Law Practice Management Asked and Answered Blog

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Nov 06, 2012

A Backup Up Plan for Small Law Firm Owners – Using Practice Continuation Arrangements

Question:

I am a 52 year old solo practitioner in Memphis with one non-attorney staff member. While I do have some concerns about my long term succession exit strategy my immediate concerns are more short term in nature. How do I cover and serve my clients if I take vacation, get sick, or get busy and need help? What are your thoughts?

Response:

Sound practice continuation arrangements can solve this dilemma and preserve practice value
and can help prevent a lawyer’s spouse or immediate heirs from facing a hasty sale or disposition of the practice in an emergency. A practice continuation arrangement can also give lawyer practitioners, their staff, and their family’s peace of mind.

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.

Look around for another solo practitioner or law firm that you can partner up with.

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

 

 

 

Oct 31, 2012

Developing a Law Firm Associate Career Progression/Partnership Admission Program

Question:

Our firm is a 14 lawyer firm in Phoenix, Arizona. We are a new firm (formed 8 years ago) and we have 5 equity partners and 9 associates. Several of the associates have been with us since day one (8 years) and are asking us about partnership. We want to be fair and keep our top talent. What are your thoughts on this topic?

Response:

A common complaint that we hear from our interviews of associates is lack of feedback on short term performance and what is takes to "make partner" and how they are progressing toward eventual partnership. During a recent interview an associate told me – I would like to know:

  1. What does it take to become a partner – consideration criteria? What do I have to do?
  2. What is the timeline for consideration?
  3. How am I doing – am I partnership material?
  4. What does partnership mean in this firm?
  5. What are the mechanics of admission? (Is there a buy-in)

I suggest that you and your partners consider developing what I call a Law Firm Associate Career Progression/Partnership Program and put it in writing. Here is an approach you might take:

  1. Determine if you want more partners? How many – evaluate the appropriate ratio.
  2. Consider non-equity partners as a first step and determine what that means.
  3. Establish a minimum number of years for consideration – i.e. seven years.
  4. Determine competencies and expectation for associate development and document.
  5. Develop an associate performance evaluation form and conduct formal annual evaluations.
  6. Develop partner admission criteria (associate to non-equity and non-equity to equity partner) and document.
  7. Write-up an overall program document and include as attachments the competencies document, the performance evaluation form, and the admission criteria document.
  8. Present the program to associates in a live meeting format to launch the program.

Regarding equity partnership – make the criteria tough – and require a buy-in or capital contribution. Business development and a client following should be required by most firms for the equity tier. 

Click here for our blog on law firm partnership

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

 

Oct 23, 2012

Redesigning a Law Firm Compensation System – 8 Attorney Firm – 4th Year of Practice

Question:

We are an 8 attorney law firm in Evansville, Indiana. We have five members and three associates. We started our firm four years ago. Each member has an equal share for both ownership and compensation purposes. We cut the pie equally. After four years some of the members feel that the equal sharing approach is no longer working and we need to consider a different approach to compensation. I would appreciate your thoughts on how we might get started on modifying our approach.

Response:

Virtually all successful compensation systems feature two common qualities that are linked to
each other and stand the test of time.

First, a successful system must be fair and be perceived as fair by the partners who
are  essential to the firm’s economic success and reputation.  The perception of fairness is critical.  To determine if a system is fair, partners can ask the following questions:

  1. Do  I understand the system?
  2. Does the system recognize what individuals contribute to the organization?
  3. Are the rules clear?
  4. Are the rules followed and applied in a consistent manner from person to person from year to year?
  5. Are the compensators individuals who are trusted and respected?               

A second quality of successful compensation systems is that of simplicity.  Research has shown that there is a direct correlation between the simplicity of compensation systems and the degree to
which partner understand how their compensation is determined.

The challenge is structuring a compensation system for a law firm is in selecting the best mix of appropriate compensable criteria and the right amount of participation that is consistent with the firm’s needs and its culture. 

