Law Practice Management Asked and Answered Blog

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Feb 13, 2020

Law Firm Marketing – Internet Strategy Crucial to Retail Practices Such as Family Law and Estate Planning

Question: 

I am a family law practitioner in the western suburbs of Chicago. I have been in practice for thirty years. I have two associate attorneys and two staff members. In the past I had other partners but that was many years ago. Over the last few years our business has been declining. Our financial performance last year was terrible and I made less than my associates. If this continues I may have to lay off an associate or two. Recently we have made some improvements to our website but I am not sure we have not done enough. I have noticed that more business seems to be coming from the website and less through referrals. I would appreciate any thoughts your may have.

Response: 

We are finding that law firms that serve retail consumer clients in practice areas such as personal injury, family law, elder law, and estate planning are becoming more and more dependent on the internet for their business. Family law firms especially are becoming more dependent on the internet for business and a sound internet strategy and investment is crucial for success. This is especially true in the larger cities and metropolitan areas. Less business is coming from traditional referral sources and more from the internet. I have family law clients in your area that tell me they are receiving ninety percent or more of their business from the internet.

A few suggestions that you might want to consider:

I hope this helps and good luck!

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

Jul 17, 2019

Law Firm Succession – Pros and Cons of Hiring an Associate as My Succession Plan

Question: 

I am a sole practitioner in San Diego, California. My practice is mostly general practice with some emphasis on commercial real estate. I am 64 years old and am looking for a way to transition and exit my practice in the next three to five years. I am the only attorney in the firm however there are three legal assistants that work for me. I have been considering hiring an associate so that I have someone to sell my interests to in the next three to five years. I have never had an associate so I would appreciate your thoughts concerning the wisdom of hiring an associate at this stage of my career.

Response: 

In general I prefer an internal succession strategy when the firm has an attorney or attorneys in place that are willing to step up to ownership and take over the firm. Often this is easier said than done. Issues you will face will include:

  1. Unless you are loaded with work that you are unable to handle or you hire an attorney that can bring work with him or her you will be increasing your expenses and reducing your income/compensation.  Since you have operated all these years with just one attorney I assume that there is only enough work to support one attorney. If you are ready to slow down to a reduced work schedule and take less compensation that is another matter. If not, you may want to look for an experienced attorney with some business rather than hiring a lawyer fresh out of law school or wait a little longer till you hire someone.
  2. Associates require care and feeding – in other words training, mentoring, etc. A certain amount of training and orientation will be required even with an experienced attorney. Revenues may lag from one to two years and your will be saddled with their compensation and other related expenses. You have no experience with mentoring attorneys and this may be something that you are ill equipped to do or don’t want to do.
  3. You may end up hiring and training in an associate only to have them leave the firm in a year or so to join another firm and possibly take clients with them.
  4. The associate you hire may only be looking for a 9-5 lawyer job and have no interest in owning a law firm.
  5. The associate you hire may expect to have you hand them your practice for free and he or she may be unwilling to pay you for your practice.

Many firms have had positive experiences with transitioning their firm to associates. Just be aware of the possible pitfalls. You may be better off going a different direction.

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

Jul 03, 2019

Non-Equity Partners Receiving Percentage of Firm Profit as a Bonus

Question: 

I am one of four partners in a personal injury plaintiff firm in Denver. In addition to the three of us we have one equity partner and two associates. Our non-equity partner and our associates are paid salaries and discretionary bonuses when performance warrants bonuses. Our non-equity partner is pressing us for more money and a different approach to his compensation. A couple of our partners have suggested that in addition to salary we pay the non-equity partner a share of firm profits. What are your thoughts?

Response: 

Personally, I am against sharing firm profits with non-equity partners. I believe that non-equity partners should only share in some of the profit from their working attorney and or responsible attorney collections. Sharing firm profits should be reserved for equity partners – those that are invited into the partnership ranks, buy-in, and share in the risks as well as the profits of the firm. I would suggested that you replace the discretionary bonus or in addition to it implement an incentive bonus system based upon working attorney and or responsibility collections above a certain threshold. You may want to also consider a bonus for client origination as well. Another approach, if the non-equity partner is willing to forego his guaranteed salary or accept a lower salary, would be a percentage of his working attorney and or responsible attorney collections on a first dollar basis rather than above a threshold.  While a few of our clients have shared firm profits with non-equity partners this has been a small number with poor results. Many firms are moving away from formulaic approaches to compensation however this does not seem to be the case with personal injury firms.

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

Dec 06, 2018

Hiring an Associate Attorney as a Solo’s Exit Strategy

Question: 

I am a solo practitioner in Central Illinois. I have been in practice for 30+ years and I just turned sixty. I have two staff members and no other attorneys in the firm other than myself. I plan on working another five years and then I would like to gradually exit from my practice and then retire. I want to have a home for my clients and employees and I would prefer to be able to sell my interest to an associate attorney working for the firm. I think we have the work to justify hiring an associate and this is the route I would like to go. I have never had an associate so I am not sure what I should look for. Your thoughts would be most appreciated.

