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Aug 02, 2017


Associate Attorney Career Track in a Small Law Firm

Question: 

I am the owner of a five-attorney estate planning practice in Denver. I have four associate attorneys of which three have been with the firm for over twelve years. Last year an associate that had been with me for many years left the firm and started his own practice. I thought I was paying him well by virtue of a competitive salary and discretionary bonus in additional to other benefits. I do not want to lose other seasoned attorneys. What should I do to provide more incentives for them to stay with the firm?

Response: 

Our experience as well as research over the years by our firm and others has demonstrated that the following, in priority order, are the key drivers of associate attorney job satisfaction:

  1. Satisfaction with immediate manager or supervisor
  2. Opportunities for training
  3. Satisfaction with team and coworkers
  4. Opportunities for career growth
  5. Compensation
  6. Opportunities for promotion

While compensation often is considered the primary factor related to associate satisfaction, I often find that opportunities for career growth and promotion play a significant role. Associates do leave law firms for less money for career growth and promotion opportunities in other firms or in some cases starting their own firm.

A key tool that law firm’s should be using for managing attorneys is a well-defined career path/track. The critical components of a career track include well-defined levels, roles and responsibilities at each level, promotion criteria, and compensation plans for each level. Typically these are outlined and documents in a career advancement program policy document. For example:

  1. Levels. Each attorney level within the firm (partner, non-Equity partner, principal, senior associate, associate) should carry a specific and clear title.
  2. Roles and Responsibilities. For each level, the typical roles and responsibilities should be clearly documented including client service work as well as business development and administrative responsibilities.
  3. Promotion Criteria. For each level in the firm, the criteria for promotion to that level should be outlined in the career track or career advancement program policy document. These criteria are often tied to competencies (knowledge, capabilities, and experience of the attorney), tenure as well as other factors.
  4. Compensation. A compensation plan should be developed for each level. (salary, bonus, benefits, and other perks)

I suggest that you give some thought to developing such a program. As you start with levels you will have to do some soul searching and confront the most burning issue – is partnership an option for associates in your firm – do I want partners –  and go from there.

Click here for our blog on career management

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

 

 

 

 

Jul 26, 2017


Law Firm Succession Planning – Impact of Firm Size for a Solo

Question: 

I am a solo practitioner in upstate New York. I am 66 years old and I am looking to retire and am trying to figure out what to do with my practice. My practice is a general practice and there is just me and one secretary. I welcome you suggestions:

Response:

The size of the firm will present different retirement succession, transition, and exit challenges. Firm size will affect the number of moving parts, specific steps that a firm will have to take, and the overall timeline. Solo practitioners and sole owners will have the most moving parts and face the greatest challenges.

You will have the greatest challenge since you have no associates or anyone in place to transition the practice. Therefore, you could both hire and groom an associate that could buy the firm or become a partner and buyout your interests, sell the firm to another firm, or merge with another firm. Other options would be to become Of Counsel with another firm or simply close down the practice. This takes time.

Hiring and grooming an associate can be problematic for the solo. If he or she does not have sufficient business and does not originate business, the associate will be an expense and the your net earnings will suffer. Other issues include:

You could sell the firm to another lawyer or law firm. This option works best when the practitioner is actually ready to retire and quit practicing. Often this is not the case and the restrictions on sale of law practice levied by a state’s rules of professional conduct, in particular Rule 1.17, may make this option undesirable. Locating desirable candidates will take time and a well-planned search process may have to initiated.  Our experience has been that this can take a year or longer.

Merger with another lawyer or law firm is another option. This is often a better option for solos that want to gradually phase-down yet continue to practice for a few more years. In essence, they join another firm as either an equity or non-equity partner, member, or shareholder and subsequently retire from that firm under agreed terms for the payout. The odds are improved for clients and referral sources staying with the merged firm and the merged firm is more committed that a buyer might be under a payout arrangement based upon collected revenues. The solo practitioner has more flexibility with regard to the ability to continue to practice longer, reduced stress, additional support and resources, and gradual phase-down to retirement.

Forming an Of Counsel relationship with another firm is an option that many solos are taking. Sometimes it is a final arrangement where a solo winds down his or her practice and then joins another firm as an employee or independent contractor. He or she is paid a percentage of collected revenue under a compensation agreement with different percentages depending upon whether the practitioner brings in the business, services work that he or she brings in, or services work that the firm refers to the practitioner. In other situations, an Of Counsel relationship is used as a practice continuation mechanism that provides the solo with additional resources and support if needed. An Of Counsel relationship can also be used to “pilot test” a relationship prior to merging with another firm. We have had several law firm clients that has taken a phased approach to merger with Phase I being an Of Counsel “pilot test” exploratory arrangement and Phase II being the actual merger.

