Law Practice Management Asked and Answered Blog

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Sep 03, 2013

Successful Law Firms – What Are They Doing Right?

Question:

Our firm is a 12 attorney firm in Dallas. Our practice areas are business transaction and litigation. We also have an active energy practice. The past two years have been difficult for us financially. What are some of the successful firms doing right?

Response:

In spite of the recent economic woes many small firms have still done well. Many of these firms were those that:

I believe that law firms that fail to focus their practices, set goals, measure accomplishments, and foster accountability will fall short and not meet their financial objectives. Law firms that fail to plan are planning to fail.

Law firms as well as solo practices need to begin focusing their firms and practices, setting firm and individual production goals, measure accomplishment and implementing systems to instill accountability from all members of the team – attorneys and staff alike.

What gets measured is what gets done.

Click here for our blog on law firm strategy

Click here for my article on business planning

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

Aug 27, 2013

Benchmark for Law Firm Revenue

Question:

I have recently been hired as our firm's first firm administrator. We are an insurance defense firm with 14 attorneys located in Memphis. This is my first law firm. Previously I managed a mid-size CPA firm in the area. I am interested in your thoughts concerning law firm revenue benchmarks.

Response:

Surveys vary. However, national averages for all firm – types – sizes, etc. tend to be around $385,000 per lawyer. I have firms averaging $250,000 to $550,000 and up. So it varies by location, type of practice, size of firm, etc. However, I believe that $300,000 per year per lawyer should be considered a realistic goal for all firms, all sizes, all practice areas, and all locations. For some firm this might be a stretch – but I believe it to be an attainable goal.

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

Aug 20, 2013

Law Firm Associate Performance Evaluations

Question:

I am the managing partner of an eight attorney firm in Central Illinois. We have five partners and three associates. Over the years we have experienced excessive associate turnover and have had problems retaining associates. While we believe that we provide adequate feedback to our associates regarding our expectations and their performance in real time and in their annual reviews several of my partners believe that we can do better. I would appreciate your thoughts and suggestions.

Response:

One of the most frequent complains I hear during interviews with associates in law firms of all sizes is lack of specific detailed feedback, unclear or non-existent expectations concerning their performance and future career progression, and vague informal performance reviews.

Here are a few suggestions:

  1. Institute a system where associates, especially when they are new, have a chance to work with all of the partners in the firm.
  2. As managing partner solicit feedback from your partners and meet monthly with each associate and discuss their performance during their first two years of employment with the firm.
  3. Annually conduct formal performance reviews with each associate. Before the review obtain specific feedback from each of the partners and have each partner complete a written review of each associate using the associate performance rating form. Ask each associate to conduct a self-evaluation using the firm's associate performance rating form and then conduct a detailed review with each associate. The review should be detailed and specific and should be developmental with specific goals and timelines established. Document the review in the associate performance rating form.
  4. Consider developing an associate career progression program (partnership track) and committing it to writing. The program should outline the timeline for first consideration for partnership, competencies and performance factors, what partnership means in your firm, how an associate becomes a partner, buy-in or capital contribution requirements, voting, etc.
  5. Be honest and open with your associates – don't try to be Santa Claus – tell them the truth, have the difficult discussions, and make the tough calls. Be accessible.

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

 

 

 

Aug 10, 2013

Law Firm Strategic Planning – Implementation – Responsibility – Accountability

Question:

I am the managing partner of a 17 attorney law firm in downtown Chicago. We are a litigation boutique firm with a majority of our work in insurance defense. We have been in practice for 7 years. While we grew quickly during the early years – we have reached a plateau and growth has stalled. We are planning our first strategic planning retreat and hope to develop a long range strategic plan. Do you have any suggestions?

Response:

Where more planning efforts fall short is in the implementation of the plan. The plan lays on the shelf and collects dust. I suggest that the plan be implemented through the firm's existing management structure, i.e., the managing partner, executive committee, the strategic planning committee, and practice area chairs.

Individual partners should be assigned responsibility and held accountable for the satisfactory implementation of each phase of the plan in accordance with an agreed-upon timetable. This should be done during the planning retreat session.

Status reports should be provided to the other partners in each phase of the plan in order to keep them apprised of the planning activities.

Suggest an online project management system (portal) be used to track progress.

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

Aug 06, 2013

Are We a Suitable Candidate for a Traditional Law Firm Merger?

Question:

Our firm is a 22 attorney firm located in Pittsburgh. While we represent both individuals and businesses our focus is on small business representation. During the past few years we have come upon hard times. We have lost several partners and a couple of business clients and we have a few partners coming up for retirement over the next few years. Several of our senior partners have suggested that we might be a merger candidate for a large law firm. What are your thoughts?

Response:

Don't count on a larger law firm coming to your rescue unless:

  1. You have a practice that is strategically important to the larger firm (all practice areas).
  2. You have an exceptional bench of superior lawyer talent with mixed age spread.
  3. Your firm has had exceptional financial performance and on a par with the larger firm.
  4. Your billing rates, methods, and practices are on a par with the larger firm.
  5. Your partner earnings are on a par with the larger firm.

Unless the above ingredients are in place the firm may not be a suitable candidate for merger or it might find that the larger firm cherry picks some of the key partners off one by one.

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

 

Jul 30, 2013

Impact Of Law Firm Growth Upon Management and Organizational Structure

Question:

Our firm is a five attorney firm in Peoria, Illinois – three partners and two associates with four staff members. One of our legal assistants wears two hats – she serves as our office manager and also performs legal assistant duties for clients. Three years ago we had two attorneys and two staff members. We are feeling the consequences of our growth – our caseload has increased by 200%, our overhead is much higher and even though we have greater revenues – our take home earnings is less. We are overwhelmed. I would appreciate your thoughts?