Response: 

I believe that an internal succession/exit strategy is your best option if you can find the right associate. Unlike years ago, there are many associates today that just want a job and work/life balance is more important than taking on an ownership role in a firm. They simply are not interested in the work, stress, and risk that it takes to own and manage a law firm. So it is important when searching for an associate that you really vet out this interest to insure that you are hiring someone that will be willing to buy out your interest when you retire and take over your practice.

I have worked with a lot of firms that think they have an exit plan via an associate only to be told no when approached with a proposal to acquire their practice.  When you interview candidates look into their history and their family history to see if you can find a hint of entrepreneurship. You may want to hire a more seasoned attorney that has a small practice that could expand his or her practice by becoming part of your practice. Hire someone that has an interest in the business of law as well as practicing law.

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

Oct 10, 2018

Law Firm Merger as an Exit Strategy for Sole Owners

Question: 

I am the owner of a small general practice firm in Novato, California. I have three associates working in the firm, three legal assistants, and one office manager/bookkeeper. I started my practice thirty-five years ago right out of law school. I am sixty years old and wanting to retire within the next five years. None of my associates have the ability or the desire to take over the firm. I believe that my best option is to sell my practice to another practitioner or join another firm through merger or other arrangement. I would appreciate your ideas regarding merging with another firm and how I would be compensated and receive payment for the goodwill value of my firm.

Response: 

Merger or an of counsel arrangement are approaches that many sole owner firms are taking when there is no one on board that is capable or willing to buyout your interest. Often merger or of counsel arrangements look very similar in how they are structured. Typically, the owner joining another firm:

Employees that the new firm has accepted would join the new firm and receive compensation and benefits spelled out in the merger or Of Counsel agreement.

How the arrangement will be structured and how compensation/buy-out will be structured will depend upon the size of the other firm. I assume that you will be looking at a firm similar to your size or a little larger (1-20 attorneys). If this is the case and if the arrangement is structured as a merger you would more than likely be classified as a non-equity partner and not an equity partner. While the other firm could pay you in the same manner that other non-equity partners are paid, often a special compensation arrangement is developed where you are paid a percentage of your collections and if you are lucky a referral fee arrangement for your client origination’s for two or three years after your retirement – typically twenty percent. In many cases if will be difficult to get a goodwill value payment and impossible in mergers or Of Counsel arrangements with large firms.

Another option would be an outright sale to another sole owner or small firm for a fixed price for the goodwill value of your firm and any assets the firm desires to acquire. More than likely this would be with an initial down payment and payments over a three to five-year period. Typically, practice sale agreements have provisions whereby the purchase price can be reduced if revenues fall below a certain level.

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

Jun 12, 2018

Law Firm Strategic Planning – Culture as an Essential Ingredient

Question: 

Our firm is a twelve attorney firm – eight partners and four associates in Phoenix, Arizona. The firm was founded by the present partners twenty years ago. We are an eat-what-you- kill firm – partners are allocated their fees, overhead is allocated, and their compensation is their individual profit. While we have a firm administrator that handles the day-to-day management of our operations, we have done a poor job of long-term management and planning. One of our partners has suggested that we develop a strategic plan. However, I believe this would be difficult for us given that we never meet, have different ideas of our future, have never been able to agree on any major decisions, and unwilling to be accountable to each other and have a general attitude of mistrust. I don not believe we even have a firm culture – in essence we are eight separate practices operating under the guise of a partnership. Your comments are most welcomed.

Response: 

It is very hard for partners in an eat-what-you-kill firm to come together and implement a strategic plan when the partners have no common values, goals, or objectives. Eat-what-you-kill firms more often than not have no culture at all. Three components that are linked, reinforce each other, and must be balanced are strategy, compensation, and culture.

Culture is the outcome of how people are related to each other in a law firm, thrives on cooperation and friendship, and defines the firm’s sense of community. Culture is the glue that holds a firm together and is built on shared interest and mutual obligation. A firm’s culture boosts a firm’s identity as one organization and prevents disintegration and decentralization. Without a common culture a firm lacks values, direction, and purpose.

You firm is a fragmented or confederation culture and as such will find it difficult to even get started on a strategic planning process unless you are willing to change. You might want to spend some time addressing the question of whether you want to continue operating as lone rangers or whether you want to become a firm-first law firm. This will require that the partners give up some independence and be accountable to each other.

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

May 08, 2018

Of Counsel Arrangement as a Law Firm Exit Strategy

Question: 

I am the owner of a solo real estate practice in Merced, California. I have two staff members that work for me. I am the only attorney in the firm. I am sixty years old. While I am concerned about the long term exit from the practice I am also concerned about office coverage in case something would happen to me in the short term. I appreciate any recommendations that you may have.

