problems with poor accountability and things falling through the cracks.  We are now considering starting up weekly meetings again but want to insure that we do a better job of managing meetings than we did in the past. What are your thoughts?

Response:

Before scheduling a meeting consider the purpose of the meeting. In general there are the following four types of meetings:

  1. Strategy Meetings are rich group discussions involving strategy and planning sessions, brainstorming, group budgeting, marketing, or financial planning. These meetings are effective when everyone understands the purpose and the ground rules.
  2. Reporting Meetings consist of one person informing the others in the room and sharing of information. These meetings are valuable only if the news is meaningful to most of the attendees. There may be Q&A and discussion, and different people may report out during the same meeting. These meetings should be structured.
  3. Status Meetings are often low in value and you should keep them sort. Attorneys and other team members need to share information and brief sessions are effective at keeping the team on the same page. Consider stand-up meetings – where literally, everyone is standing. It keeps the meetings short. Require agendas.
  4. Dilemma or Issue Meetings where just a few of the participants engage in detailed problem solving, are inefficient. Don't drag the whole group into dilemma or issue meetings. If your meeting is headed this direction deflect it for one-on-one time.

Meetings work best when they have:

  1. An agenda – for reporting and status meetings.
  2. A meeting chair or facilitator – who helps the attendees stick to the agenda.
  3. Meeting minutes – listing decisions, action items, and due dates – sent to all participants shortly after the meeting.
  4. Ground rules – especially for strategy meetings.

Take charge of meetings. Unmanaged meetings are time wasters.

You might want to start with short weekly status meetings using the format outlined above. Conduct reporting meetings on a monthly basis and strategy meetings on a quarterly basis or annual using a off-site retreat format.

Start slow and go from there. Push for accountability and results.

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

Jun 07, 2011

Implementing Law Firm Strategic Plans: Accountability and Follow-Thru

Question:

Our firm is a 25 attorney business litigation boutique firm in Southern California. I am a partner in the firm and chair of the firm's long range planning committee. Last year we spent a lot of time putting together a strategic plan for the firm. While we have a nice plan including specific action items - we are having problems with implementation. We are stuck and not getting anything done. What are your thoughts?

Response:

This is a common problem. Even in corporate america the implementation rate is low.

Many law firms experience similar results. They spend time and energy on mission, vision, goals, objectives and strategies but run out of gas when it comes to specific action planning outlining tasks, milestones and deadlines, individual specific accountabilities, and resource requirements. You just can't cut this step short. All strategic plans should include action plans that list under each strategy specific tasks with milestones, deadlines/due dates, name of person(s) responsible, and required resources. Consequences, compensation, etc. should be tied to task accomplishment or non-accomplishment.

I suggest that the strategic action plan for the firm be considered a project and incorporate:

  1. A project definition (charter)
  2. A project plan
  3. A project control system including progress measurement, communication, and correction action.

Status should be reviewed at committee meetings on a monthly basis and at firm meetings on a quarterly basis.

Often we suggest that Excel be used for the action plan segment of the strategic plan with columns for strategies and tasks and sub-tasks, person responsible for task accomplishment, start date, due date, date completed, completed by, and resources required.

In larger firms or for more complex action plans with multiple people responsible we suggest that an online project management system be used to manage the action plan. Many of our clients use either www.teamworkpm.net or www.basecamp.com. Some firms have practice management system capable of performing project management functions.

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

Jun 01, 2011

How Can Protect My Law Firm From Embezzlement?

Question:

At a recent managing partner forum several of the attendees at the seminar discussed recent experiences with embezzlement by employees. What can we do to protect our firms?

Response: 

During the past 25 years that I have been working with law firms I have been amazed at the number of embezzlements caused by unscrupulous attorneys, bookkeepers, office managers and other staff members. And yes – even partners. One out of five law firms in my client sample has actually lost funds due to some form of embezzlement and caught the offenders.  While some of the firms have prosecuted and taken other actions against the offenders the process was very painful, time consuming, and typically the funds are never recovered in entirety. Of course, this is if you catch the offenders.

