Law Practice Management Asked and Answered Blog

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Aug 31, 2011


Improving Law Firm Profits By Improving Processes

Question:

We are a five attorney firm in Detroit. Our firm does exclusively elder law and estate planning and most of our fees are based upon flat fees. Business has been steady and solid in spite of the recession. In an effort to improve profitability we are considering raising our fees but are concerned about adverse effects that it may have upon our competitiveness. We are already at the high end of the fee scale. Do you have any thoughts?

Response:

Raising fees is one approach to improving profitability. Clients are starting to push back more and more concerning legal fees. If you are at the high end of the rate scale I suggest that before charging off and raising rates you step back and conduct a process review by using an approach similar to the following:

  1. Pull a random representative list (by timekeeper and type of matter) of matters that have been concluded during the past six months. Say 10-20 matters.
  2. Calculate the effective hourly rates for each matter overall as well as by timekeeper class. (partner, associate, paralegal)
  3. Compare the calculated effective rate to your internal standard time billing rates as well as to external benchmarks. (Other firms from published survey data) How do they compare? What did it cost to staff the matter?
  4. Review the time detail for each of these matters and ask questions. You might want to flow chart and document the work flow. Is the firm working smart? Is time being dumped on these flat rate matters so that a timekeeper's hours look good on the production reports?  Is the firm using the right mix of paralegals and attorneys to staff the work? Is there wasted or duplicative effort? Is technology being used? Can work steps be eliminated or reduced? Should the firm consider a "limited representation" unbundled option?
  5. Pilot test a few new approaches and measure the impact upon profitability.

Keep in mind that raising fees is one way of improving profitability. There are other ways as well. In today's competitive environment. Working smarter, efficiently, and more effective is another.

Click here for our blog on competitive business models

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

 

 

Aug 23, 2011


Law Firm Client Development – Obtaining Additional Work From Existing Clients

Question:

I am the chair of our three person management committee. Our firm, now entering second generation, is a 17 attorney firm in Kansas City, Missouri. We represent businesses and other institutional clients. We have several of our founding partners in their 70s and as they phase back and slow down we are discovering that the younger generation of partners have not developed client development skills. What should we be doing to get more business? We are not sure we even know how?

Response:

Research conducted over the years by numerous research organizations has shown that on average it costs five times as much (dollars/time investment) to get new clients than it does to get more business from existing clients. It just makes good business sense to leverage existing relationships.

Institutional clients are reducing the number of law firms that they use. According to BTI Consulting Group, corporations in the Fortune 1000 list are using 20% fewer core law firms than they did a year earlier. As a result fewer firms will be getting work from these companies and they will likely be the firms that successfully cross-sell their practices.

Recommendation From a Fortune 500 Client

Recently I was doing a telephone interview with the general counsel of a Fortune 500 company for our law firm client and I asked him if there was an opportunity for the law firm to get additional work in a practice area in which the company had no experience with the law firm previously and if an opportunity existed what the firm needed to do to earn the business. Here is his response.

"Obviously we currently have other law firms handling that work. However, we have been evaluating those relationships and may be making some changes. There is room for other law firms to earn our business in the practice areas that you have discussed with me."

"I am aware that the law firm does other work other than what we have been using them for – but I am not sure exactly what those areas are."

"In order to begin to forge a relationship into these other service areas:"

  1. I need to know specifically what they do.
  2. I need to know who does it.
  3. I need to know how well the person( s) do it.
  4. I need to have a well established relationship with the person – trust, respect, like the individual, etc.
  5. I suggest that we start by having the partner in the firm that I have a relationship with begin educating me on the firm's other practice areas and begin introducing me to the other players in the law firm.

We hire lawyers – not law firms.