Before you go very far you should address what type of firm you are trying to build – Lone Ranger (a group of individual practitioners) or firm-first (a team-based firm). In other words "are we in this together." The answer to this question will provide a clue as to whether eat-what-you kill or other approaches to compensation will be appropriate.

Changing your compensation system is difficult and should be approached carefully and thoughtfully.

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

 

Oct 16, 2012

Maximizing Law Firm CLE Investments

Question:

We are a 18 attorney firm in Wheaton, Illinois. We have started the preparation of our budget for 2013 and are looking for ways to maximize the benefits from our CLE and other training and education investments. Any ideas?

Response:

Training and skill development is not easy. Studies reveal that 90 percent of the people who attend seminars and training sessions see no improvement because they don’t take the time to implement what they learn. Practices create habits and habits determine your future. Up to 90 percent of our normal behavior is based on habits. The key to skill learning is to get the new skill to become a habit. Once the new habit is well developed it becomes your new normal behavior. This requires practice. Unfortunately, law firms do not give employees time to practice and experiment.

Research on memory and retention shows that upon completion of a training session, there is a precipitous drop in retention during the first few hours after exposure to the new information. We forget more than 60 percent of the information in less than nine hours. After seven days only 10 percent of the material is retained. Most memory loss occurs very rapidly after learning new information. Your attorneys and staff can improve their memories by:

Skills become automated through practice. The more we perform a set of actions, the more likely we are to link those actions into a complete, fluid movement that we do not have to think about. With enough practice, employees can become fluent in many different physical and mental skills.

Provide your attorneys and staff with time to practice and experiment. Schedule lunch and learn programs. Provide ongoing training in small bite size chunks relevant to the needs of the firm in a just-in-time fashion.

Use it or lose it!

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

Oct 09, 2012

Survival Tips for Law Firm Legal Administrators

Question:

I am the Director of Administration with a 45 attorney firm in Des Moines, Iowa. I am new to this position and could use some pointers on what I need to be successful in my role. This is my firm law firm.

Response:

Few things are as important to an administrator’s future as that person’s ability to influence the decision-making process and effect change.   Skills and competencies are important, but so are results. To transcend to the next level and enhance your value to your law firm, you must help your firm actually effect positive changes and improvements and improve performance. This requires selling ideas to partners in the firm, and having them accept and actually implement those ideas. To succeed, you must achieve three outcomes:

1.  You must provide new solutions or methods.

2.  The firm must achieve over time  measurable improvement in its results by having adopted the
     solutions, and

3.  The firm must sustain the improvements over time.

Click here for our blog on governance 

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

Oct 02, 2012

Law Firm Governance and Structure – Impact Upon Competitiveness

Question:

Our firm is in Nashville TN and we currently have 12 attorneys – 7 partners and 5 associates. We are an eat-what-you kill law firm. In essence we operate as separate profit centers and operate in our own silos. We all have to come together and agree on any and all management decisions. Our management team consists of "all partners". We do not have a office administrator, office manager or even a managing partner. We all have the freedom to do as we please and there is very little accountability to each other. Recently we have been discussing the pros and cons of why we might want to change our governance and overall structure. I would be interested in your thoughts.

Response:

I believe that law firms that are "firm first" team based firms and organized along these lines have (or will have) a competitive advantage with respect to clients, legal talent, and merger partners. As law firms grow the "lone ranger" confederation approach no longer works. Decision-making is too time consuming, partner time is wasted, and opportunities are missed. Synergy (where one plus one equals three or four) is not achieved and the firm achieves little more than any one of the attorneys could achieve in solo practice.

Recently I was working with a similar size firm in Chicago that was looking for a merger partner. When the other firm learned that my client was a "lone ranger" firm they discontinued discussions. Larger firms that are "team-based" are not interested in merging with "long ranger" firms – they tend to cherry pick key talent from these firms rather than pursuing mergers or combinations.

