Law Practice Management Asked and Answered Blog

Oct 19, 2016

Law Firm Governance – Executive Committee – Non-Equity Member and Procedures

Question:

Our firm is a fourteen attorney firm in Orlando, Florida. We have Two equity members, five non-equity members, and seven associates. We are currently managed by the managing member. In order to be more inclusive we are thinking about eliminating the managing member position and moving to a three member executive committee with one of the three members being a non-equity member. I would appreciate your thoughts?

Response:

I have several client law firms that have taken this approach. Here are a few suggestions:

1. Draft a charter (position descriptions) for the equity membership and the executive committee outlining the specific responsibility and authority for each.
2. If the firm has a firm administrator draft a job description for that position outlining his/her responsibilities and authority.
3. Since there are only two equity members there will be no election for those members on the executive committee until such time in the future when there are more equity members. At that time the two equity members should stand for election by the equity membership for staggered three year terms.
4. Have the non-equity members elect a representative non-equity member annually for a one-year term on the executive committee. 
5. Suggest that each member have one vote including the non-equity member. The goal of the executive committee should be to manage by consensus but when they can't a vote should be taken.
6. Have the non-equity member sign a non-disclosure agreement and advise him/her as to the content that can be shared with the non-equity members and content that cannot be shared.
7. Elect a chair of the executive committee.
8. Have regularly scheduled meetings.
9. Use agendas and prepare minutes or notes after each meeting.

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

Oct 11, 2016

Law Firm Management – Valuing a Personal Injury Practice

Question:

I am the firm administrator for a small personal injury five attorney practice in Des Moines, Iowa. The firm's owner is approaching retirement and is planning on approaching other law firms regarding sale of the practice or merger. He has asked me for reports in order that we can value the practice. QuickBooks is the only software that we use. What reports should I use to establish a value for the practice?

Response:

You will want to start by generating a profit and loss statement and a balance sheet from your software. I would run five years of profit and loss statements and the most recent balance sheet. The profit and loss statements will help you illustrate the revenue, expenses, and profit picture for the past five years. The balance sheet will provide a current financial snapshot of the firm's cash-based financial position. However, since most law firms keep their books on a cash-based basis the largest asset – contingency fee cases in progress – is not reflected on the balance sheet. Neither is any value for practice goodwill. Since you do not have a case management system you will have to setup a spreadsheet with columns for the name of the case, date opened, estimated settlement, estimated fee, client costs/advances, and projected date of receipt of fee. You will have to have the attorneys managing the cases help you with the estimates. These will be the key reports you will need initially.

Oct 04, 2016

Law Firm Client Business Development – Motivating Lawyers to Develop New Client Business

Question:

I am the managing partner of an eighteen attorney firm in New Orleans. We have six equity founding partners, four non-equity partners, and eight associates. We represent institutional clients. Four of the six equity partners are in their sixties and two are in their late fifties. The six equity partners are concerned about the future of the firm as they approach retirement. If they retired today the firm would cease to exist – the non-equity partners would not be able to retain our existing clients and acquire new clients. We have not been successful at motivating our non-equity partners to develop and bring in new clients. We have harped on this for years and encouraged all attorneys to develop business. We implemented a component of our non-equity partner and associate compensation system to compensate them for new client origination. Unfortunately, we have not been able to motivate our non-equity partners and associates to develop new sources of business. Our non-equity partners and associates have a nine to five work ethic and an entitlement mentality. Would you share your thoughts?

Response:

Often law firms hire associates simply to bill hours and perform legal work. Then years later they are asked to develop clients. Many are unprepared and at a loss as where and how to start. I believe that if you want attorneys to develop clients you have to hire attorneys that have the personality, ability, and you have to get them started on business development in their early years.

To turn your non-equity partners and associates into rainmakers at this stage will be difficult but not impossible. Here are a few ideas:

1. Insure that your compensation system reinforces and rewards business development  results. However, don't be surprised that even if your system rewards business development behavior does not change.
2. Extrinsic motivators such as compensation often are not as impactful with professionals as intrinsic motivation that involves engaging in a behavior because it is personally and professionally rewarding – performing an activity for its own sake rather than the desire for external reward. Many law firms are requiring attorneys to submit annual personal business goal driven plans that are incorporated into annual performance reviews. I have found that these plans as or more powerful than compensation in developing new behaviors such as client development when an attorney is uncomfortable with such behaviors.
3. Integrate the compensation system with personal goal plan achievement.
4. Implement an equity partner admission program (partner track) that outlines requirements for admission. Make business development goal attainment a component. Make it clear that to become an equity partner you must be a rainmaker.
5. Provide business development training and coaching for attorneys willing to participate.
6. Have serious discussions with non-equity partners and terminate those that are not meeting production and client development goals.
7. Consider hiring lateral attorneys with books of business or merging with another firm.

