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Dec 22, 2015

Law Firm Financial Management – Protecting the Firm from Employee Embezzlement

Question:

I am a partner in a eight attorney firm in downtown Chicago. Last week you participated in a discussion at an Illinois State Bar Association meeting where you indicated that four out of ten of you law firm clients have had an employee embezzlement at some time or another. I would appreciate any thoughts you may have on how we can protect ourselves.

Response:

Even though a firm trusts their accounting staff segregation of duties is appropriate and should be implemented in firms of all sizes. Here is an overview of such a system that we generally suggest:     

Internal Control is the plan of organization and all of the coordinate methods and measures adopted within a business organization to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies.

The four basic elements considered essential in a satisfactory system of internal control are:

  1. A plan of organization that provides appropriate segregation of functional responsibility and duties.
  2. A system of authorization and record procedures adequate to provide reasonable accounting control over assets, liabilities, revenues, and expenses.
  3. Sound practices to be followed in performance of duties and functions of each of the organizational areas.
  4. A degree of quality of personnel (competency) commensurate with responsibilities.

Here is a link to an article outlining specific steps:

The goal is not to catch an employee that is stealing but to have a system of checks and balances in place so they will not even consider stealing.

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

 

Oct 13, 2015

Law Firm People Management and Accountability

Question:

I am the managing partner of a newly formed 8 attorney firm in Austin, Texas that was formed last year when several of us left another firm and started this firm. The most frustrating part of the managing partner job is managing the people – this includes other partners, associates, and staff. How do I deal with people that are not following firm policy or doing things they should not be doing?

Response:

Managing people is one of the toughest challenges that law firms face. Challenges often involve  people not following firm policy and doing what they should not be doing. It drives owners, managing partners, and administrators crazy.

My advice to frustrated owners, managing partners, and administrators – tell them to stop. Seriously. As the managing partner of your firm you can't beat around the bush and be sheepish concerning your expectations concerning desired performance and behavior in the office. Confront the performance or behavioral problem immediately. Manage such problems in real time. Don't wait for the annual performance review and don't treat serious problem as a "self-improvement" effort. Tell them how you feel about the performance or behavioral issue, the consequences for failure to resolve the issue, your timeline for resolving the issue, and the follow-up schedule that you will be using to follow-up and monitor the issue. If they must resolve the performance or behavioral issue in order to keep their job tell them so. They may need this level of confrontation in order to give them the strength to be able to deal with their issues.

Being a wimp does not help you or them. Tell them like it is and conduct a heart-to-heart discussion. You will be glad you did.

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

Aug 18, 2015

Law Firm Financial Management – Concern With Income Statement Showing Operating at a Loss

Question:

I am a new partner in our law firm of 6 attorneys. I was an associate for seven years and was just made an equity partner and just received a copy of this month's income statement. The income statement shows the firm operating at a loss. I was startled and took a look at past years' statements as well. All are showing a small loss. Am I looking at these correctly? How can a firm operate at a loss for seven years in a row and still be in business. I would appreciate your comments.

Response:

My guess is that the firm is running all or a portion of equity partner compensation though as expense on the income statement. Other personal items may also be run through the firm as well. Check with the firm's bookkeeper or outside accountant to see if this is the case. If this is the case add the total paid to equity partners back to the net income or loss on the income statement. This will give a better picture of the actual "pie" .

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

Jun 23, 2015

Law Firm Management -New Firm Administrator – Implementation of Ideas

Question:

I am a new and a first law firm administrator for a 16 attorney firm in Chicago. This is my firm law firm and after attending a few partner meetings I am concerned about how and where to start getting some ideas and projects implemented. I have lots of ideas. I would appreciate your suggestions.

Response:

Lack of focus and accountability is one of the major problems facing law firms. Many times, the problem is having too many ideas, alternatives and options. The result, often, is no decision or action at all. Ideas, recommendations, suggestions, etc., are of no value unless implemented.

Look for ways to insure that your, and your partners, time spent on management is spent wisely. At first identify a few (maybe three) management initiatives that you can move forward fairly quickly and get implemented. Then build upon these successes.

Don’t hide behind strategy, planning, and endless debate. Attorneys love to postpone implementation. Find ways to focus the firm and foster accountability from all.

Don't attempt to initially, in the short term, take on management projects that the firm is unwilling or unable to implement.

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

Jun 16, 2015

Law Firm FInancial Management – Metrics for a Small Firm

Question:

I am a partner in a three attorney litigation firm in Boston. Two of us are partners. We are in our fourth year in practice after leaving a very large firm. We are concerned that we could be doing better financially. We are haphazard in our record keeping, have no goals, and are even sure what number matter. What are your thoughts are to the key number (metrics) for a small firm like ours?