Click here for our blog on succession

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

 

Jun 20, 2017


Characteristics of a Successful Liability Defense Law Firm

Question: 

I’m a second generation attorney (about 5 years’ experience) at a small liability defense firm in Southern, California. My father is the managing partner and we have three total attorneys. My father and his partner probably have 5-7 years left practicing. We only do California workers’ compensation defense. I’m planning on taking over the practice but am concerned about trends in the industry that will affect profitability, such as more stringent billing guidelines/bill audits, cuts to travel time, etc. What are the characteristics of a successful liability defense firm that I should strive towards? (i.e., # of attorneys, leverage, overhead ratio, revenue per lawyer, etc.)

Response: 

I appreciate your concerns. Both workers’ compensation defense and civil insurance defense firms have a real challenge with the performance pressures placed on them by their clients, billing guidelines and audits, and low billing rates. I have civil insurance defense firm clients across the country billing at rates averaging from $175 to $225 per hour and workers’ compensation defense firm clients billing at rates averaging from $140 to $175 per hour. Some firms are being required to take on more work on a flat fee basis.

Here are a few thoughts concerning characteristics of successful liability defense firms that you should strive towards:

  1. Number of attorneys will depend upon the amount of business that you can bring into the firm. If you are a sole owner you should have an additional four associates to achieve the level of leverage that you will need to be profitable. This assume that the work is there to keep them all busy.
  2. You should strive for a leverage ratio of four associates to every owner. Resist the temptation to make everyone a partner.
  3. Hold the line on expenses and remember that your largest expenses are salaries and office space. You do not need to hire lawyers from top tier law schools and pay the salaries that such lawyers are able to command. You also do not need to have your office in an A or B+ building. Look for B or C+ office space.
  4. Revenue per working lawyer should be in the $300,000 range.
  5. Profit margin (earnings available to owners) should be in the 35% to 45% range.
  6. Annual billable hours should be 2000 or greater for each attorney.
  7. Ensure that you tie lawyer compensation to performance. Pay your associates a salary but also have a variable performance bonus based upon billable hours collected or dollars collected. Keep the salary low enough that they are still hungry.
  8. Diversify the practice. Actively market to more companies and organizations that you can represent directly rather than representing strictly insurance companies. Consider big box companies as target clients. Get on their panels and bid lists. Consider expanding into civil liability defense work rather than doing just workers’ compensation. Many law firms in the Midwest do both.
  9. Some of our clients have found that a federal workers’ compensation practice is beneficial.

Here are links to two articles on defense firms that you might find interesting.

https://www.olmsteadassoc.com/resource-center/trapped-in-a-insurance-defense-practice/

https://www.olmsteadassoc.com/resource-center/insurance-defense-law-firms-strategies-and-best-practices/

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

 

Jun 06, 2017


Law Firm Collections/Retainer Management – Using a Retainer Follow-up Report

Question: 

I am the managing partner of a nine attorney general practice firm in the Chicago suburbs. We practice in the areas of estate planning/administration and family law. While our estate planning and uncontested family law work is done on a flat fee basis our estate administration and contested family law work is time billed. We collect initial retainers for these matters but we fail to insure that the retainers are replenished. We are having accounts receivable collection problems as a result. I would appreciate your thoughts.

Response: 

This is a common problem that I see in firms doing estate administration and especially family law. The best way of managing your accounts receivable is to have less in outstanding accounts receivable in the first place. You do this by staying on top of your retainer balances compared to your work in process and ask the client for additional retainer before the work in process exceeds the retainer balance. In order to stay on top of retainer replenishment you need to develop what I call a retainer replenishment report and have someone assigned to reviewing the report daily and advising responsible attorneys to contact the client when work in process has hit a certain threshold (percentage of retainer used). Some firm’s present the report at a weekly attorney meeting and determinations are made regarding additional retainers to request. Other firms assign the responsibility to the firm administrator to automatically bill for the additional retainer. It is also important to insure that ongoing work is managed in a way that an excessive amount of work is not committed to a matter until the additional retainer replenishment is received.

A retainer replenishment report is not a standard report in many billing systems. You may have to create a custom report in your billing system using a report writer or in a worst case drop a accounts receivable report to an Excel file and add in some columns for the other information.