Many small firms’ internal control procedures are so lax that funds could be lost through embezzlement and the firm would not even know it.

Only through effective internal accounting and financial controls can law firms protect their offices from theft. The goal is not to catch offenders – but to have a system in place that discourages and prevents the theft from occurring in the first place.

The process involves implementing internal accounting and financial controls. In essence – segregation of duties. Here is an overview of such a system:

                    Internal Control is the plan of organization and all of the coordinate methods and measures adopted within a business organization to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies.

The four basic elements considered essential in a satisfactory system of internal control are:

  1. A plan of organization that provides appropriate segregation of functional responsibility and duties.
  2.  A system of authorization and record procedures adequate to provide reasonable accounting control over assets, liabilities, revenues, and expenses. 
  3. Sound practices to be followed in performance of duties and functions of each of the organizational areas. 
  4. A degree of quality of personnel (competency) commensurate with responsibilities.

SUGGESTIONS:

 RECEIPTS

  1.  Have someone other than the bookkeeper open the mail. (i.e. receptionist) 
  2. Have the person who opens the mail prepare a list of all checks/cash received in duplicate. 
  3. Have person responsible for mail route one copy of the check/cash list to the office manager or managing partner and the other copy along with checks/cash to person responsible for making the bank deposit. 
  4. Assign someone responsibility for preparing the deposit and taking it to the bank. This person should verify the check/cash list against checks and cash, prepare deposit slip and make the bank deposit. 
  5. Upon return from the bank the deposit clerk should provide the bookkeeper with the deposit slip, receipt from the bank, and the check/cash list. 
  6. Bookkeeper enters the deposit into the computer system. 
  7. Office manager runs and mails monthly statements – not invoice fee bills – to clients.

DISBURSEMENTS

  1.  Don't give bookkeeper check signing authority.
  2.  Have someone other than bookkeeper approve vendor invoices. Require evidence of approval on all invoices. 
  3. Require purchases to be handled by someone other than the bookkeeper and the individual who approves vendor invoices for payment.

 GENERAL

  1.  Obtain adequate fidelity bonding insurance coverage. 
  2. Rotate duties when possible. 
  3. Have bank statements mailed to managing partner's home. He/she should bank statements and transactions and then give to someone other than bookkeeper and other personnel involved in processing receipts or disbursements. Some firms have their outside accounting firm perform this function. 
  4. Reconcile all bank accounts monthly. 
  5. Insure that adequate record retention systems are in place. 
  6. Formulate policies that provide for reasonable protection of assets. 
  7. Insure that adequate personnel selection methods, training programs,  supervision practices, and performance evaluation techniques conducive to control, providing assurance than an adequate number of employees are available to perform operational duties. 
  8. Insure that vacations are mandatory and contain provisions for competent replacements to perform all of the assigned duties of the vacationing employees. 
  9. Outline job duties in written job descriptions.  
  10. Develop an accounting manual. 
  11. Properly supervise, verify, and follow-up on all operations, people, and systems.

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

 

 

 

May 25, 2011

Improving Law Firm Profitability Through Cost Reduction

Question:

As the managing partner of a 12 attorney I have been asked to see what the firm can do to improve profitability by reducing costs. Do you have ideas or recommendations in this area?

Response:

In most law firms the real problem is insufficient gross income and lack of sufficient investment (spending and time) on marketing and initiatives designed to stimulate client and revenue growth. For most firms increasing revenues is the most effective way of impacting the bottom line. However, we do find that there is waste and unnecessary overhead that eats away at profits and a cost control program is also recommended and implemented. During recessionary times such as we are currently facing – drastic cost control are often the only option. Reducing overhead can immediately and effectively improve a firm’s bottom line.

The first step in an expense control program is to identify those areas where potential savings exist. Review your profit and loss statement. Resist the temptation to arbitrarily cutting costs which could cut the muscle with the fat and result in revenue loss as well. You have to spend money to make money – so if cost cutting is the appropriate strategy – cut the right costs. Think strategically about cost reduction.

