Law Practice Management Asked and Answered Blog

« Earlier | Later »

Sep 27, 2017

Associate Attorney Business Development – Becoming a Rainmaker

Question: 

I am an associate attorney in a ten attorney firm in Atlanta. The firm represents mid-size to small businesses – transactional as well as litigation. There are six partners and four associates in the firm. I graduated from law school two years ago and have been with the firm for two years. All of my work is given to me by the partners and since joining the firm I have not brought in any clients. When I joined the firm I was told not to worry about bringing in clients – the firm has plenty of work. I am paid a salary and a bonus if my billable hours are at a certain level. There appears to be no desire by the partners for me to spend time developing clients. I have talked with my peers in other law firms that tell me that this is short sided and that developing clients is a major factor in their firms for associates to be considered for partnership. I would appreciate your thoughts on what I should be doing and what direction I should take.

Response: 

I agree with your peers. Whether you are encouraged by your partners or not developing “rainmaking” skill is an important skill that you should develop and will be a major career success factor if you remain in the private practice of law. While your partners hired you to primary be a “worker bee” and work on their matters, down the road it will become more important for you to develop business. It takes time to develop “rainmaking” skills and a network of contacts and the sooner you start the better.

In spite of many of the marketing initiatives undertaken by law firms, a majority of the business that comes to many law firms is through personal and professional referrals – from people a lawyer knows. The more people you know the more opportunities you will get. The value of your network is worth more than the sum of its parts, and that value grows geometrically over time and with the size of your network.

Lawyers who consistently find a modest amount of time for client development and invests it wisely will have a much easier time later in their careers when they must bring in business to get promoted than those who wait.

One of the problems that many law firms are facing today is not enough business and not enough rainmakers. Don’t wait for your partners to encourage you or to be compensated or otherwise rewarded. Invest your time in developing your network of contacts even if it requires dedicating some personal time and consider it an investment in your career and future.

Click here for our blog on marketing

Click here for articles on other topics

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

Sep 20, 2017

Compensating Your First Associate Attorney in a Law Firm

Question:

I am the owner of a law practice in Belleville, Illinois. My practice focuses on real estate, estate planning and administration, and bankruptcy. I have three legal assistants. While I have been in practice for ten years, I have never hired an associate. I have a busy practice and now is the time. I have identified a candidate with six years experience that I want to hire. He has business that he can bring with him. He has been working with a larger firm as an associate and has been paid a straight salary. My next step is to make him an offer but I am struggling with how to pay him. I would like to hear your thoughts.

Response:

Some small firms put associates on an eat-what-you kill system based upon fee revenue collected from clients they bring in and fee collections from other matters they are assigned. They are they paid a percentage – ranging for thirty to forty percent when the fees are paid. However, in most firms associates are paid a salary and possibly a bonus based upon performance. Bonuses may be discretionary or formulaic based upon performance factors such as billable hours, working attorney collected fees, client origination collected fees, goal attainment, signed engagements, etc. Personally, I think a salary plus and discretionary bonus is the best approach for new associates.

However, in your case with an associate that is more seasoned and that has a book of business I think you should consider a salary with a formulaic bonus based upon his working attorney fee collections and client originations. Here are the mechanics:

I would also set a minimum performance expectation of $240,000 for the salary that is being paid.

You could also include non-billable goal attainment bonus as well but you can always add that later.

Click here for our blog on compensation

Click here for articles on other topics

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

Sep 13, 2017

Institutionalizing Your Law Practice

Question: 

I am the sole owner of a six-attorney estate planning practice in Phoenix, Arizona. The five associates have been with me from five to fifteen years. I just turned fifty-five and would like to retire when I am sixty-five either by selling my practice to another firm or to one or more of my associates. I would like to receive some remuneration for the sweat equity that I have invested (goodwill). I have tried over the years to setup my practice in a way that it is not “just me.” I changed the name of my firm to a trade name that does not include my name, arranged the lawyers names on our letterhead and website alphabetically, and eliminated designations such as principal and associate. I believe that I have made it difficult for clients and prospective clients to know who the boss is. I hope that this will make my firm more salable and appealing in the future. I would appreciate your comments.

Response:

I took a look at your website and thought it was pretty easy to see that you are the firm. For example:

I suspect that you are the rainmaker and in spite of any advertising that the firm does and your website most of the firm’s business comes from your referral sources, past clients, and your reputation.