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

Sep 27, 2016

Law Firm Marketing – Client Development for an Insurance Defense Firm

Question:

I am the managing partner of a thirty attorney insurance defense firm in Arlington, Texas. While we are still in our first generation – several of our partners are approaching retirement and some of our relationships in our insurance company clients are also retiring. We are looking for ways to shore up and expand our client base. We would appreciate your suggestions.

Response:

You need to get on more "approved lists" of 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 managers 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. 

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. Offer to give speeches and presentations to these groups.
4. Develop relationships with news reporters and have an effective public relations 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 A.M. Best and Martindale.
9. Get on the speaker list with seminars groups that target the insurance industry client industry – for example Perrin Conferences.
10. Have a quality website that demonstrates expertise and a e-newsletter that provides information that will help claims managers and adjuster be more successful.

Click here for our blog on strategy

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

Sep 20, 2016

Law Firm Startup – How to Get Started – Best Practices

Question:

I am a relatively new attorney. I graduated three years ago from John Marshall Law School in Chicago. After law school I started with a small firm in the northern suburbs. Now with three years under my belt I am considering starting my own firm. I would appreciate your suggestions on how to get started.

Response:

Owning your own practice will be much different that working for someone else. You will have to handle the nuts and bolts of running and operating a practice. You will not have people to do everything for you like you did in your last firm. You will need to learn how to be an entrepreneur and think like a businessperson. 

First, I suggest that you give some thought as to whether you have what it takes to operate your own firm and plan out your business. Read my article on Starting, Building, and Managing a Law Firm. Click here for the article

Then write your business plan.  Click here for the article

After your have developed your plan begin developing your business identity, firm name, tag line, website domain name, and related graphic package. 

For ideas download a copy of our best practices guide

Consider legal structure for the firm. Register with appropriate governmental and tax authorities.

Determine where you will practice, how you will staff your practice, and technology needs. Keep as much of your overhead as variable and low as possible. Consider virtual employees. At first do as much work yourself as you can. Add staffing resources as your firm grows. Don’t skimp on technology. 

Implement a first class website on day one.

Good luck.

Click here for our blog on new firm startup
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John W. Olmstead, MBA, Ph.D, CMC

Sep 14, 2016

Law Firm Succession – Transition of Partners and Transition Plan

Question:

Our firm is a twenty-five lawyer firm with ten partners. Six of these partners are in their sixties. What should we be doing concerning planning the succession of these partners?

Response:

In a larger firm with multiple partners, shareholders, or members, succession and transition involves transitioning client relationships and management roles. Such transitions take time. Many larger firms have five-year phasedown retirements for this reason and require equity owners to properly transition clients and management responsibilities. Some firms tie retirement pay or compensation to completing a successful transition program.

A plan might included the following:  

• The Transition Partner becomes a Transition Partner as of the commencement of the phasedown and begins client and management transition at that time and ending on his/her retirement date, at which time he/she retires and withdraws from the partnership. Compensation of the Transitioning Partner is proportionately reduced by the amount of reduction in the Transitioning Partner’s present work schedule.
• Transitioning Partner is responsible for the collection of his/her accounts receivable and billing of his/her Work-in-Process throughout the entire transition phase unless delegated to his/her Co-Responsible Partners.
• Transitioning Partner’s purchase price (payout) is to be calculated immediately prior to the beginning of the transition period and in the same time and in the same manner in accordance with the Firm Partnership Agreement, and will be paid only upon the completion of the transition period.

Some firms are providing economic incentives for the transitioning partner to handoff work to others.

The internal succession/transition plan provides a mechanism for the firm to outline a general timeline for a senior partner’s retirement, a process to effect an orderly transition of clients and management responsibilities, and a vehicle for starting initial discussions.

Sep 07, 2016

Law Firm Profitability – How Do I Know if We Have Enough Work for the Attorneys?

Question:

I am the owner of an eight attorney estate planning firm in Jacksonville, Florida. Our firm handles estate planning and estate administration. For this entire year our financial numbers are way down and I am getting concerned. For example, compared to last year:

• Our revenues are down by 30%
• Our expenses are lower.
• Net income is down by 30%

1. Take a look an your new matter intakes for the year – month by month.
2. Examine the referral and marketing sources as to where this business is coming from.
3. Prepare a open matter inventory report by attorney and matter type to get a count of the number of matters each attorney is handling
4. Examine billable hours, non-billable hours, collected working attorney fees and realization rates for each attorney.

