Law Practice Management Asked and Answered Blog

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Oct 08, 2014

Law Firm Succession – Consequences of Waiting Too Long

Question:

I am a solo practitioner in an estate planning firm in Carbondale, Illinois. I am the only attorney in the firm. I have one legal assistant that has worked for me for ten years. I am 72 years old. I suppose it has always been my goal to practice forever as I have been in denial about my age. I have done nothing concerning the eventual transition of my practice and I don't even have anything in place in the event that I would become ill and out of the office due to illness. I am beginning to have more and more health problems and as a result I am coming to the realization that I must address the transition of my practice. Please share your thoughts.

Response:

Age denial is a common problem that I see with senior attorneys that are continuing to practice into their 70s and 80s. They often tell me – "I want to practice forever." However, eventually the clock catches up with them and often they have not prepared for the transition of the practice. Waiting too long can have the following consequences:

  1. Reduced mental and physical competencies resulting in substandard services rendered to clients.
  2. Stress of the practice as a result of having no one available to cover the practice.
  3. Inability to take an extended vacation or time away from the practice.
  4. Inability to explore other outside interests, hobbies, etc.
  5. No coverage or "back-up plan" – practice continuation plan if you will in the event that you become ill.
  6. Risk of loss of control over the future of your practice – clients – employees – exit value in the event that you become incapable of adequately serving your clients and Illinois Supreme Court Rule 7.76 is invoked whereby the court takes over your practice and a appoints a temporary receiver, clients are notified, arrangements are made, and files are assigned out to various attorneys.

You need to get started on finding someone that can eventually take over your practice even if you eventually just close your doors. You still have client files and records, clients that will need ongoing or future representation, and an employee that may need a job.

You may want to start with an Of Counsel arrangement with another attorney and put in place an Of Counsel – or Practice Continuation Agreement – whereby you each agree to cover each other practices in the event of illness or vacation.

A practice continuation arrangement is an arrangement – typically in the form of an agreement or contract – made between an individual lawyer or a small law firm and another lawyer or law firm. The arrangement describes a course of action to transfer a lawyer’s practice and sets payment for its value. In the event of vacation, temporary or permanent disability, or death, a practice continuation arrangement protects the practice, the business interests of the lawyer or law firm’s clients and the financial interest of the lawyer and his or her family. There are different kinds of practice continuation arrangements. Typically a lawyer enters into a one-on-one agreement with another sole proprietorship, partnership, limited liability company, or professional corporation in the community. Agreements can range from simple “dual coverage for each other” for vacation or other temporary absences to sale of the practice in the event of long term disability or death.

While your initial need may be a practice continuation arrangement in the event of illness or vacation – you should also begin looking for someone that you can transition your firm to in the long run as well via practice sale, Of Counsel relationship with another firm, merger, etc.

Good luck on your journey!

Click here for our blog on succession

Click here for out articles on various management topics

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

 

Sep 30, 2014

Law Firm Capitalization – What is the Proper Level for Partner Capital Accounts

Question:

I am the chair of the finance committee for our firm – 17 attorney firm in Chicago. We have 6 equity partners in the firm. We are in the process of admitting a new equity partner and are reviewing our capital accounts and trying to determine our capital needs. I would appreciate your ideas and thoughts.

Response:

There are two categories of capital – short-term or working capital which is used to fund daily operations and long term capital which is used to pay for capital assets such as furniture and fixtures, computers and other office equipment. I guess I am old school but I believe that short term working capital should be funded as much as possible with partner capital and long term capital funded with bank borrowing or leases. I have more and more clients that are funding working capital with partner capital and have no bank debt at all. I have other clients that finance all working capital with their bank line of credit – these firms could find themselves in dire straits if bank credit should tighten in the future.

The amount of working capital needed by a firm depends upon your practice, billing and collection cycles, whether you do contingency fee work, and whether the firm is growing and adding attorneys and staff. As a rule of thumb I suggest that a firm have three times one month's expenses excluding draws in working capital. This would need to be increased if the firm has lengthy billing and collection cycles, does contingency fee work, and is in a growth mode.

Partner capital contributions are usually made proportionately based on partner earnings or ownership percentages.

