Law Practice Management Asked and Answered Blog

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Oct 01, 2008

Surviving in the Present Economy

Question: We are a 12 attorney firm located in the mid-west. We are concerned about the impact that the economy is having on our practice and the current business environment. Our business is down and we are unsure what we should be doing financially to evaluate and improve performance – and survive.

Response:

According to Thomson West PeerMonitor Index the first quarter of 2008 marked the lowest point in nine quarters. Demand for legal services is shrinking, the billable hours growth rate has been declining since the second quarter of 2007, and productivity has been shrinking since late 2006. Trends are casting 2008 to be a challenging year for law firms.

Management of cash flow is critical. Here are our suggestions of how to examine where you are based upon receipts and your pipeline of future collections:

  1.  Monthly BillingsAre you budgeting your fee billings? Are your billing and collections on track? Are your individual attorneys and other producers meeting their revenue goals? Why not?
  2. Collections and ReceiptsAre your collections in alignment with your cash requirements for firm expenses, client advances, loan repayments, and attorney draws. Remember – the total expenses listed on the income statement does not represent all of your cash requirements. Balance sheet accounts such as partner draws, client advances, purchase of assets (equipment), and payments on loans, also involve uses of cash and must be taken into consideration. Typically, there is a lag of three months between the time of when you incur expenses and do work for a client and receive payment. Be aware of potential cash deficits.
  3. CostsHow are your actual expenses/costs tracking against your budget? Are you within your budget? If not – why? Investigate reasons. If over budget should you cut costs or is there a way to increase revenue? Sometimes you have to spend money in order to make money. What costs should be cut – and which should not? Be careful cutting marketing/client development investments.
  4. Accounts ReceivableAre they increasing or decreasing? What percent are they of your annual billings? Fifteen percent is high – five percent is within the range of acceptability. Uncollected accounts can sink the firm – stay on top of them with an effective management system. Deal with collection problems early – formulate a client acceptance/credit policy – get retainers up front – reject problem clients from the onset.
  5. Work in ProgressIs your work in progress increasing or decreasing? Why? Investigate reasons.This represents future receivables and future receipts. Are you on target? Bill immediately anytime during the month if work is completed – don’t wait until the end of the month? Bill monthly and cut-off bills by the 25th of the month so they are in the client’s hands by the 28th or 29th of the month.
  6. Unbilled Client AdvancesGet money from clients up front to cover these expenses or bill them immediately upon disbusement (if total client advance balance reached $100.00) regardless of the billing cycle established for the client’s fee billing. One exception may be contingency cases.
  7. Realization RateThe realization rate is the percentage of fees collected from the billable work of the firm’s timekeepers. Low realization rates indicates that attorneys are not effectively utilizing firm resources. Realization rates should be no lower than appropriately 90 to 95 percent.
  8. Lawyer – Client – Area of Law – MetricsExamine collections, accounts receivable, work in progress, unbilled client advances, unearned retainers, by lawyer, client, and area of law. Spot problems and deal with issues immediately.
  9. Producers Time ReportsAll producers (lawyers, paralegals, and staff) should keep time on billable and non-billable time and should enter into the computer system daily. Weekly time reports should be produced weekly and reviewed by firm management to insure that goals are being met for billable and non-billable time. Each producer should be provided with a copy of their own report weekly as well. Firm management should spot problem areas and identify reasons – i.e. – not putting in the time, lack of resources to delegate work, poor time managment or time keeping habits and practices.
  10. Trust Account BalancesReview this report weekly. If funds can be applied to work performed – transfer funds over to the firm’s operating bank account. Notify clients that need to replentish their retainers.John W. Olmstead, MBA, Ph.D, CMC

Sep 30, 2008

Communication Skills

Question:

We are a 17 attorney IP firm in the Southwest and I am the managing partner. We are having a lot of problems with poor attitude in the office, inadequate production, employee turnover, and we have recently lost a few key institutional clients. I believe that the core of our problem may be poor communication skills on the part of our attorneys? What recommendations do you have?

Response:

Poor interpersonal communications is often the root cause of many of the management problems that arise in law firms. Here are a few ideas for improving interpersonal communication skills:

  1. Develop a series – a repertoire – of oral communications styles as well as languages to use in various situations with clients, colleagues, and employees.
  2. Understand and manage your clients expectations – (1) clients true objectives for the engagement, (2) the boundaries of your role, (3) kind of information you will use, (4) your role in the engagement and the role of your staff, (5) the product/service you will deliver, (6) what support and involvement you will need from the client, (7) time schedule, and (8) frequency and form of communication.
  3. Employ effective listening techniques with your clients – (1) client face-to-face engagement debriefings, (2) client satisfaction interviews – third party, (3) client site visits, (4) opinion surveys, (5) feedback questionnaires, and (6) client panels/focus groups.
  4. Employ effective office communications systems to faciliate communications with your employees – (1) weekly/monthly staff meetings with agendas and minutes, (2) satisfaction surveys, (3) daily meeting with your assistant, (4) performance reviews tied to a performance management approach.
  5. Match communications complexity to appropriate communications vehicles (face-to-face, telephone, e-mail, memo, letter, voice mail, etc.) Example: Use face-to-face to counsel or critique employees – not e-mail.
  6. Reduce communications noise – (1) setup MS Outlook not to automatically download e-mail, (2) put cell phones on silent, (3) develop cell phone protocols, and (4) use voice mail effectively.
  7. Incorporate the six client service principles into your daily behavior – (1) feel good about yourself, (2) practice habits of courtesy, (3) use positive communication, (4) listen and ask questions, (5) perform professionally, and (6) under promise and overdeliver.
  8. Develop written job descriptions and office policy and procedural manuals.