I believe you have to do more than what you have done to institutionalize your practice. Here are a few suggestions:

  1. Motivate and push if necessary your associates to write and publish and get these works posted to the website.
  2. Motivate and push if necessary your associates to give presentations at bar and other professional association and community events.
  3. Motivate and push if necessary your associates to present firm seminars.
  4. Post your associates works to your website and to their bios.
  5. Require your associates to become certified as estate and trust attorneys with the Arizona Bar.
  6. Consider revamping your compensation system to motivate and reinforce the above activities.
  7. Incorporate the above as “performance factors” in annual performance reviews.
  8. As time passes if you find that your associates are unwilling to step up to the plate consider hiring different type of lawyers in the future.
  9. Do more advertising to increase the business that comes into the firm from other than your personal reputation.
  10. If you have not already, fully document your office procedures and automate your practice.

If you are able to accomplish many of the above suggestions you will be on your way to institutionalizing your practice.

Click here for our blog on strategy

Click here for articles on other topics

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

 

 

 

 

 

Sep 05, 2017

Law Firm Key Financial Goals/Metrics

Question: 

I am a newly elected managing partner of a fourteen lawyer firm in San Diego. While I was elected to this position I feel handicapped since I don’t have a financial background. What metrics/measurements should I be looking at?

Response: 

Here are a few metrics that you might want to consider:

Once firm goals, financial and non-financial are formulated, either run reports that are available from your system or develop special Excel reports than measure goal accomplishment.

Click here for our financial management topic blog

Click here for our law firm profit improvement blog

Click here for articles on other topics

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

Aug 30, 2017

Law Firm Practice Acquisition – Acquiring a Personal Injury Practice

Question: 

I am a non-equity partner in a four attorney personal injury plaintiff law firm in Newport Beach, California consisting of the firm owner, two associates, and myself. The owner is planning on retiring and has provided me with a proposal to sell me his practice. How do I determine whether this is an opportunity or a potential curse? You advise is appreciated.

Response: 

I would start by asking yourself if you have the desire, inclination, and ability to manage a business – a law firm? Do you have the self discipline required? Do you have the needed capital or access to appropriate level of credit line? A personal injury firm will have to fund client advances as well as operations until cases are brought to conclusion and this will require capital or a credit line. I would check with the firm’s bank and other banks to see if you will be able to obtain the same credit line that the firm has enjoyed in the past.

Ask the owner for the following documents:

  1. Income tax returns for the past five years.
  2. Profit and loss statements for the past five years.
  3. Balance sheets for the past five years.
  4. Headcount expressed as full-time equivalents for the past five years by year for attorneys, paralegals, legal assistants, staff.
  5. Firm lease if the firm leases office space.
  6. A spreadsheet listing of all open cases providing the name of the case, the date opened, type of case, expected value of the case, expected referral fees due others, expected fee due firm, client advances invested in the case, and date the case is expected to conclude and fees will be received.

I would then prepare a firm financial profile spreadsheet spreading the revenue, total expenses, net income, owner earnings, and balance sheet summary over the five year period. Using the headcount data calculate fee per lawyer, expense per lawyer, and net income per lawyer and compare to general benchmarks. Hopefully fee revenue is in neighborhood of $400,000 or more per lawyer. Examine what the owner’s earnings have been over the five year period as well as the assets and liabilities on the balance sheet. Keep in mind that accounts payable and the firm lease are not usually reflected on a case-basis balance sheet. Consider the information that you have gathered and ask yourself the following questions:

  1. Has the firm been successful and well managed?
  2. Are revenues in line with what a four attorney personal injury firm should be generating?
  3. Is the firm’s overhead in line?
  4. How much additional income can I expect over the next five years?
  5. What is my “payback” period – in other words if I pay X for the practice how many years of extra income as an owner will it take me to pay for the practice?
  6. Considering what I have to pay for the practice, could I do better by starting my own practice?
  7. Where are the firm’s cases coming from and what is the quality of the existing cases in process?
  8. What level of case flow can I realistically expect when the owner is no longer here?
  9. Using the open case listing, what do the future cash flow projections look like?
  10. When the owner leaves will you have to hire another attorney? What level?
  11. How much debt does the firm have?
  12. What is the remaining lease obligation – term and amount?

This review will give you a good idea of whether this is a deal that makes sense for you.

Click here for our blog on law firm mergers

Click here for our law firm management articles

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

 

Aug 22, 2017

Measuring Law Partners’ Performance

Question: 

I am a partner in a twelve attorney firm in Houston. The firm has five partners and seven associates. We are a first generation firm and we, the partners, have never practiced in other law firms. Currently, the partners have equal ownership interests and are compensated equally. We are experiencing issues with the present method of partner compensation and we are giving some thought to considering other approaches. One of the issues that we are trying to get our heads around is how to measure each partners’ performance – value – and overall contribution to the firm. Do you have any suggestions?

Response: 

The first step in a partner’s compensation plan is to develop a system for measuring each partner’s performance. Measuring performance involves selecting the appropriate: (1) performance measurement factors, (2) performance measurement programs, and (3) performance measurement reports.