After you have identified areas where savings can be made prioritize and develop specific strategies and implement action plans to achieve the savings.

 Here are a few ideas:

STRATEGY #1:  Reduce Headcount

This is the largest area for potential savings. Downsizing is a strategy that has been used by many firms this past year. However, it can have long term negative consequences for revenue and talent management. Consider all levels – non-productive partners, associates, paralegals, and staff. Be prudent and sensitive in implementation.

STRATEGY #2:  Reduce Compensation

Obviously one way is to cut salaries – a strategy to be used as a last resort. A better approach is to reduce fixed salary (paying people for showing up) and add a variable pay component which will allow employees to earn additional compensation in the form of bonus for results achieved. Another approach is to freeze salary increases.

 STRATEGY #3:  Benefits

A major area for cost savings – especially health insurance. Determine which programs are most important to employees. Do your best to protect those and reduce or eliminate programs that are less important. Consider offering more than one health insurance plan. Pay the premium for the lowest cost plan and provide options for employees to “opt up” to the better plans by paying the additional premiums. Consider increasing deductibles and requiring employees to pay a portion of the base premiums.

 STRATEGY #4:  Outsource

 Examine potential for outsourcing – from copy services – IT management – to your legal team.

 STRATEGY #5:  Occupancy

Review your lease invoices and question increases and escalators for which you have been charged. Consider renegotiating your lease and ask for a lower rate. Reduce excess space either through a renegotiated lease or through sub-leasing. 

 STRATEGY #6:  Telephone Service

Scrutinize your bills and examine rate tariffs as well as items that have been tagged to your bill by third parties. Negotiate and ask refunds for any discrepancies or abuse found. We have seen firms receive thousands of dollars in refunds.

STRATEGY #7:  Virtual Office

Do you need an office at all. Many solos are working out of virtual and home offices or a combination of same. Some larger firms are reducing the size of their primary expensive downtown offices by having some attorneys work from home offices or other locations.

STRATEGY #8:  Marketing

Many firms actually need to spend more money on marketing. However, this does not mean that it should be wasted on sacred cows. Review marketing investments, eliminate feel good items, and insure that they are producing results. Reallocate funds.

 STRATEGY #9:  Supplies and Other Purchases

Eliminate waste and unnecessary expenses. Consolidate with fewer vendors and solicit discounts for exclusive relationships.

STRATEGY #10:  Develop a Budget and Financial Plan

If you don’t have one – develop a budget and financial plan and work the plan.

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

 

 

May 17, 2011

Law Firm Strategic Plan vs Business Plan

Question:

I am the firm administrator in our firm. We have 24 attorneys and are just transitioning to the 2nd generaton of partners. I have been charged with obtaining information on strategic/business planning. Currently the firm does not have a strategic or business plan. What is the difference between a strategic plan vs a business plan? Do you have a recommendation as to whether we should consider implementing a business plan or a strategic plan?

Response:

Often the term strategic plan and business plan are used to mean the same thing. The general planning process is similar. However, I believe there is a difference.

I consider a business plan to be the primary tool of choice when starting a new business or venture. Typically the audience is external – bankers, investors, prospective partners, etc. Due to the external nature of the audience the business plan document needs to be detailed with supporting narrative, company history, market analysis, marketing strategies, personnel plan, management biographies, and pro-forma financial statements.

A strategic plan is typically the tool of choice for a going concern business or firm – such as an existing law firm such as yours. The intended audience is internal and its primary purpose is to focus the efforts of firm members and employees. Much less narrative and supporting detail is required. A strategic plan uses more of an outline format with bullet points and much less narrative and supporting detail. A strategic plan in small firms is often ten pages or less and consists of the following sections"

The key is to keep it simple and develop a plan that will actually get used, focus the firm's efforts, and hold specific people accountable.

I believe that what gets planned – what gets measured – is what gets done.

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

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