Click here for our blog on governance and structure 

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

 

Sep 26, 2012

Hiring Entrepreneurial Associates That Can Eventually Become Equity Owners or Partners in a Law Firm

Question:

We are a Toledo, Ohio law firm with ten attorneys. We have four partners – all of which are in their 60s and approaching retirement. While our six associates are great lawyers – none bring in business nor do any of them seem to really be interested in partnership. It seems that we hired a bunch of folks that just wanted jobs and have no interest in owning a law firm. I would be interested in your ideas and thoughts.

Response:

Years ago it seemed that all the associates working in law firms wanted to eventually become a partner in the law firm. This has changed as a result of the new mix of women and men graduating from law schools and entering the legal profession, changing attitudes toward work life balance, other opportunities outside law firms, and other variables. While partnership/ownership is still important to many – don't assume that all the associates that you hire will even want to be equity partners – especially if it means a hefty capital contribution and signing personal guarantees for a large amount of firm debt.

A question that I would ask – have you really discussed with your associates their interests in equity ownership? As a group? Recently an associate, whom the firm had written off, advised me that while he was not interested now due to his present situation in life, he would be in maybe five years – especially if others also were brought in as well – in other words he did not want to have the responsibility alone and be an equity owner by himself.

I suggest that you talk with your people and see where they really stand. Help them to begin developing client development skills. Depending on you and the other partner's retirement timeline – you may have to consider other options such as laterals or merging with another firm.

A key suggestion is to look for entrepreneurial associates when you hire. The desire for ownership of a business if often in a person's blood. Don't start the interview with a discussion from law school until the present. Dig deeper into hobbies, family, etc. that will provide clues as to whether you may be hiring someone that just wants a law job or someone that eventually wants to own or be a partner in a law firm.

Click here for our blog on career management

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John W. Olmstead, MBA, Ph.D, CMC 

 

Sep 17, 2012

Law Firm Production Metrics for Part-Time Associates and Paralegals

Question:

I am a partner in a small estate planning/administration law firm in Louisville, Kentucky. We are having a hard time getting a handle on determining the productivity of our associates and paralegals. Many of our associates and paralegals work part-time and the typical metrics such as 1500-1700 annual billable hours, etc. don't work for us. Do you have any thoughts or suggestions?

Response:

You might want to consider using a billable/worked ratio which is the ratio of billable hours logged to hours worked. For attorneys and paralegals that are totally focused on providing client services a good benchmark is 70%-73%. If an attorney or paralegal works 30 hours a week – you would hope to see 21-22 hours billable per week. Based on 50 weeks per year this would equate to somewhere around 1050 billable hours per year. For a full-timer working 8 hours a day or 40 hours per week – 50 weeks per year this would work out to around 1400+ hours per year. Most full-time attorneys work closer to 50+ hours a week and are expected to log between 1500-1700+ hours per year. The expectation for full time paralegals is around 1400 hours.

The 70-73% ratio is ambitious – but is achievable. For paralegals this goal will not be possible if they are loaded down with administrative duties. Excellent time management and time keeping skills and practices will need to be in place as well.

While billable hours is a starting point you also need to examine the impact of write-downs of work (adjustments prior to billing) and write-offs of bills that have been rendered to clients. In other words – what got billed and what actually was paid. Examine the billing and collection realization percentages and or the realization or effective rates for these people as well.

In addition to dollars you should also factor in quality and speed of work as well as client satisfaction scores from your end of matter client satisfaction surveys.

Click here for our archive blog on financial management

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

Sep 12, 2012

Job Description for A Bookkeeper – 5 Attorney Law Firm

Question:

I am the owner of a five attorney firm in Chicago. Including staff we have a total of 13 people working at the firm. As we have grown our approach to handling billing and accounting has been piecemeal. We have a combination of several people handling various tasks including a couple of outsourced vendors as well. Frankly it is a mess. I want to restructure and consolidate all the tasks and responsibilities into one bookkeeper position. Do you have a job description that would help guide me in my search?

