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Jan 09, 2019


Law Firm Management – Held Hostage by Office Manager or Bookkeeper

Question

I am a partner is a small family law firm in Tucson, Arizona. There are two partners in the firm and two associates. We have an office manager/bookkeeper, a receptionist, and two legal assistants. The office manager was hired one year ago. The other partner is retiring next year and I am purchasing the practice from him. I became a partner last year. I am new to the management side of the practice and have been relying on the office manager who also serves as our bookkeeper. I am at my wits ends with our office manager and I believe that she is not suited for the position. She has no organizational skills, she misses deadlines, vendor bills are not paid on time, and client bills are not sent out accurately and timely. I have counselled her on numerous occasions to no avail. I believe we need to replace her but I am reluctant since no one else here knows what she does or how she does it. A new billing and accounting system was implemented last year and she was the only one trained on the system. What do we do if we terminate her or she quits? We are hostages. I would appreciate any ideas of thoughts that you may have.

Response: 

I understand and appreciate your situation. It sounds like you have not documented your procedures in the form of a firm procedures manual and everything is in the office manager’s head. This makes it difficult for someone to take over her responsibilities if she leaves the firm for whatever reason but not impossible. It will probably be difficult to get her to develop one now as it may signal to her that her time with the firm is short and she may start looking for another position. You may have to just bit the bullet, terminate her, restaff the position, and go from there.  It won’t be fun but you will make it though. You might consider the following:

  1. The office manager probably has handwritten notes, etc. that she has used to roughly document how she does things. Collect these and review these.
  2. Contact your billing and accounting software provider and have them help you will any training needs you have as well as procedural issues. Back in my old life when I did software work with law firms I often was called and assisted firms with such situations.

After you get the position staffed and past the crisis develop a detailed written manual of procedures for the office. Not just the office management side but the client service side – attorneys and paralegals as well.

I believe that it is imperative that owners and partners in a law firm have access to financial information on a timely basis, understand the information, and use the information in a proactive way to manage the practice. I suggest:

  1. The owner, or an appointed partner(s) in larger firms, obtain a basic level of understanding in basic accounting/bookkeeping and law firm financial management.
  2. The owner, or an appointed partner(s) in larger firms, obtain detailed training on the accounting software system(s) along-side the bookkeeper when the system is implemented. In addition to general operation of the software, special training should also be obtained on interpretation and use of the management reports.
  3. Insure that you have accounting controls in place and appropriate segregation of accounting duties.
  4. Outline your expectations and requirements of the office manager/bookkeeper, meet with her/him, and communicate appropriately.

Click here for a bookkeeper listing of duties.

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

 

Jan 03, 2019


Law Firm Non-Equity Partner Subjective Compensation Factors

Question:

Our firm is a seventeen-attorney commercial litigation firm in Atlanta, Georgia. I am a member of our firm’s management committee that decides raises and bonuses for non-equity partners and associates. Currently our non-equity partners are paid a salary and a discretionary bonus. We would like to stay with this approach however we have had complaints that our system is totally arbitrary. We would like to be able to provide more transparency – a general list of the items that we consider when making our decisions on salary and bonuses. You thoughts would be appreciated.

Response: 

Here is a suggested list of factors with weights that you might want to consider:

  1. Fee Production – Client Origination Collections – 25% weight
  2. Fee Production – Working Attorney Collections – 25% weight (billable hours in some firms)
  3. Profitability of Work – 10% weight – (effective rate per hour, realization, etc.)
  4. Delegation of Work  – 10 weight (delegation to paralegals and associates)
  5. Client and Case Management – 5% weight
  6. Technical and Professional Competence – 5% weight
  7. Professional Conduct – 5% weight
  8. Firm Management and Leadership – 15% weight

You can adjust this list for your particular situation and what is important for your firm.

Here is a sample list of subjective compensation factors with detailed consideration factors with weights and points.

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

 

Dec 19, 2018


Strategic Planning Retreat – Need for Specific Action Plans

Question: 

Our firm is an eight-attorney firm in Cincinnati, Ohio. We have been together for fourteen years. There are four partners and four associates in the firm. Over the years we have traditionally had a year-end attorney planning retreat with limited success. This year we have decided that we want to dedicate the entire time to developing a strategic plan for the firm. What can we do to ensure that our strategic plan leads to actual implementation?