Click here for our blog on law firm marketing

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

 

Aug 16, 2011


Law Firm Acquisition Due Diligence – Using Client Surveys To Ascertain Client Retention

Question:

Our firm, a 22 attorney law firm in Chicago, has been contemplating acquiring a 6 attorney firm in the suburbs. We believe we have done an adequate job of due diligence regarding financials, people, culture, systems, and practice-mix compatability. Our concern is client retention. What are you thoughts concerning how we can determine if the clients will stay with us?

Response:

Why not ask the clients.

Much can be learned by talking to the firm's clients. Structured telephone interviews and other forms of surveys conducted by a neutral third party can uncover many surprises as well as answers. Client satisfaction surveys can be one of the best due diligence tools that you can use. 

It is good business practice to see how clients might react to a acquisition or merger. Understanding where your prospective firm's clients stand and how they feel about service quality can be one of the most valuable inputs into your due diligence process that you can get your hands on. By finding out where your prospective firm's clients stand can tell you a lot of their future retention. 

Before you invest significant time, money, or effort in developing an overall acquision/merger implementation strategy, survey your prospective firm's clients to understand where their clients stand.   

You must be careful using this approach and insure that it is done with the permission and in concert with the prospective firm.  The approach must setup, communicated and coordinated properly. It must be sensitive to clients and done in a way to communicate and reinforce positive rather than negative signals to the clients involved. 

 Click here for our blog on mergers

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

Aug 09, 2011


Reducing Law Firm Employee Benefits

Question:

As the administrator of our 14 attorney firm I have been asked to present a plan to the partners for reducing employee benefits. We have had a difficult time during this recession. So far we have not had to reduce our employee headcount – but this could change in the future. It is our hope that if we can reduce the cost of benefits we won't have to layoff or terminate any employees. What is the best way to handle/manage this difficult discussion and process?

Response:

As an "at-will" employer you have the right to change benefits whenever you please. However, you must be careful as employees will perceive a reduction in benefits as a reduction to their overall compensation package.

If you do decide to cut benefits it is advisable to plan carefully and communicate as much in advance of the changes so that people know what is coming in time for them to allow for changes in their lives. It is also a good idea to be prepared to clearly and concisely share comprehendible reasons for making these changes. If implementing this type of change will save jobs, present it this way. If you believe that you may again provide benefits that have been cut once the economic environment is better, that knowledge will make it more palatable to employees.

A key point here – do an overall examination of your benefits and cut once and be done with it -don't keep reducing benefits every month or so.

You might want to examine your overall benefit costs – especially medical insurance – and strategically think about best approaches. It might make sense to cut here rather than a day of sick time or vacation.

Food for thought – According to a Society for Human Resource Management Poll taken in March of 2011 in the last six months 20% of employers reported that they had reduced benefits – the highest level since the fall of 2008. "Employees continue to scale back on health care coverage for employees (91%) and dependents (89%), and the amount of leave that an employee can accrue (54%).

So proceed with caution – but go for it if it makes strategic sense for your firm.

Click here for our blog on HR ideas

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

Aug 02, 2011


Key Documents Needed to Launch a Law Firm Merger/Acquisition/Sale Initiative

Question:

Our firm is a 5 attorney firm in Detroit with three partners and two associates. The three partners are 79, 72, and 67 respectively. All three are considering succession and exit options. While internal succession is an option the firm has had a few merger chats with larger firms – on isolated unplanned occasions. We are having problems getting focused and generating interest from other firms. Is there a suggested process and or documents that we should prepare to generate interest and properly package our firm?

Response:

Suggest that you start by preparing an offer package that can be provided to other firms that you may approach directly or indirectly. A good offer package consists of the following:

  1. A firm profile (without identity for some presentations)
  2. Nondisclosure Agreement
  3. Detained Offering Memorandum (Confidential Descriptive Memorandum)
  4. 