• Attorneys simply not putting in the hours
• Attorneys have time management and timekeeping problems and need to improve these skills
• Attorneys do not have enough work.

Aug 31, 2016

Law Firm Lateral Growth Strategy – One Plus One Equals Three

Question:

Our firm is a sixteen lawyer firm – eight partners and eight associates located in Memphis. We handle business transactional work and litigation for small to mid-size companies. However, for the past forty years our mainstay has been small community banks. With recent bank mergers and new banking regulations our banking business has dropped off significantly. We have reached a desperate stage and we must replace this business quickly or consider possible dissolution. We have talked with a possible lateral partner that has a $300,000 book of debtor bankruptcy business. Is adding a lateral partner a good strategy for us?

Response:

Lateral partner acquisition is a growth strategy being used by many firms today. However, many lateral hires are not successful as a growth strategy. In a recent survey conducted by Lexis-Nexis and ALM Legal Intelligence only 28 percent of the respondent law firms found lateral partner acquisition a "very effective" strategy for growth.

I suggest you start with the following two questions:

1. Does the lateral candidate's book of business fit within your strategic plan? If you do not have a strategic plan develop one. A strategic plan can be a useful guide in keeping the firm focused on the right opportunities. It can help the firm clarify the type of work that it does not do.
2. Does One Plus One Equal Three. This question should be asked when considering any lateral or merger candidate. In other words is there is business case? How will the addition of the lateral result in more business than either the firm or the lateral currently has separately? Does the lateral have enough business to keep himself or herself busy plus a couple of associates?

I would question whether debtor bankruptcy fits within the firm's overall business strategy. I also don't believe a $300,000 book of business satisfied the one plus one equals three rule.

A lateral strategy may be a good strategy for the firm. However, I believe you need to expand your search and it may be difficult to attract candidates given your present financial situation.

Aug 24, 2016

Law Firm Acquisition – Acquiring Another Practice

Question:

Our firm is a twelve lawyer firm in Austin, Texas. We have been approached by the owner of a three attorney firm in an adjacent city who has a complimentary practice consisting of institutional business clients. He is looking to retire within the next thirty days and he would like us to acquire his clients. We have reviewed his practice and we would be willing to take over his clients but not his personnel or other fixed assets. He has no interest in a merger or an lengthy relationship with us. It could add $800,000 per year to our practice. We would appreciate your thoughts.

Response:

It sounds like a great opportunity if there are no conflicts, the clients actually transition, and the billing rates are in line. Start with conflicts checks. Then ask for five year's of financial statements and tax returns, internal financial reports, schedule of billing rates, client lists, copy of building and equipment leases, and malpractice applications. Assess the stability of the revenue stream, repetitive ongoing clients, client dependency, etc. Prepare a letter of intent with terms for acquiring the practice. I would lead with a down payment of say $25,000 and then a percentage of collected revenue for say five years at 20% and see how he responds. He will want more certainty and a fixed price. If you have to go with a fixed price to seal the deal structure it with an initial down payment, payments over three to five years with provisions for reduction in the purchase price if the clients and revenues don't materialize. Make sure there are no pending malpractice claims or other liability issues.

Aug 17, 2016

Law Firm Financial Management – Monday Morning Report

Question:

I am the owner of a seven attorney firm in New York City. I have a bookkeeper that handles the accounting function. I receive monthly financial reports – but I believe I need a better tool to stay on top of my firm. I feel that I am lost, I don't want to take time to access different software modules such as our billing system, accounts payable system, general ledger system, etc. to get the information that I need to effectively manage the firm. We use Timeslips for billing and QuickBooks for bookkeeping. I would appreciate your thoughts.

Response:

I hear what you are saying. Most software program are good at giving you reams of paper in the form of reports but not so good at giving you the summary reports you need. Software companies are beginning to develop dashboards in their systems but the lower end systems do not give you what you need. You might consider tasking your bookkeeper with providing you with a Monday Morning Report (created in Excel) every Monday morning with the following summary information:

1. Cash in bank balances for each account
2. Bills due this week (vendors, payroll, taxes, draws)
3. Anticipated payments from clients (new engagement retainers – flat fee and time bill)
4. AR Balance
5. Work in process balance
6. Number of new retained matters for the month
7. Total billable hours for each timekeeper (month and year to date)        

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