Response: 

Implementation should be planned in the retreat and the strategic plan itself. One of the biggest problems that firms have with strategic planning retreats and strategic plans is they end up on the shelf and there is no accountability for implementation.

Be sure you come away from the retreat with a strategic plan that includes an action plan section with  a specific plan for follow-up on every strategy/action plan item. Specific strategic plan action items should be broken down into specific tasks. It is critical that individual task assignments and target dates for reporting and completion be made explicit. These assignments should be documented in the strategic plan action plan section and in the retreat minutes or notes. In addition, a system of post retreat follow-up meetings to access progress is suggested to maintain the momentum achieved at the strategic planning retreat.

Many firms benefit by incorporating specific strategic planning action items on a firm master calendar as well as individual calendars and review progress quarterly.

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

Dec 13, 2018


Law Firm Marketing – Using an Outside Public Relations Firm

Question: 

I am a partner in a three partner five attorney estate planning firm in Seattle. While we have a very active marketing program we would like to do more. We try to do two presentations at seminars/workshops a month. We have a first class website and a proactive SEO program as well as an aggressive social media campaign. The firm is listed in all of the key directories. Our attorneys are active in the legal and local community and are or have been chairpersons on bar association committees and have written extensively and been published. While many of our clients come to the firm via referral from referral sources and past clients, we are noticing that we are receiving much more business from the internet. Recently we have been discussing whether we should consider using a public relations firm. We would be grateful for any thoughts you may have.

Response: 

A public relations firm (or person) can be very helpful especially if your firm does not have a point person for marketing – a marketing coordinator, marketing director, etc. You have to decide how  you will use such a person and what role you would like them to play. I suggest that you avoid the larger firms and stick with a smaller firm – a three or four person firm – or better yet might be a solo practitioner or freelancer. You might use public relations professional in the following ways:

Several years ago I retained a public relations firm for two years on a ten hour a month retainer. A few of their accomplishments included:

Our firm found such services very helpful and from what we learned from them we now are able to handle many of these tasks ourselves.

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

Dec 06, 2018


Hiring an Associate Attorney as a Solo’s Exit Strategy

Question: 

I am a solo practitioner in Central Illinois. I have been in practice for 30+ years and I just turned sixty. I have two staff members and no other attorneys in the firm other than myself. I plan on working another five years and then I would like to gradually exit from my practice and then retire. I want to have a home for my clients and employees and I would prefer to be able to sell my interest to an associate attorney working for the firm. I think we have the work to justify hiring an associate and this is the route I would like to go. I have never had an associate so I am not sure what I should look for. Your thoughts would be most appreciated.

Response: 

I believe that an internal succession/exit strategy is your best option if you can find the right associate. Unlike years ago, there are many associates today that just want a job and work/life balance is more important than taking on an ownership role in a firm. They simply are not interested in the work, stress, and risk that it takes to own and manage a law firm. So it is important when searching for an associate that you really vet out this interest to insure that you are hiring someone that will be willing to buy out your interest when you retire and take over your practice.

I have worked with a lot of firms that think they have an exit plan via an associate only to be told no when approached with a proposal to acquire their practice.  When you interview candidates look into their history and their family history to see if you can find a hint of entrepreneurship. You may want to hire a more seasoned attorney that has a small practice that could expand his or her practice by becoming part of your practice. Hire someone that has an interest in the business of law as well as practicing law.

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

Nov 28, 2018


Associate Attorney Mentoring and Giving Feedback

Question:

I am the owner of an elder law firm in Jackson Mississippi. There are three associate attorneys working in the firm that have been with me under five years. All three were hired directly out of law school. While I try to mentor and train each of the associates as needed in “real time” I also conduct annual performance reviews with each associate and provide them with a written performance evaluation. I am getting frustrated as it seems that the feedback that I provide them does not stick and they continue to make the same errors and mistakes. I welcome any thoughts that you may have.

Response: 

You may need more frequent discussions that are scheduled. I have some law firm client owners  that have an ongoing scheduled meeting with each associate twice a month. You may also want to examine how you actually provide feedback to your associates. Often owners beat around the bush and don’t really provide meaningful feedback.

Giving meaningful feedback contributes an essential component to effective associate management. Whether you give feedback informally, midway through the work or at the end, or formally through a scheduled  evaluation process, it gives you a powerful management tool, assisting individuals in professional development, teaching those you manage to work more effectively, and giving recognition and showing appreciation when deserved.