Here are the suggested data fields/columns for such a report:

Responsible attorney
Client/Matter name
Retainer Balance (typically this would be the balance in the trust account)
Unbilled WIP Fees
Unbilled Cost
Total Unbilled WIP
75% Retainer Threshold
Amount Over/Under Retainer
Additional Retainer Requested
Total Amount Retainer to Bill (Amount WIP over retainer plus additional retainer requested)

Many family law firms have advised me that after learning the hard way they are now doing a good job at this and advising me that they have minimal accounts receivable issues.

Click here for our financial management topic blog

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

 

 

 

 

May 16, 2017


Setting up a Branch Office in Another State – Ask Your Clients

Question: 

I am the managing partner of a sixteen attorney insurance defense firm in Kansas City. Several of our insurance company clients have advised us that they are willing to send us cases in Texas. We have decided that we would like to establish an office in Texas. Our plan is to hire three lateral attorneys with seven to twelve years experience with Texas based insurance defense firms. We are not certain as to the best city to establish this office. We are thinking it should be a central location. We would appreciate your thoughts.

Response: 

Unlike many states that have one or two major cities Texas has several including Austin, Dallas, San Antonio, Houston, Ft. Worth, El Paso, Corpus Christi, and others. Austin, Dallas, San Antonio, and Houston are all desirable locations for branch offices. Austin is more centrally located if your goal is to service the entire state.

I think it would be risky to simply try to guess as to the appropriate location. Your clients may have law firms they are using in certain areas of the state and may be looking for you to serve a need in a particular area of the state. They may not be willing to pay your travel expense if you are on the other side of the state. If this is the case this is the area that you need to be. I suggest that you have a discussion with each of these clients and ask them where their cases are concentrated and where they would like to see you have an office. This should dictate the office location. Hopefully, each of these clients are on the same page. If each of these client’s cases are concentrated in different geographical areas ask your clients whether they are willing to pay for travel related expenses from a central location. This should guide your location decision.

I would also make sure that these commitments are solid from each of these clients. I would get commitments from each client as to the types and number of cases they envision sending to you so you can properly assess the profitability of establishing a branch office. Do some research on the availability of experienced lawyer talent in the area. I would also give some thought as how you plan to integrate these Texans into your firm and culture. See my prior blog on branch offices.

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

 

Apr 25, 2017


When Should a Law Firm Partner Compensation System Be Changed?

Question: 

I am a partner in a fourteen attorney business litigation law firm in New Orleans. There are five partners in the firm. We are a first generation firm and all of the five partners are the original founders. Each of the partners have equal ownership interests and are compensated based upon ownership points. While this approach to compensation worked for many years this system is no longer working for us. Performance used to be pretty close but this is no longer the case. Your suggestions are welcomed.

Response: 

This is a common problem that new law firms eventually face. Here are a few thoughts:

Click here for our blog on compensation

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

Apr 11, 2017


Client and Management Transition in a Larger Law Firm

Question:

I am a member of the executive committee of a seventy-five attorney firm in Houston, Texas. We are a first generation firm. Several of our founders are in their sixties and we have recently begun discussing succession planning and how clients and management duties will be transitioned. We would appreciate your thoughts in these areas.

Response:

In larger firms, clients are more likely to be large sophisticated clients, possibly Fortune 500 companies, which refer many matters to the firm during the course of a year. Often such clients may be both a blessing and a curse for the firm. A blessing in that their business provides the firm with huge legal fees during the course of a year. A curse in that their business represents a large percent of the firm’s annual fee collections and a significant business risk if the firm were to lose the client. An effective client transition is critical, takes time, and must be well planned.

Successful client transition – moving clients from one generation to the next – is a major challenge for larger firms. Shifting clients is not an individual responsibility but a firm responsibility. To effectively transition clients the individual lawyer, with clients, must work together with the firm to insure the clients receive quality legal services throughout the transition process. Both the individual lawyer and the firm must be committed to keeping clients in the firm when the senior attorneys retire. Potential obstacles include:

In larger firms, partners may have management responsibilities as well as client responsibilities. A retiring partner may be a managing partner, executive committee chair or member, or serve as a chair or member on other firm committees. Retiring partners will have to transition these responsibilities to other partners in the firm.

Transitioning client relationships and management responsibilities effectively can and where possible should take a number of years – preferably five years – typically not less than three years. For this reason, many firms use five-year phase down programs for retiring partners. These plans provide detailed timelines and action steps for transitioning client relationships and management responsibilities.

Click here for our blog on succession

Click here for out articles on various management topics

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

 

Mar 14, 2017


Sixteen Characteristics of a Successful Contingency Fee Law Firm – A Guide for New Managing Partners

Question:

I am a newly appointed managing partner for an eighteen attorney law firm in Dayton, Ohio. We are a employment law litigation firm that represents plaintiffs on a contingency fee basis. We have been in business for five years and we are facing severe cash flow and profitability challenges primarily due to lackluster contingency fee outcomes. Do you have any guidelines or suggestions as to what we should be aiming for?