Performance Measurement Factors 

Each firm must decide on its own particular basis for rewarding quality performance by its partners. Factors must be selected against which each partner’s performance can be measured. Then the firm must decide how much weight to assign to each performance factor. The performance factors commonly used to measure partner performance include: (1) professional competency, (2) business development, (3) productivity, and (4) profitability.

Professional Competence 

A partner’s professional competence is usually the most important factor in measuring partner performance and is the most difficult to measure because it cannot be easily quantified and it has to be determined subjectively. In addition to technical proficiency professional competence also includes leadership ability, associate mentoring and development, management contribution, and other contributions made to the firm.

Business Development 

In many firms a partner’s ability to generate new business is an important performance factor in measuring partner performance. Client origination can be measured in terms of fees generated from new clients and fees generated from new business for existing clients.

Productivity 

A partner’s productivity can be measured by determining a partner’s: (1) chargeable hours related to client matters and (2) nonchargeable hours related to those firm matters which the firm has recognized an important partner responsibilities. Another approach is measuring billed or collected fees. Another measure of a partner’s productivity is his or her pyramid of responsibility – the number of associates chargeable hours or collected fees for which the partner is responsible.

Profitability

A partner’s profitability can be measured using three factors: (1) fees billed to clients, (2) realization of fees billed and (3) speed of collection of fees billed. Other measures include collected, effective rate per hour, etc.

Click here for our blog on compensation

Click here for articles on other topics

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

 

Aug 16, 2017

Book Writing as a Business Development Strategy for Attorneys

Question: 

I am a partner in a eighteen attorney law firm in Jacksonville, Florida. Our business development committee is requiring all attorneys to submit annual personal business development plans and become more involved in business development. I have been thinking about writing a book. Is such a goal worth my time investment? I welcome your thoughts.

Response: 

While writing a book is not terribly difficult, it takes time and commitment and it will consume some non-billable hours. However, as David Maister often states,”attorneys should consider their billable time as their current income and their non-billable time as their future.”  In other words non-billable time is an investment in your future – the long-term. I believe that authoring a book is an excellent way of building your professional reputation and brand and it will pay dividends in the long-term. Authoring a book can create opportunities that could change your whole life.

When I wrote my book I had 142 non-billable hours invested in the book and I had some content available from past articles that I had written over the years. Often a good starting point is to start writing articles around a particular topic/theme and later tie them together in a book. This is a good way of taking “baby steps.”

During the writing process, authoring a book may seem like anything but freedom. However, it is a trade-off. Work for the book now and it will work for you later.

Your published book can generate income for years while you are doing something else. In addition to financial rewards, other payoffs for writing a successful book include:

While your law firm may be doing all the right things to build the “firm brand” I believe that each attorney must build their personal brands as well. Clients advise us that they hire lawyers – not law firms. This is not totally true as in many cases the law firm’s brand may get the firm on a prospective client’s short list – but after that it is more about the lawyers handling a client’s matters. This is why prospective clients ask for the bios of all the attorneys in the firm.

Writing a book can assist you in achieving your business development goals but it is a long-term investment and not a quick fix.

Click here for our blog on marketing

Click here for articles on other topics

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

Aug 08, 2017

Law Firm Strategic Planning – Reasons for Investing the Time to Develop a Strategic Plan

Question:

I serve on the management committee of our sixteen lawyer firm in Columbus, Ohio. We do not currently have a strategic plan and been discussing whether we should spend the time developing one. However, we are not sure what a strategic plan would do for us or why we should invest the time in developing one. We appreciate any thoughts that you may have.

Response: 

One of the major problems facing law firms is focus. Research indicates that three of the biggest challenges facing professionals today are: time pressures, financial pressures, and the struggle to maintain a healthy balance between work and home. Billable time, non-billable time or the firm’s investment time, and personal time must be well managed, targeted and focused. Your time must be managed as well.

Today well-focused specialists are winning the marketplace wars. Trying to be all things to all people is not a good strategy. Such full-service strategies only lead to lack of identity and reputation. For most small firms it is not feasible to specialize in more than two or three core practice areas.

Based upon our experience from client engagements we 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.

Well designed strategic plans are essential for focusing your firm. However, don’t hide behind strategy and planning. Attorneys love to postpone implementation.

A strategic plan is useless unless it is used. Don’t create a plan and simply file it. You must actively work your plan. Involve everyone in the firm, delegate action items, and require accountability. Consider it a living document – revise it – update it – change it as needed. Refer to it weekly and incorporate action plan items into your weekly schedule.

Use your plan as your roadmap to your future.

Good luck on your journey.