Response:

Here is a job description that might help get your started.

Position Summary

The primary function of this position is to perform the billing, bookkeeping and accounting functions of the firm. This position requires an experienced and accomplished person with a strong bookkeeping and computer background. The position requires skills and experience in bookkeeping, accounting, law firm billing and QuickBooks software as well as Microsoft Office Products. The position requires experience in a law or other professional service firm environment.

Reporting Relationship

This position reports to the firm owner.

Required Knowledge, Abilities and Skills

1.  Must have at least 2+ years bookkeeping experience as a full-charge bookkeeper with responsibilities including client billing in a law or professional service firm environment.

2.  Must have successfully completed coursework in bookkeeping/accounting. An associate degress in bookkeeping/accounting is desirable.

3.  Must have experience with law firm billing or other professional service firm (TimeSlips or appropriate software that the firm is using) and accounting software (i.e. QuickBooks) as well as Microsoft Office Products.

4.  Must possess strong administrative and organizational skills.

5.  Must have strong interpersonal and communications skills.

6.  Professional appearance and manner.

Duties

1.  Perform all bookkeeping functions

2.  Performs all client billing functions and other accounts receivable functions

3.  Pay vendor bills and manage accounts payable.

4.  Perform all data entry of cash receipts and client costs in billing and accounting systems.

5.  Perform all data entry of cash receipts and disbursements for the IOLTA trust account in the accounting systems.

6.  Process credit card transactions.

7.  Reconcile bank statements.

8.  Work up and make bank deposits for the operating and IOLTA accounts.

9.  Handle payroll.

10.  Handle Insurance

11.  Provide all required financial reports to the firm owner on a monthly basis.

12.  Filing.

13.  Coordination with the firm's accountants.

14.  Management and oversight of the billing and accounting systems.

I hope this helps you get started.

 Click here for our blog on financial management topics

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John W. Olmstead, MBA, Ph.D, CMC 

Sep 05, 2012

Selling Your Law Firm – Readying It For Sale

Question:

I am a sole practitioner in Bloomington, Illinois. My practice is general practice and most of my clients are either individuals or small businesses. I have one legal assistant and one paralegal that works for me. I am 62 and am starting to think about what to do with my practice and what I need to be thinking about concerning selling my practice. I would be interested in your suggestions.

Response:

I would start by asking yourself when you actually want to retire or quit. Do you really want to stop practicing law or do you want to work forever? Over two thirds of the solo and small firm lawyers that I speak with advise me that they want to practice forever – maybe not full throttle – but on a continued but scaled back schedule.

Review Rule 1.17 – Illinois Rules of Professional Conduct to insure that you understand the method and the restrictions involved in sale of a law practice.

If you want to continuing practicing determine whether selling your law practice is your best option given Rule 1.17. Some of our clients are exploring other options including bringing in other attorneys and forming partnerships or merging with other firms.

If you determine that selling the practice is the route you want to go here are a few ideas to begin readying it for sale:

  1. Decide when you want to retire and leave your firm.
  2. Determine who your would like to transfer the practice.
  3. Determine the your goals for sale of your practice and the priority and what is most important to you. (clients, staff, money or sweat equity, etc.)
  4. Determine how much the practice is worth today.
  5. Begin finding way to institutionalize the firm so the client and other relationships are less uniquely you.
  6. Begin implementing management practices that will systemize your firm and improve it's future value. (written procedures and policies, checklists, forms, automated case management systems, organized client files, accounting systems, etc. ) Document everything.
  7. Draft and implement a succession/exit plan and implement same. Insure that it incorporates safeguards for your clients, employees, and family if the unexpected happens to you.

Click here for our blog on succession topics

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

 

 

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