Response:

In general I find that successful contingency fee law firms are:

  1. Sustainable over the long term
  2. Are disciplined, have order and common vision, and manage the firm like a business.
  3. Have long-term talented people that are passionate and team players.
  4. Organized and have structure.
  5. Have the right people on the bus and in the right seats.
  6. Meet on a structured basis.
  7. Have a long-range plan.
  8. Have a budget.
  9. Have fee goals for each producer.
  10. Have a marketing plan.
  11. Are consistently profitable.
  12. Have solid cash flow.
  13. Use metrics to manage the firm.
  14. Are financially stable.
  15. Have a succession plan.
  16. Are diversified – both practice areas and case portfolio.

I would use this as sort of an initial performance checklist. You may need to examine your case portfolio and your contingency fee case risk profile and look for ways to diversify your case mix.

Click here for articles on other topics

Click here for our archive blog on strategies

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

 

 

Mar 10, 2017


Law Firm Merger – Are We a Suitable Candidate

Question: 

Our firm is a two partner firm in Columbus, Ohio. We have two staff members. There are no other attorneys in the firm. We have been in practice together for seventeen years. I am sixty two and my partner is in his fifties. My practice is limited to intellectual property and my partner’s practice is limited to medical malpractice defense. Recently, as a result of lack of coverage, our unwillingness to hire associate attorneys, and our frustrations with dealing with management issues we have decided that we would like to merge with a larger firm. However, we are concerned that our numbers may not be satisfactory. Our five year averages are as follows:

Since we split the pot evenly we each made $130,000 on average.

With these numbers are we a suitable candidate or are we just whistling in the wind? We would appreciate your thoughts.

Response: 

Obviously these are not great numbers. Depending on firm size and type of practice – most firms (small firms) are looking for revenue per lawyer in the range of $360,000 and up. Many firms are looking for books of business that will keep the candidate and an associate busy – $750,000 plus.

However, law firms are also looking for new sources of business (clients) and lawyer talent. There are firms out there that have the work and need help with the work and might be interested in your talent and skills as well as the clients that you could bring in. You may not be able to join the firm as an equity partner but may be able to join as a non-equity partner. (Depends on firm size) Due to the very different practice areas that each of you have you may not find opportunities in the same firm.

I encourage you to look around, start your search, and see what happens.

I have seen many situations similar to yours that have resulted in successful mergers and lateral or Of Counsel positions.

Click here for our blog on mergers

Click here for our article on mergers

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

 

Feb 28, 2017


Personal Injury Law Firm TV Advertising – Prerequisites to Launching a Program

Question: 

I am the owner of a plaintiff personal injury law firm in Arlington, Texas. I have three associate attorneys, six non-lawyer case managers, and three other staff members. Our marketing consists of our yellow pages program and our website. I am considering TV advertising and I would appreciate your thoughts concerning venturing into this arena.

Response: 

This is a big step. TV advertising does work for personal injury plaintiff firms and can take your firm to the next level if you can afford it and are willing to stay the course. A few years ago the managing partner of a a very successful personal injury plaintiff firm stated to me “if I could only afford to do one marketing thing it would be TV advertising.” You can’t dabble with advertising – you must invest for the long haul and have the proper infrastructure in place to process new client inquiries, book appointments, and handle new client intake appointments. If this foundation is not laid you should not invest in a TV advertising program. Here are a few thoughts and observations:

  1. Establish your advertising goals and objectives.
  2. Retain a top notch media consulting firm with law firm expertise.
  3. Establish an advertising budget for at least six months – one year is better.
  4. Secure adequate capital to finance your advertising budget.
  5. Be prepared for borrow money.
  6. Develop your operational infrastructure. This consist of everything from your advertising tracking database, case management system, website, call center/telephone system, call scripts, documented intake process and procedures, dedicated intake call operators, designated people to take in new cases, and case evaluation protocols.
  7. Have a process in place to handle and respond to new case calls after hours and on weekends including attorneys on call able to meet with prospective clients during these times.

We have all seen personal injury plaintiff firms that dabble in TV advertising – on TV today and off-air tomorrow. They spent a lot of money and were hoping for immediate gratification. When after running ads for a month or two and they have few or no new cases they concluded that TV advertising does not work. The truth is they were not prepared to stay in the game long enough. This does not work.

Click here for our blog on marketing

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

 

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