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

Jul 15, 2008

Is There a Number One Tip For Improving Law Firm Client Service

Question:

We recently completed an informal client survey and were surprised at some of the feedback. Our scores were lower than anticipated. Clients believe that our services took longer than expected and fees were also higher than expected. We work as dilligently as we can for our clients and I don't see how we can improve turnaround or reduce legal fees. Suggestions?

Response:

Based upon client surveys that we do for law firms we find that one of the biggest problems is that the attorneys are doing a poor job of managing client expectations. The key is to under promise and over deliver. I suspect that upon the initial client meeting you are under estimating the timeline and low balling the fee range. Increase the promise – timeline and fee range and then shoot to deliver under that range. This will do wonders for improving the client relationship.

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

Jul 15, 2008

How Large Should a Law Firm Be When It Is Time to Hire an Administrator

Question:

How large should a firm be when it is time to hire an administrator?

Response:

There is no magic size. We just completed an engagement recruiting an administrator for a seven attorney firm. We also have law firm clients with over 40 attorneys that don’t have an administrator. I believe that an administrator, or office manager, is appropriate in firms of all sizes. It is a matter of attitude and commitment on the part of the partners and whether they are willing to delegate responsibility and authority to an administrator to run the day-to-day operations of the firm. The firm should start with a job description and then decide whether the firm is willing to delegate responsibility and authority. If not, the firm should not hire an administrator.

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

Jul 15, 2008

How Do We Prepare Our Law Firm For a Merger

Question:

We are a 25 attorney firm and we are discussion the possibility of searching for merger partners? What is the process?

Response:

You start with determining your merger objectives. Why do you want to merge? What do you hope to achieve? Is merger compatible with your strategic plan? What size of firm are you considering?

Once you are sure that merger exploration – in general – makes sense – you should insure that your house is in order. In other words – can anything be done to enhance the value and/or marketability of your firm? For example:

  1. Do you have a business or strategic plan? If not – how will you convince a potential merger partner that you have a plan for the future and know where you are going? Maybe now is a good time to work on that plan.
  2. Work on and clean up your financials. Improve the financial performance of your practice. Eliminate deadwood. Writeoff uncollectable A/R and WIP.
  3. Avoid entering into long term committments that might make your firm undesirable to another firm. (new long term leases, risky client matters/cases, loans, admission of new partners, unfunded partner buyouts/retirements, etc.
  4. Enhance firm image where you can.
  5. Develop a first class firm profile.

Next, develop a merger marketing plan and begin working the plan. Try to generate enough leads that you can explore merger with several firms rather than engaging in "random merger talks" which often result in isolated merger offers with you having no framework for comparison.

Use an outside consulting firm if you need help organizing, identifying candidates, and managing the process.

Once you have merger candidates identified – the real work begins. Here is a general outline of the process:

Merger Accessment (Due Dilligence)

People

Philosophies, personalities, life styles, do the partners like each other, why does the deal make sense.

Firm Name
Conflicts
Economics
Partner Compensation System Comparisons
Retirement, Voluntary Withdrawl, Expulsion Policies
Management Structure
Practice Compability
Practice Philosophies
Work Ethic
Firm Structure
Associate Management

Merger Implementation

If the two firms decide to proceed with a merger – then the process of merger implementation begins. A merger agreement is executed and a merger implementation plan it put in place. Then you begin working the plan. If the merging firms are of similar size (as opposed to a large firm acquiring a smaller firm) a lot of infrastructure work will need to be done – ranging from IT systems, management structure, space, etc. to accomodate the larger entity.

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

Apr 08, 2008

Succession: Obtaining Maximum Value for Your Practice

Question: I am the sole owner of a 12 attorney practice. I am 55 years old and am beginning to think about retirement. The other attorneys are associates in the firm. What do I need to be thinking about in order that I can transition out of my practice and have money for retirement. While I have put some money in a 401k, I am not yet financially secure enough to retire.

Response:

You are not alone. As the baby boom generation ages – more and more attorneys are asking this question. Unless you have an appropriate Exit Planning Strategy and put in place a sound Exit Plan, it is doubtful that you will be able to cash in on the full value of the goodwill that you have created. To exit successfully you need:

You will need to consider whether you should consider merger, sale of the practice to an outside buyer, or sale of the firm to the other lawyers in the firm. You need to find ways to institutionize the firm so that in additional to professional goodwill (your personal reputation and goodwill) you develop practice goodwill (goodwill of the firm that will remain after you have left the firm). Develop your lawyers and create a desire and motivation for them to want to be owners/partners in the firm. Develop your staff and practice systems. Diversify and stabilize your client base.