Click here for our blog on financial management

Click here for articles on other topics

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

Sep 24, 2014

Law Firm Business Development – Individual Attorney Personal Branding

Question:

I am the owner and founder of a 7 attorney personal injury plaintiff firm in the southwest. Over the years we have become the "go to" PI firm in the area. We have an extensive advertising program including TV, radio, and other mediums. I bring in all the business and the other six associate attorneys are primarily worker bees. I have discouraged business development by the associates and now as I approach my retirement years I am realizing that this may have been a mistake and it make take more than a "firm brand" for the firm to transition to the next generation. I would appreciate your thoughts.

Response:

While I believe that a solid firm brand is important and can provide practice value when you transition and retire from the practice of law the failure of your attorneys to develop their own brands or identities will make the transition more difficult and could even result in your firm becoming a "one generation law firm". Clients of law firms tell us they hire lawyers – not law firms. Even through you advertise – your reputation and rainmaking skills have had a lot to do with your success. Your associates must develop their reputations and hone their rainmaking skills as well and you need to help them do this. Here are a few ideas:

  1. If you do not have a marketing plan for the firm – develop one. This will help focus the firm's initiatives and serve as the glue for individual attorney personal plans.
  2. Announce that business development is important and that business development goals and plans will be developed for associates and incorporated into performance reviews and compensation determinations.
  3. Initiate business development training sessions for associates.
  4. Require each associate to prepare a personal marketing plan (business development plan) each year. These plans should be goal driven with specific SMART goals (specific, measurable, attainable, realistic, and on a date specific timeline), approved by you, results monitored quarterly, and incorporated into annual performance reviews and compensation determinations.
  5. Get your associates networking, writing blogs and articles, speaking, and press coverage when possible on case results.

Click here for our blog on marketing 

Click here for articles on other topics

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

 

 

Sep 16, 2014

Law Firm Staffing & Growth Models – Mergers (Small Firm Acquisitions) & Branching

Three weeks ago I was asked by the managing partner of a 16 attorney insurance defense firm about staffing and growth models for an insurance defense firm and I listed the following models and discussed the first model – grow your own associate staffing. Over the past two weeks in other posts I have discussed models 2-5.

Attorney staffing/growth models include:

  1. Grow Your Own Associate Staffing
  2. Lateral Associate Staffing
  3. Contract – Staff Associate Staffing
  4. Lateral Partners (Equity or Non-Equity)
  5. Of Counsel (Various Approaches and Purposes)
  6. Mergers (Or Small Firm Acquisitions)
  7. Branching

This week I will outline the pros and cons for number 6 and 7 – Mergers and Branching.

Mergers (or small firm acquisitions)

PROS

  1. Quicker access to talent, expertise in a new practice area, and client book of business.
  2. Access to infrastructure and resources.
  3. May enable the firm to fill in weak spots quickly.

CONS

  1. Risks of a wrong business marriage. (The larger the target firm the greater the risks)
  2. Issues involving integrating the firms.
  3. Control issues.
  4. Conflict of interest issues.
  5. Compensation – money, approaches, etc.
  6. Cultural incomptability
  7. Management time to evaluate the feasibility of the merger.

Branching

  1. Using approaches listed above.

The appropriate strategy is often a mix or combination of the above approaches. Need to drill down into the financials and review past experience concerning breakeven point for profitability of your attorneys, costs/overhead, fee collections, time, and profit margin.

Often the WHO dictates the WHAT (specific strategy)

Click here for our blog on law firm mergers

Click here for our law firm management articles

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

Sep 09, 2014

Law Firm Staffing and Growth Models – Lateral Partners & Of Counsel

Two weeks ago I was asked by the managing partner of a 16 attorney insurance defense firm about staffing and growth models for an insurance defense firm and I listed the following models and discussed the first model – grow your own associate staffing.

Attorney staffing/growth models include:

  1. Grow Your Own Associate Staffing
  2. Lateral Associate Staffing
  3. Contract – Staff Associate Staffing
  4. Lateral Partners (Equity or Non-Equity)
  5. Of Counsel (Various Approaches and Purposes)
  6. Mergers (Or Small Firm Acquisitions)
  7. Branching

This week I will outline the pros and cons for number 4 and 5 – Lateral Partners (Equity or Non-Equity) and Of Counsel.