Effective feedback should be:

Praise you associates when deserved. Praise provides an effective motivator for most associates and should include:

Provide constructive criticism when deserved. It should include the items listed above and you should give it:

Use the following outline when giving constructive feedback:

Try to implement some of these ideas and go from there.

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

Nov 21, 2018


Client Feedback from Law Firm Clients

Question: 

I am the owner of a four attorney, myself and three associates, estate planning firm in Charleston, West Virginia. I spend the majority of my time managing the business and developing business and very little time servicing clients. This has been intentional as I enjoy the business aspects of the practice more than providing legal services. I conduct comprehensive written and face-to-face performance reviews with my associates annually and in real time as needed. These reviews are used as an associate performance management tool and a client service quality control tool. While the performance reviews include a performance rating category for client satisfaction I have no real way of determining client satisfaction. Do you have any thoughts on how to measure this?

Response: 

Much can be learned by soliciting feedback from your clients. Structured telephone interviews and other forms of surveys conducted by a neutral third party can provide many surprises as well as answers. Client satisfaction surveys can be the best marketing investment that you can make. In addition, client satisfaction surveys can be used to quantify and measure client satisfaction with individual attorneys in your firm.

Our law firm clients have found their clients to be impressed that the firm cares about their opinions. It is good business to listen to your clients. Understanding what bugs people about your services and those of your competition can be the most valuable input to strategy development you can get your hands on.

Many of our law firm clients that represent individual clients use a short two page survey document that is mailed or provided online at the conclusion of a matter. The survey poses a series of specific questions that addresses performance in several categories and rates performance on a 1-5 scale which allows a performance grade to be calculated for the firm and the attorney handing the matter. The survey also includes an area for comments. Paper surveys mailed back from clients are compiled in spreadsheets and a running score determined for the firm and individual attorneys.

If you use a paper survey mailed to clients I suggest:

  1. Send a cover letter with the survey attached with a postage paid return envelope.
  2. Thank the client for their business.
  3. Ask them to think of you again when they have future needs.
  4. Ask them to refer business to you.
  5. Ask them to complete the survey and return to your office.

A better approach, if your clients are e-mail and computer friendly is to use an online survey tool such as Survey Monkey and send clients an email with the contents listed above with a link to the online survey. Client feedback would automatically be compiled and would save you the cost and effort of mailing out surveys, postage, staff cost of compiling the surveys in a spreadsheet, and make it easier for clients.

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

Nov 14, 2018


What Does it Cost to Operate a Law Firm?

Question: 

Our firm is a four attorney personal injury plaintiff law firm with three partners and two associates located in upstate New York. Could you advise us as to what the expected cost range per year is for an attorney to practice? Assume the attorney generates gross revenue of $500,00 per year. What should he/she expect to earn as gross income based on that revenue?

Response: 

Depends on the type of practice, whether the firm does extensive advertising, etc. In general, the average range of margins are running from 35%-45%. In other words the partnership pie – profits available to partners whether in the form of W2 salary or net income. If a partner were practicing alone with minimal overhead and maximizing the use of technology the margin could be better. In general a lawyer generating $500,000 in revenue in a firm such as yours with typical overhead -hopefully 35% – 45% margin – $175,000 – $225,000. I have worked with some firm such as foreclosure law firms where the margins are 15% margin and some high volume advertising PI plaintiff firms at 20% margins.

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

Nov 08, 2018


Selling an Owner’s Law Practice to an Associate Gradually

Question: 

I am the owner of an elder law firm in Phoenix, Arizona. I have one full time associate, one part-time associate, and three staff members. I am earning around $300,000 a year from the practice and my full time associate’s salary is $100,000 a year. I am sixty and would like to retire and be out of the practice in five years. I would like to begin phasing down and working part time in the next year or two. My full time associate has been with the firm for ten years and she is an excellent attorney and has an excellent relationship with our clients and referral sources. While she has not brought in many clients through her own referral sources she has done an excellent job signing up new clients from the firm’s referral sources, website, and seminars that she has conducted. I have talked with her in general terms about her buying my practice when I retire and she has expressed an interest.

I feel that I should be entitled to some sweat equity from the practice in the form of retirement compensation or buy-out. With this said I would prefer that my practice “stay in the family” and be sold to my associate rather than selling my practice to an outside buyer. I would appreciate your suggestions.