The Offering Memorandum

Tells the firm's story
Provides relavant facts other firms want to know including:

  1. Legal structure of the firm
  2. Ownership & Governance
  3. Key Management
  4. Organizational Chart
  5. Client Breakdown
  6. Practice Areas/Mix
  7. Marketing
  8. Historical Financial Performance

Potential Growth Opportunities
Potential Synergies or Economies of Scale
Proposed Deal Structure

The firm profile is the first point of contact with potential buyers/merger partners. It summaries the key points and describes the firm without revealing any identifying information. If an interested party wishes to go to the next step a nondisclosure agreement is executed an a offering memorandum with more specific information is then provided.

Using tools such as these can help you focus your effort, cast your firm in it's best light, and reduce wasted effort on the part of all parties.

Click here for our blog on law firm mergers

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

 

 

 

 

Jul 26, 2011


Law Firm Succession and Retirement Options

Question:

I am the senior partner in a six attorney firm in Los Angeles. I am 68 years old and thought that it was  about time I begin thinking about retirement and begin discussions with my other partners. We have no partnership agreement and no plans in place to effect the transition of partners. What are some of the methods being used by law firms effect the retirement of partners?

Response:

There are almost as many approaches as there are law firms – ranging from partners that just leave and give their practices to the others partners to various methods for buying out the departing partner's interest in the partnership. In the final analysis the optimal approach is what makes everyone happy and a solution that everyone can live with. Here are a few illustrations:

Fully Funded Retirement

50 Percent Wind Down Option – Then Retirement Payments For Live 

Pension For Life

Mandatory Wind Down

Five Year Retirement Benefit Payout Based On Earnings

More and more firms are avoiding payouts for life and even moving toward funded buyouts.

Click here for our blog on succession and retirement

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

Jul 18, 2011


Law Firm Management Projects & Implementation

Question: 

I am the managing partner of a 35 attorney firm in Washington D.C. Governance consists of the full partnership on some management matters, myself at the next level, and a firm administrator. The administrator and I meet regularly to review accomplishments – but it seems like initiatives take forever to get implemented or never get implemented at all. Some are initiatives on my plate and some are initiatives on the administrator's plate. What are your thoughts?

Response: 

I assume that you are a part time managing partner and that you are also servicing clients full time as well. It it difficult serving two masters – the firm (non-billable time) and your clients (billable time). Firm management issues always seems to take a back seat to client priorities. To do otherwise requires that you be very focused and effective time manager. You must balance both balls at the same time. Your administrator has a similar problem. His or her priorities are often focused on day-to-day operations management and there never seems to be time – especially large chunks of time – for long term projects. Law firms have a hard time getting long term initiatives or projects such as the following implemented:

  1. Firm strategic plan
  2. Partnership agreement
  3. New partner compensation system
  4. Case management system
  5. Website
  6. Employee handbook
  7. Standard Operating Procedures Manual (SOP)

A starting point is to recognize that managing long term projects such as those listed above requires a different approach and tools than does day-to-day operations management. Projects involve all the work that is done one time and ongoing operations represents the work we perform over and over. Every project has a beginning and an end. They unique and temporary. Work that is unique and temporary – projects – requires different management disciplines.  

Successful projects are those that:

  1. Schedule – Are completed on time according to a schedule or timeline
  2. Cost – Are on budget
  3. Quality – High quality – meet expectations

Suggest that you and your administrator read up on project managment and try to apply some of the concepts to your longer range projects. A good book on the topic is "The Fast Forward MBA in Project Management", by Eric Verzuh, available at Amazon.com in book or e-book format. Another good book is "Legal Project Management: Control Costs, Meet Schedules, Manage Risks and Maintain Sanity", by Steven B. Levy, available at Amazon.com in book form. You may also want to consider using an online project management system such as Basecamp or Teamwork We use secure onling project management software to manage all of our projects and provide client access to their projects on the portal.

Your long term initiatives must be managed as projects and managed differently than ongoing operations. 