Response: 

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.

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

 

Dec 27, 2017

Associate Attorneys as a Succession/Exit Strategy

Question: 

Our firm is a Tucson, Arizona business litigation firm. We have four founding partners and four associates. The partners are in their late fifties and early sixties. All four of us are contemplating retirement in the next eight to ten years. We are assuming that our associates will be willing to step up and buy-out our interests. We have not had any discussions with our associates concerning this. Your thoughts will be appreciated.

Response: 

Do you have the right associates on the bus for the long term? In other words, has the firm hired associates that want to be business owners and own a law firm? Many owners and senior partners in law firms are approaching retirement age and are beginning to think about succession strategies. As they examine their associate lawyer ranks, some partners are often surprised to learn that there may be few takers. While their associates may be great lawyers, they may not bring in business or even be able to retain clients that the firm has. They may not be interested in ownership or partnership. Such firms have hired a bunch of folks that just wanted jobs and have no interest in owning a law firm. While this hiring approach may have satisfied the firm’s short-term needs – it may fall short in the long term.

While partnership/ownership is still important to many – do not assume that all your associates 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.

I suggest that you talk with your people – individually and as a group – and see where they really stand. Help them to begin developing client development and business skills. Depending on you and the other partner’s retirement timelines – 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 hiring future associates. The desire for ownership of a business is often in a person’s blood. Do not 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.

The sooner you begin the better off you will be especially if several partners are close to the same age and looking to retire about the same time. Not only does it take years for associates to be groomed for management and client transition it can also take years for them to be able to pay for their ownership interest.

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

 

Aug 16, 2017

Book Writing as a Business Development Strategy for Attorneys

Question: 

I am a partner in a eighteen attorney law firm in Jacksonville, Florida. Our business development committee is requiring all attorneys to submit annual personal business development plans and become more involved in business development. I have been thinking about writing a book. Is such a goal worth my time investment? I welcome your thoughts.

Response: 

While writing a book is not terribly difficult, it takes time and commitment and it will consume some non-billable hours. However, as David Maister often states,”attorneys should consider their billable time as their current income and their non-billable time as their future.”  In other words non-billable time is an investment in your future – the long-term. I believe that authoring a book is an excellent way of building your professional reputation and brand and it will pay dividends in the long-term. Authoring a book can create opportunities that could change your whole life.

When I wrote my book I had 142 non-billable hours invested in the book and I had some content available from past articles that I had written over the years. Often a good starting point is to start writing articles around a particular topic/theme and later tie them together in a book. This is a good way of taking “baby steps.”

During the writing process, authoring a book may seem like anything but freedom. However, it is a trade-off. Work for the book now and it will work for you later.

Your published book can generate income for years while you are doing something else. In addition to financial rewards, other payoffs for writing a successful book include:

While your law firm may be doing all the right things to build the “firm brand” I believe that each attorney must build their personal brands as well. Clients advise us that they hire lawyers – not law firms. This is not totally true as in many cases the law firm’s brand may get the firm on a prospective client’s short list – but after that it is more about the lawyers handling a client’s matters. This is why prospective clients ask for the bios of all the attorneys in the firm.

Writing a book can assist you in achieving your business development goals but it is a long-term investment and not a quick fix.

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

Jul 18, 2017

Law Firm Owners as Businesspersons that Don’t Service Clients

Question: 

I am the owner of a six attorney elder law firm in Dallas. I manage the firm and practice law. I am finding it more and more difficult to do both. I would like to shift my time totally to managing the practice. I would appreciate your thoughts.

Response: 

You are not alone. This is a common problem in law and other professional service firms. I have similar problems in my own firm – it is very difficult to serve two masters – serving your clients and managing your firm. Eventually you have to pick one – client service (doing legal work) or managing and running your business – as the area that receives your primary focus. This is not to say that you should not do both – but you select the primary area that you are going to focus on and get help with the other area.

A question that I typically ask my new law firm clients – what do you want to be or do – be a business person or a lawyer. The answer to the question often provides a hint to how you should structure your firm. If you want to be more of a business person – hire legal talent to help with serving clients and performing legal work and spend more time working on your firm rather than in it. If you want to be more of a lawyer and do legal work and serve clients hire a legal administrator or business manager (this is more than an office manager) to manage and run your firm.

I have more and more owners of small law firms that are managing their law businesses and not practicing law. I believe the appropriate direction is what makes you happy and what type of work you enjoy doing. You practice should support and fulfill your personal goals, what you want out of life and what makes you happy. If that is managing – then manage. If that is doing legal work – do legal work.

Two great books on this subject are – The E-Myth Revisited and The E-Myth Attorney – available on Amazon. The theme of both of these books is:

Small business owners often spend too much time being the technician (i.e. lawyering) and not enough time managing and innovating.

Think about where you want place the priority of your focus – working on firm (business) or in it.

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

 

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