If you decide to sell to attorneys in the firm – begin the process early so that most of the buy-in is completed before your actually leave the firm. The longer the planning horizon – the easier they buy-in burden will be for others

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

Apr 08, 2008

Change

Question: I am a legal administrator with a midsized firm in the southwest. Our firm has recently lost two major clients and we have not acquired any new major clients for many years. Other problems regarding failure to innovate also exist. I am concerned that if the partners do not change their ways that we may not still be in business in the next few years. The firm need to change. Where do we start? How can I teach old dogs new tricks?

Response: This is a common problem being reported to us by several of our clients. Institutional clients are now shopping for legal services. They are looking for innovative solutions to their problems. They are looking for law firms that they can partner with and that becomes in essence a part of their team. The old ways of conducting business is no longer working with institutional clients. Law firms need to rethink their business and perhaps reinvent their practices. This will not be an easy task for many law firms. Change does not come easy and it cannot happen unless the firm sincerely desires to change and do things differently. In many cases law firms cultures will need to be changed to a client orientated model. This will take time and patience. Legal administrators will play an instrumental part in this process. The firm may want to start by getting out of the day-to day management rut and begin a process of long term strategic planning. Only then will the roadmap to change be able to be formulated.

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

Jan 21, 2008

Management Ideas for 2008

As you begin 2008 here for getting started.

  • Take a serious look at the firm's present position in the marketplace. Review financials, compare against financial ratios, compare with both firm past history and against law firm benchmarks. Examine how well the firm is competing. Is the firm too dependent on a narrow base of clients? Is the practice at risk? Conduct a client survey and obtain client feedback both on firm performance as well as possible unmet needs and opportunities. Consider a comprehensive management review.
  • Formulate business goals and develop a strategic business plan as a roadmap for the future.
  • Design and simplify business reports designed to measure the goals identified in the strategic business plan. Strive for a one page summary as the primary report.
  • Require all timekeepers in the firm to submit personal one page business plans which in addition to outlining goals for the year provided fee revenue goals with an element of stretch. The goals should have a stretch component but yet be realistic and attainable. These plans should be approved by the Executive Committee, Managing Partner or the Partnership.
  • In all of our client engagements we typically discover that the root cause of most problems is poor internal and external communications. Poor client service, staff competency and morale, interoffice conflict, and client defections typically can be traced back to poor communications. Work on improving internal communications with firm personnel and external communications with clients and prospective clients. Yes, you have to have meetings now and then. Devise systems to improve communications and implement properly. If a meeting is required – conduct it properly, use agendas and take minutes. Use your email systems. Match the richness of the communication method with the nature and depth of the message to be communicated.
  • Improve relationships with your clients. Studies show that each year 'lack of responsiveness' has been the number one reason for client dissatisfaction.
  • Find ways to focus the firm and foster accountability from all.
  • Undertake a few projects at a time that can be realistically accomplished. Delegate tasks across the firm. All firm personnel should have marketing responsibilities – from the receptionist to the senior partners and everyone else in between. Databases must be maintained, newsletters and articles written, presentations given, clients to be wined and dined, etc. There is work for everyone.
  • Law firms must adopt management structures that enables the firm to act decisively and quickly. Structures that do not support such a culture must be replaced.

    • Jan 21, 2008

    Strategies For Surviving In The Present Economy

    As law firms begin to plan for the new year we suggest the following key strategies:

    Research indicates that three of the biggest challenges facing professionals today are: time pressures, financial pressures, and the struggle to maintain a healthy balance between work and home. Billable time, non-billable time or the firm’s investment time, and personal time must be well managed, targeted and focused.

    Today well-focused specialists are winning the marketplace wars. Trying to be all things to all people is not a good strategy. Such full-service strategies only lead to lack of identity and reputation. For most small firms it is not feasible to specialize in more than two or three core practice areas.

    Based upon our experience from client engagements we have concluded that lack of focus and accountability is one of the major problems facing law firms. Often the problem is too many ideas, alternatives, and options. The result often is no action at all or actions that fail to distinguish firms from their competitors and provide them with a sustained competitive advantage. Ideas, recommendations, suggestions, etc. are of no value unless implemented.

    We suggest the following:

    Jan 10, 2008

    How Can We Determine If Our Law Firm Partner Compensation System Is Working

    Question: Do you have any suggestions concerning how we can determine if our compensation system is functioning properly?

    Response:

    You can start with the following firm – self-test. Has the firm experienced or is it experiencing:

    If your firm is experiencing or has experienced the above symptoms, it is time to really examine where the firm is headed and what messages your compensation is sending out to your partners. Is the firm trying to be a firm or merely a group of lone rangers.

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

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