Lateral Partners (Equity or Non-Equity

PROS

  1. Maybe a quicker way to increase profitability and cash flow.
  2. Allows the firm to acquire talent that it may not have time to grow or develop.
  3. Allows the firm to expand into new areas if the candidate has said experience and brings a book of business with him or her.

CONS

  1. Desired compensation may not fit within the firm's existing compensation structure.
  2. Clients may not come or materialize.
  3. May be issues with cultural fit.
  4. Costs may not be justified.

Of Counsel – Various Approaches and Purposes

  1. Allows the firm to acquire partner level talent, business, etc. without offering partnership.
  2. Provides the firm with a way to acquire a practice of someone wanting to retire.
  3. Provides the firm with a way to pilot test new lateral partner candidates and evaluate in a first-phase approach.
  4. Provides the firm with a way to partner with other firms.
  5. Provides a way for the firm to enter more new market areas.

Other models to be discussed in upcoming posts.

Click here for our article on hiring associate attorneys

Click here for our law firm management articles

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

 

    

Sep 02, 2014

Law Firm Staffing and Growth Models – Lateral Associate Staffing & Contract Associate Staffing

Last week I was asked by the managing partner of a 16 attorney insurance defense firm about staffing and growth models for an insurance defense firm and I listed the following models and discussed the first model – grow your own associate staffing.

Attorney staffing/growth models include:

  1. Grow Your Own Associate Staffing
  2. Lateral Associate Staffing
  3. Contract – Staff Associate Staffing
  4. Lateral Partners (Equity or Non-Equity)
  5. Of Counsel (Various Approaches and Purposes)
  6. Mergers (Or Small Firm Acquisitions)
  7. Branching

This week I will outline the pros and cons for number 2 and 3 – Lateral Associate Staffing and Contract – Staff Associate Staffing

Lateral Associate Staffing

PROS

  1. Less training and mentoring time
  2. Will become profitable more quickly – maybe a year sooner
  3. They will be more acceptable to clients than new untrained associates
  4. May be able to charge higher billing rates
  5. Tradeoff of higher salary vs. quicker profitability and cash flow – sooner profitability may pay for itself in the short term depending upon the salary differential.
  6. May generate new ideas and skill sets/approaches/insights that can benefit the firm.

CONS

  1. May have to de-train them. They may bring practices and approaches that are undesirable to the firm
  2. Higher salary initially and expectations for more
  3. Sooner expectations for non-equity and or equity partnership
  4. Clients may not allow you to charge any more for these associates than new young associates
  5. May not result in higher profitability and cash flow any sooner than new associates (probably will – but if not costs will be higher)

Contract – Staff Associate Staffing

PROS

  1.  Allows the firm to staff up when needed using a project/matter staffing approach
  2. Allows the firm to better manage fixed costs and manage contract staffing as a variable cost and match costs to staffing needs
  3. Allows the firm to evaluate candidates before committing to full-time positions
  4. Can be experienced and seasoned or not

CONS

  1. Cost per hour will probably be higher
  2. Turnover due to uncertainty as to their future

Other models to be discussed in upcoming posts.

Click here for our article on hiring associate attorneys

Click here for our law firm management articles

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

 

    

Aug 26, 2014

Law Firm Attorney Staffing/Growth Models – Overview

Question:

I am the managing partner of a 16 attorney insurance defense firm in Chicago Southwest Suburbs. We have 4 partners and the balance of our attorneys are associates – many of which have been with us for several years. We are on a growth spree and needing to hire more associates to handle client assignments. Associate hiring, mentoring, and training has always been a challenge for us and our clients are restricting us in the way we use associates on their files. I would appreciate your thoughts.

Response:

Attorney staffing/growth models include:

  1. Grow Your Own Associate Staffing
  2. Lateral Associate Staffing
  3. Contract – Staff Associate Staffing
  4. Lateral Partners (Equity or Non-Equity)
  5. Of Counsel (Various Approaches and Purposes)
  6. Mergers (Or Small Firm Acquisitions)
  7. Branching

I will address the pros and cons of each model/approach in upcoming postings. I will begin by addressing the first one.