Response:

It sounds like your firm has outgrown your management (organizational) structure. A firm with nine people is a different firm than a firm with four people. You are at a difficult size – large enough to feel the pains and challenges of being larger than two attorneys and two staff members but not large enough to reap the organizational benefits of a larger firm such as a full-time firm administrator, accounting manager, HR manager, etc. (I believe that as a law firm grows – management gets harder until a firm gets to around 12 attorneys – then as the firm begins to put in place a management team – it gets easier.)

In the meantime you might want to consider the following:

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

 

 

 

Jul 20, 2013

Law Firm Succession Strategy for An Owner That Wants to Keeping Working

Question:

I am the founder and solo owner of a small firm in Memphis. Besides myself there is one non-equity partner and four associates. We handle the transactional and litigation work for small and large business concerns in the Memphis area. I am 60 now and would like to begin slowing down over the next five years – but I want to continue working – I don't want to retire completely. Over the past few years I have focused more on client development as opposed to serving clients and have turned over much of the client service work over to other attorneys in the firm. While I would like to receive some compensation from my sweat equity – I also do not want to place an unreasonable financial burden (large cash buy-in/buy-out) on others in the firm. Legacy of the firm is important as is a place to continue to work and contribute – so I really would like to transition the firm internally to deserving attorneys employed by the firm. What are your suggestions concerning how I might accomplish this?

Response:

I often ask attorneys – are you more a lawyer that wants to lawyer or a business person that enjoys and wants to focus on the business of law. It sounds like you, as you approach retirement, would like to spend more of your time "finding" rather than "minding" or "grinding". You might want to consider the following:

  1. Get a feel for the value of your firm. If you have been taking home say $400,000 per year – using that as a starting point for your rough value figure if you were to sell your practice to outsiders. Would you be willing to discount to transition the members of your current team? If so, maybe that figure might be $200,000 – $300,000.
  2. Establish a date when you want to start to wind down.
  3. Decide on your future role, institutionalize the role and write a job description for it. You might want to consider a role such as Business Development Director or Manager. Establish specific goals and expected outcomes for the role. 
  4. Then plan a gradual wind down with gradual draw reduction but at a level that in essence is greater than the ratio of time reduced providing you with say – $200,000 over a five year period of time.
  5. Put in place a commission arrangement where you would receive a commission on fees (say 20%) from new clients that you bring into the firm after the date that a program is put in place. I would suggest a 5 year sunset provision whereby after five years the commission decreases to zero – requiring you to continue to develop new relationship and bring new clients into the firm.

Click here for our blog on succession

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

 

Jul 16, 2013

Metrics and Dashboards for a Personal Injury Law Firm

Question:

I am the managing partner of a three attorney personal injury plaintiff firm in Indianapolis. We have a total of 600+ open PI files. What are some of the key financial metrics/indicators that we should be using to manage the practice?

Response:

From your case count it is obvious that you a managing a high volume practice. In addition to selecting the right cases managing you inventory (case portfolio) is crucial as is managing and monitoring the effectiveness of your marketing investments. Here are a few metrics that you might consider incorporating into a one page report with trend line charts. You can design the report in Excel and pull the numbers from detail reports from your case management system:

Plotted by Month

This will get you started.

Income statements/profit and loss statements are nice history lessons but they don't help you manage the productive operations of the firm.

Click here for our blog on financial management

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

 

Jul 08, 2013

Law Firm Pipeline – A Key Financial Metric and Indicator

Question:

I am the managing partner for a 16 attorney firm in Miami. I am new in the job and am trying to learn all that I can about law firm financial management. I have recently read several law firm management articles that have referred to "Pipeline Management". What exactly does this mean and what is the implication for law firm management?

Response:

Pipeline management is a term used in the management consulting profession to refer to the process by which you continually evaluate your active opportunities (prospective clients to booked clients) for their balance of QUALITY and QUANTITY. The goal is to continually stay on top of the overall health which is a full pipeline. Pipeline management allows client relationship managers to more accurately forecast fee revenues, better staff and manage client engagements, and close more client business.

I often also refer to Pipeline management in law firms in the context of using financial dashboards by which the individual charged with financial management responsibilities is continuously aware of significant changes in the firm's Pipeline (from prospects to cash): 

By comparing these dashboard statistics to a prior month, quarter, or year – you are able to avoid financial surprises down the road.

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

Jul 02, 2013

Law Firm Managing Partner Compensation

Question:

I am one of the founding partners in a 27 attorney law firm in San Antonio, Texas. We have four equity partners, six non-equity partners and seventeen associates working in the firm. We focus totally on litigation. Each of us four equity partners have equal ownership percentages and since day one (20 years) have divided firm profits equally along those lines (25%, 25%, 25%, 25%). We each put in the same amount of effort and work – but since I am managing partner – my fee collections are much lower than those of the other three equity partners and I am concerned that they may feel that I am not carrying my weight since my fee collections are lower. How should this be handled in our compensation system?

Response:

This is a common question that we hear often. It sounds like you are still allocating income in the same manner that you did when the firm first started. Often when a firm grows the partner compensation system needs to be reexamined when and if partner roles or contributions change. As the firm has grown I suspect that your time spent on management activities has grown as well. I, as well as many other legal management consultants, believe that firm management (running the business) is as important as generating client fees and should be so considered in partner compensation systems.

We have numerous law firm clients where at least one or more of the equity partners "run the business" and do not provide billable client services at all.

Management time should not be used as a non-billable time category (excuse) to simply "dump" time. Your partners have a right to expect results that improves the bottom line and the size of the pie for all.

Here are a few suggestions:

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

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