Click here for our blog on project management

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

Jul 12, 2011


Expanding Law Practice into Insurance Defense

Question:

I am an 11-year attorney practicing at a small firm on the west coast. We currently focus on business litigation, employment litigation, corporate formation, bankruptcy, wills and trusts, and personal injury. We are trying to expand our practice into the area of insurance defense.  To that end, I have been sending out correspondence to insurance companies offering my services in defense of general liability, property/casualty, and employment practices claims.  My goal would be to develop a regular stream of business from these types of cases, and to cross-market our other services to clients that come through insurance defense referrals. I am not sure if I am going about this the right way, and would like to seek your counsel.

Response:

In all honesty I  have more firms asking how to diversify out of insurance defense into more self-insured and direct representation work. If you want to pursue this market you will need to become part of the club and do more than just dabble in this area. You will have to get on the "approved lists" of the various 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 manager 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. You may also find that some companies reluctant to work with a firm your size. I have advise by insurance companies that they like to see a certain level of bench strength (backup). The firm does not have to be a large firm but often the insurance company likes to see a minimum of four or five lawyers in a firm. You will have to have a track record of success, understand the business, and be able to accomodate the unique billing (including electronic LEDES billing), case management, and reporting requirements that insurance companies require.

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. Ofter to give speeches and presentations to these groups.
  4. Develop relationships with news reports and have an effective public 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 Best and Martindale.
  9. Have a quality website that demonstrates expertise and a e-newsletter that provides information that will help claims managers and adjuster be more successful.

Good luck on your journey.

Click here for our blog on strategy

Click here for our article on insurance defense practice strategies

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

Jun 28, 2011


Effectiveness of Business Cards For Lawyers

Question:

I rarely use my business card anymore. Is there any value for a lawyer to have one anymore?

Response:

The business card is not what it once was. Years (decades) ago, the business card was the totality of your identity and contact information, and sometimes a little more information about you. Your name, firm name, address and phone number was everything needed to do business with you. For some, especially solos proprietors, it was your tiny firm brochure. Times change.

The past few years have seen some changes. Many of us work more virtually than before, communicate by email, and often change job titles and employers almost as fast as we can print up new cards. We pass along our contact information as part of our email signature. Considering the sterile, information-only business card of the past, isn't it time to reconsider what a business card can do for you.

Tip: Rethink (outside the box) what your business card can do for you. Because it isn't as necessary for contact information, use it to convey your brand, your image, your firm or practice "theme." Consider more graphical or iconic representations or other ways to leave an impression, not just information. Also, think about multiple business cards for different uses – maybe one for contact info, one for specific practice areas.

Click here for our blog on strategy

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

Jun 28, 2011


Model For Sustaining a Law Practice: Managing the S Curve

Question:

In a recent firm meeting the question was raised as to whether law firms hit a wall when they run up against new competitors, new technologies, new business models, or when their talent peaks. Is there a general model  of sustaining a law firm?

Response:

The mechanics of managing a law firm are too complex to address in this forum. It would be better to discuss what to tell you what to look for that tells you, well in advance of a fee revenue plateau, that your practice needs some work. Once you know where your practice is getting wobbly, then you will have a clearer idea of how to fix the mechanics.

We tell our clients that they are on an "S-Curve" in which slow and steady growth often occurs at the start of the law practice, followed by gaining momentum and rapid growth, then tapering off as practice areas get saturated or competitors enter the practice areas in which the firm is engaged. Watch these components for advance warning:

  1. Competition – any practice area attractive to you will also attract other law firms, so monitor new entrants starting to chip away at your clients.
  2. Capabilities – you created or bought some new technology, skills or other assets to start your firm/growth, but the distinctiveness of these eventually wears off and they are likely to be available to competitors once their value is clear.
  3. Talent – you had it when you started your firm, but attorneys and staff have become "free agents" and increasingly move between law firms more frequently and you may lose a key asset.

There may be other components unique to your practice and market. The point is that there is more than meets the eye in a simple growth curve. Figure out exactly what assets and activities are part of your particular growth and watch each one, as well as how each component affects the others (e.g., a departure of talent from your firm to a competing law firm, along with knowledge of specific major case or a key technology is a triple blow.)

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

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