Response: 

One of the issues today with many associates is they have large student loan debt and have little in the way of capital and little or no borrowing capacity. As a result many firm owners in your situation have to get much of their payout from future earnings after their retirement if they wait too long. Your best bet is to start selling shares as soon as you can based upon a valuation method that you determine. You have five years remaining – ten years would have been better. In essence you determine the value of the firm, determine the price per share, determine how many shares that associate will acquire, and then calculate the price for the number of shares being acquired. For example, let say you practice is valued at $600,000. Divide by 100 = $6,000 per share or percentage point. For an initial twenty percent interest or twenty shares the buy-in price would be $60,000. Then over the next five years gradually sell the associate additional shares. Upon your retirement you would have sold all of your shares.

Typically the problem is the associate does not have any cash or ability to borrow on their own. You may be able to help the associate borrow the money from your bank. If you can – this would be the preferred approach. If the associate cannot raise the capital they you will have to finance the buyout. For a $600,000 buyout a five-year timeline will be impossible for you to have all your cash by retirement. How you structure your compensation as you begin working part time and your associate’s compensation as a partner will have a bearing on capital that your associate will have available. Be careful that you are not funding your own buyout. You will more than likely have to get a large portion of your payout after retirement via a secured promissory note with the associate for the balance.

The sooner you start the better your chances for a successful outcome.

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

Oct 31, 2018


What Law Firms Must Do to Remain Competitive in the Internet Age

Question: 

I am the managing partner of a twelve attorney family law firm in Kansas City, Missouri. We have been in practice going on thirty years. Over the last ten years we have shifted more of our advertising from print directories and advertising to the internet. Today virtually all of our work comes from the internet. While to some extent this has been a blessing it has also been a curse as we must continue to make investments in search engine optimization, update the website, pay to be included in online directories, etc. It is a vicious circle and we are losing business to new attorneys just starting out that are putting up first class websites and making online investments.  I would appreciate your thoughts.

Response: 

The internet as well as advances in information technology has and will continue to be the key driver forcing change in the legal marketplace as well as other segments and our daily lives as well. Shopping malls are disappearing from our communities and department stores are struggling for survival. Being the king of the hill or the biggest is not the strategic advantage that it once was. The internet is leveling the playing field in many industries as well as law firms.  There are new opportunities and new competitors. Consider the following:

  1. Everything is being commoditized. More practice areas are moving down the value curve and prices are becoming more price sensitive.
  2. Disintermediation of traditional delivery channels. The internet provides new access to information and is eliminating the middleman. It is impacting how we shop, bank, conduct business, and pay our credit cards and taxes. It is also impacting how clients locate and select lawyers and how legal services are delivered.
  3. Our society is becoming – more and more – a DIY (Do it Yourself) nation.
  4. Lawyers competitors are just a click away whether they be legal process outsourcing providers (LPO) in India, other lawyers in your state – but further away and servicing clients remotely, legal publishers, or online form providers.
  5. New client opportunities for your may also be just a click away.

Challenges and Questions to Think About

  1. How do you deal with commoditized transactions?
  2. How do you tie yourself to your client in an online world?
  3. How do you compete with new models and approaches to the delivery of legal services?
  4. How do you compete with virtual law firms?
  5. Would you consider adding a online delivery component to your traditional brick and mortar practice?
  6. Should you consider other practice areas?
  7. Should you consider expanding your geographical reach in areas where you are licensed and other areas by forming relationships with licensed attorneys in those areas.

Here are a few suggestions:

  1. For your practice area you should continue what you are doing and maximize your online and electronic marketing investments.
  2. Online reviews are becoming more and more important. Have a protocol in place that asks clients for reviews upon completion of their matter. Make it easy for them by providing them with appropriate online links.
  3. Your website does not do enough to demonstrate expertise. I do not see any evidence of attorneys publishing any articles, serving on law related committees, or chairing such committees pertaining to family law. There are no testimonials from past clients or others on the website. Get your attorneys writing articles, get them published where you can, and get them posted to your website. Get testimonials from past clients and referral sources and post them to your website. Also get your attorneys involved in bar and other law related associations. Do more to build the brand of the firm and the individual attorneys. Many of my family law firm clients still receive a bulk of their business from past client referrals and referrals from other attorneys.
  4. Consider satellite offices in some of the suburban communities in Missouri and Kansas. I have family law firm clients that have been quite successful with multiple offices – staffed and not staffed.

Even in the age of the internet expertise, professionalism, and reputation is important. Do all you can to convey this through your website and your initial communications with clients.

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

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