Click here for our blog on strategy

Click here for articles on other topics

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

 

Aug 02, 2017

Associate Attorney Career Track in a Small Law Firm

Question: 

I am the owner of a five-attorney estate planning practice in Denver. I have four associate attorneys of which three have been with the firm for over twelve years. Last year an associate that had been with me for many years left the firm and started his own practice. I thought I was paying him well by virtue of a competitive salary and discretionary bonus in additional to other benefits. I do not want to lose other seasoned attorneys. What should I do to provide more incentives for them to stay with the firm?

Response: 

Our experience as well as research over the years by our firm and others has demonstrated that the following, in priority order, are the key drivers of associate attorney job satisfaction:

  1. Satisfaction with immediate manager or supervisor
  2. Opportunities for training
  3. Satisfaction with team and coworkers
  4. Opportunities for career growth
  5. Compensation
  6. Opportunities for promotion

While compensation often is considered the primary factor related to associate satisfaction, I often find that opportunities for career growth and promotion play a significant role. Associates do leave law firms for less money for career growth and promotion opportunities in other firms or in some cases starting their own firm.

A key tool that law firm’s should be using for managing attorneys is a well-defined career path/track. The critical components of a career track include well-defined levels, roles and responsibilities at each level, promotion criteria, and compensation plans for each level. Typically these are outlined and documents in a career advancement program policy document. For example:

  1. Levels. Each attorney level within the firm (partner, non-Equity partner, principal, senior associate, associate) should carry a specific and clear title.
  2. Roles and Responsibilities. For each level, the typical roles and responsibilities should be clearly documented including client service work as well as business development and administrative responsibilities.
  3. Promotion Criteria. For each level in the firm, the criteria for promotion to that level should be outlined in the career track or career advancement program policy document. These criteria are often tied to competencies (knowledge, capabilities, and experience of the attorney), tenure as well as other factors.
  4. Compensation. A compensation plan should be developed for each level. (salary, bonus, benefits, and other perks)

I suggest that you give some thought to developing such a program. As you start with levels you will have to do some soul searching and confront the most burning issue – is partnership an option for associates in your firm – do I want partners –  and go from there.

Click here for our blog on career management

Click here for articles on other topics

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

 

 

 

 

Jul 26, 2017

Law Firm Succession Planning – Impact of Firm Size for a Solo

Question: 

I am a solo practitioner in upstate New York. I am 66 years old and I am looking to retire and am trying to figure out what to do with my practice. My practice is a general practice and there is just me and one secretary. I welcome you suggestions:

Response:

The size of the firm will present different retirement succession, transition, and exit challenges. Firm size will affect the number of moving parts, specific steps that a firm will have to take, and the overall timeline. Solo practitioners and sole owners will have the most moving parts and face the greatest challenges.

You will have the greatest challenge since you have no associates or anyone in place to transition the practice. Therefore, you could both hire and groom an associate that could buy the firm or become a partner and buyout your interests, sell the firm to another firm, or merge with another firm. Other options would be to become Of Counsel with another firm or simply close down the practice. This takes time.

Hiring and grooming an associate can be problematic for the solo. If he or she does not have sufficient business and does not originate business, the associate will be an expense and the your net earnings will suffer. Other issues include:

You could sell the firm to another lawyer or law firm. This option works best when the practitioner is actually ready to retire and quit practicing. Often this is not the case and the restrictions on sale of law practice levied by a state’s rules of professional conduct, in particular Rule 1.17, may make this option undesirable. Locating desirable candidates will take time and a well-planned search process may have to initiated.  Our experience has been that this can take a year or longer.

Merger with another lawyer or law firm is another option. This is often a better option for solos that want to gradually phase-down yet continue to practice for a few more years. In essence, they join another firm as either an equity or non-equity partner, member, or shareholder and subsequently retire from that firm under agreed terms for the payout. The odds are improved for clients and referral sources staying with the merged firm and the merged firm is more committed that a buyer might be under a payout arrangement based upon collected revenues. The solo practitioner has more flexibility with regard to the ability to continue to practice longer, reduced stress, additional support and resources, and gradual phase-down to retirement.

Forming an Of Counsel relationship with another firm is an option that many solos are taking. Sometimes it is a final arrangement where a solo winds down his or her practice and then joins another firm as an employee or independent contractor. He or she is paid a percentage of collected revenue under a compensation agreement with different percentages depending upon whether the practitioner brings in the business, services work that he or she brings in, or services work that the firm refers to the practitioner. In other situations, an Of Counsel relationship is used as a practice continuation mechanism that provides the solo with additional resources and support if needed. An Of Counsel relationship can also be used to “pilot test” a relationship prior to merging with another firm. We have had several law firm clients that has taken a phased approach to merger with Phase I being an Of Counsel “pilot test” exploratory arrangement and Phase II being the actual merger.

Click here for our blog on succession

Click here for out articles on various management topics

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

 

Archives

Categories

    Subscribe to our Blog