The traditional staffing model for insurance defense firms has been Grow Your Own Associate Staffing.

PROS

  1. Large available supply of new lawyers.
  2. Lower salary than experienced lawyers.
  3. Better odds of integrating them into the firm's existing culture.

CONS

  1. Takes time training, mentoring, getting them ramped up.
  2. May take 2-3 years before they are profitable.
  3. Once they become profitable you may lose them to another firm.
  4. No business comes with them so you must have enough work to keep they busy.
  5. Clients may be unwilling to allow you to use them or dictate how you use them.
  6. Clients may be unwilling to allow them to train on their dime.
  7. Will have to bill them out at lower billing rates than lateral associates or lateral partners.

Click here for our article on hiring associate attorneys

Click here for our law firm management articles

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

Aug 19, 2014

Law Firm Profitability Assessment Tool

Question:

I am the managing partner of a five attorney firm in Fort Worth, Texas. I am new to the managing partner role and am looking for a quick and dirty tool to examine our financial performance. Can you point me to a tool that I can use?

Response:

I have a quick and dirty tool that I call the Law Practice Profitability and Management Checklist and you are welcome to use it. It is not an exhaustive assessment – just a tool that can be used to get started.

Click here to access the Law Practice Management Checklist

Click here for our blog on financial management

Click here for articles on other topics

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

 

 

Aug 12, 2014

Five Ideas for Struggling Personal Injury Plaintiff Practices

Question:

I am the owner of a five attorney personal plaintiff firm in Wheaton, Illinois. Our practice is in its 25th year of practice and we are 100 percent concentrated in personal injury. Over the years we have been very successful but over the last three years we have been struggling and revenues and profits have been flat. It is getting harder to get good cases and harder to settle and move the cases that we have. We need to approach our business differently. I would appreciate your ideas and thoughts:

Response:

We are hearing this question quite often and have provided some thoughts in past blogs and articles.

The majority of our PI law firm clients are advising that they are having to work much harder at getting clients and investing more heavily in marketing – both time and money. PI firms were feeling the most of these challenges before the recession. However, the recession may accelerate the pace with which law firms reevaluate existing processes and consider new business models. PI firms may want to begin by:

1. Develop a firm strategic plan and individual attorney marketing plans which include aggressive network/contact plans for past clients, attorney referral sources (non PI attorneys), attorney referral sources (other PI attorneys), and other referral sources.

2. Evaluate the feasibility of adding an additional practice segment to reduce the level of risk in the case portfolio and reduce cash flow variability.

3. Reduce case portfolio risk and improve case profitability by implementing a case intake system whereby all new cases over a specified level of projected case value are reviewed and approved by the partnership (or a client intake committee) in order for the case to be accepted by the firm. In other words – don't let one attorney expose the entire firm to either excessive levels of case risk or case investment (time and client cost advances) without other partners having a say on the matter.

4. Analyze the profitability and return on each case and ascertain what can be done differently on future cases. Metrics might include effective rate, return on LOADSTAR, dollar case profit after allocation of all appropriate firm overhead, etc.

5. Review and measure present marketing investments (time and money) and determine what is working and what is not. Reallocate resources if appropriate.

Click here for our blog on law firm strategy

https://www.olmsteadassoc.com/blog/category/strategy/

Click here for our law firm management articles

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

Aug 04, 2014

Law Firm Client Telephone Satisfaction Interviews in Insurance Defense Law Firms

Question:

I am the chair of our firm's marketing committee. We are a 24 attorney insurance defense firm in Houston. While we solicit feedback from some of our larger insurance company clients at lunch and face to face meetings – the sessions are not structured, data is not really tabulated, and only a handful of clients are usually involved. We have been thinking of embarking on a more structured process. I would appreciate your thoughts:

Response:

Our firm recently completed client satisfaction interviews for several of our insurance defense law firm clients. Here are a few quotes and a summary of what these insurance company law firm clients told us:

Much can be learned by talking to your clients. Structured telephone interviews conducted by a neutral in-house law firm marketing employee or outside third party can provide many surprises as well as answers. Client satisfaction interviews can be the best marketing investment that you can make.

Click here for our blog on marketing 

Click here for articles on other topics

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

 

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