Law Practice Management Asked and Answered Blog

Nov 08, 2016

Law Firm Retirement – Planning Retirement

Question:

I am a partner in a six-attorney firm in downtown Chicago. I am sixty four and starting to think about retirement and would appreciate your thoughts on how where to start.

Response:

Begin to visualize getting older, your mortality, and retirement. Think about the amount of time that you have left on this earth. If you are sixty-five you may live to be eighty. Thus, you have fifteen years left and this is your planning horizon.

Retirement planning is deciding on how to use this time. It is about the process of deciding what you will do in your retirement and putting a plan into practice. As the amount of time left to you decreases, its value increases to the point where it will be more valuable than monetary assets.  It will be more valuable that a new house, a new car, a new boat, or a chest full of cash. Time enjoying life, being with your family, and spiritual renewal will become more important than earning money. The greatest change when you retire is how you will use your time.

Retirement planning begins with taking the time to think about how you will use you time. If you live fifteen years beyond your retirement your will have 28,800 hours that will have to be filled with retirement activities. (five days a week, eight hours a day, 48 weeks, for fifteen years)  Start by creating an interest activity list, a time plan, and then DECIDE, PLAN, and ACT.

You options include:

1. Continue working in your present situation;
2. Continue to work for compensation but in another occupation; or
3. Retire and pursue recreational and other retirement activities without compensation.

Click here for our blog on succession

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

Nov 01, 2016

Law Firm Associate Compensation – How to Deal With Overpaid Associates

Question:

I am the managing partner of a twelve attorney defense litigation firm in Santa Monica, California. We have four partners and eight associates. Associates are paid a salary. We have several associates that are being overpaid – they are being paid $150,000 – $180,000 and just barely generating $300,000 in working attorney fee receipts. I would appreciate your thoughts.

Response:

Do they have enough work? Do they put in enough hours? Are they good time managers and good timekeepers? If they have enough work – then meet with each of them – lay out the expectation of 1800 hours and consequences for non-achievement. If they have issues with time management or time keeping impress upon them the importance of improving these skills – in the meantime they may have to simply put in the extra time to get in the hours.

Suggested consequences:

1. For those not meeting expectations. Manage and coach them in real time- but be firm about your expectations. You are paying them a salary for a certain level of expectations and performance. If there is not enough work reduce their working hours and compensation. Consider production in future salary reviews and bonuses. Don't pay them an incentive bonus to perform the work you are already paying them to do. In worse case situation you may have to reduce salaries.
2. For those exceeding expectations. Reward them with a performance-based discretionary bonus. But when advising them of the bonus advise them specifically what it is for and that is it a variable bonus and award for specific performance exceeding expectation. 

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

Oct 25, 2016

Law Firm Management – Excessive Collaboration

Question:

I am a partner in a twelve attorney general practice firm in Upstate New York. There are eight partners and four associates in the firm. Our firm was formed five years ago when we broke off from another firm in the area. That firm was led and managed by a dictatorial founder and other attorneys in the firm including partners had no say in management matters whatsoever. When we formed this firm we decided that all attorneys including associates would be included in the decision-making process. All management decisions must be passed by all attorneys in the firm. When we were smaller this worked okay but not that we are larger we are having problems. I would appreciate your thoughts on the matter.

Response:

I concur that a collaborative culture should be a desirable goal. However, your approach takes too much time, wastes attorney time, takes too long for routine decisions to be made, and can lead to less than optimal results. I suggest that you separate management decisions into the following three categories:

• Major decisions such as formulation of strategy, approval of firm budgets, partner compensation, admission of new partners, termination of partners, approval of mergers with other firms, dissolution of the firm, etc.
• Management decisions such as managing cash flow, working with banks and firm's accountants, screening new lawyers, managing firm's cash flow, managing the firm's office manager/administrator, monitoring and evaluating performance of lawyers, and overseeing the firm's client development program.
• Day-to-day administrative decisions such as billing, management of support staff, facilities management, etc.

All partners will still have control of the major issues and be spared from the day-to-day management and administrative decisions. A managing partner or three member management committee can be elected to handle the management decisions and an office manager/administrator can be hired or promoted from within to handle the day-to-day administrative decisions. Associates can attend periodic firm meetings, service on ad hoc committees, etc.

An approach such as this can still preserve the collaborative culture and you have strived to develop and improve overall management of the firm.

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

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.

Click here for our blog on governance

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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.

Click here for our blog on compensation

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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

Click here for our article on insurance defense practice strategies

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.

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