Response:

Goals should be established for each attorney with monthly reporting showing performance against goals. Key metrics should include:

  1. Fees collected – working attorney 
  2. Fees collected – originating attorney 
  3. Fees collected – responsible attorney
  4. Billable hours – working attorney 
  5. Non-billable hours – working attorney
  6. Billing, collection, and overall realization – working attorney 
  7. Other goals – financial and non-financial 
  8. Summary dashboard report should be developed. 
  9. Attorneys should consider keeping timesheets for all worked time – billable and non-billable with specific goals for non-billable activities. 

Firm management contribution is important. If both partners do not share in the firm management responsibilities then the partner committing non-billable time to firm management should be compensated in the form of an agreement to amount or a fee credit that is run through the compensation system. If both partners participate in firm management, implement and document a management structure that clarifies management roles, responsibilities, and accountabilities for the partners, the office manager, etc. Respect the boundaries and avoid stepping over each other.

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

 

Mar 10, 2015

Law Firm Financial Management – Managing the Money

Question:

I am the managing partner of a 17 attorney firm in San Francisco. We have a firm administrator that we hired four years ago and he manages our financial and HR matters. I haven't a clue as to what goes on financially and this is becoming more of a concern for me and my other partners. You thoughts would be appreciated.

Response:

I believe that is imperative that owners and partners in a law firm have access to financial information on a timely basis, understand the information, and use the information in a proactive way to manage the practice. I suggest:

  1. The owner, or an appointed partner(s) in larger firms, obtain a basic level of understanding in basic accounting/bookkeeping and law firm financial management.
  2. The owner, or an appointed partner(s) in larger firms, obtain detailed training on the accounting software system(s) along-side the bookkeeper and administrator when the system is implemented. In addition to general operation of the software, special training should also be obtained on interpretation and use of the management reports.
  3. In your current situation – this may be a good time to consider upgrading your system and at that time obtain training on the new system, review the roles of all parties, and current procedures.
  4. Insure that you have accounting controls in place and appropriate segregation of accounting duties.
  5. Outline your expectations and requirements of the bookkeeper and administrator, meet with them, and communicate appropriately.

Don't allow your administrator to create a fiefdom and hold you and your partners hostage.

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

 

Dec 30, 2014

Law Practice Management – 5 Ideas for Jump Starting Your Law Firm in 2015

Happy New Year and best wishes for both a personal and professional 2015.

Here are a few ideas to help you jump start your practice in 2015:

  1. During the next week review your 2014 personal and practice performance and consider
    1. Things that you did well and could have done better
    2. Things done poorly
    3. Things that you should have done but did not do
    4. What you should be doing now – in 2015 – to be effective in your practice
  2. Write down what results you expect – goals – for 2015 – both financial and non-financial – and compare actual results against these goals
  3. Ask each person in your firm to create and implement one goal that will improve your practice in some way (revenue, profitability, process, client satisfaction)
  4. Implement one action item that you have been things about for years and procrastinating
  5. Give some though as to what you want to be remembered for – personal and professionally

Good luck in 2015!

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

 

 

 

Apr 01, 2014

Law Firm Governance – Firm Administrator With Managing Partner or Management Committee

Question:

I am a partner in a 9 attorney firm in Topeka, Kansas. There are three active partners in the firm. For years day to day management has been the responsibility of a managing partner that we appoint from time to time. We have just hired our first firm administrator - starts in two weeks – who is experienced and has worked in other law firms. Should we continue to have a managing partner or consider a different structure?

Response:

Typically firms your size that have professional firm administrators empower the firm administrator to manage the business side of the law firm and have either a managing partner, management/executive committee, or all partners manage the client service side of the practice. The firm administrator typically reports to the managing partner, management/executive committee, or all partners. In essence there are three levels of management – the partnership which services like a board of directors, the managing partner or management/executive committee that oversees the professional side of the practice, and the firm administrator that manages the business side of the firm.

I find that in firms your size with firm administrators a three member management/executive committee is more common. Since your firm only has three partners – initially your management/executive committee would be all three partners. As you add more partners you would move toward electing your management/executive committee.

While either form would work in your situation – I suggest you consider eliminating the managing partner position and having the three partners serve as the management committee and have the firm administrator report to that group.

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

Mar 01, 2011

What Makes an Effective Law Firm Managing Partner or Administrator?

Question:

I was just elected as our firm’s managing partner. I will still maintain a full client practice as well. We have a total of 14 attorneys, nine of which are partners. I will be the firm’s first managing partner. Previously we all weighed in on every single decision. While I have been a practicing attorney for twenty years I have no prior management experience in law firms or elsewhere. What skills will I need to develope to be effective in this job?

Response:

Congratulations on your new role! Effective law firm managing partners:

  1. Ask – what needs to be done.
  2. Ask – what is right for the firm.
  3. Develop and implement action plans.
  4. Take responsibility for their decisions.
  5. Take responsibility to communicating.
  6. Focus on opportunities rather than problems.
  7. Run productive meetings.
  8. Think and say we rather than I.
  9. Are “Firm First” focused rather than Lone Rangers “Me First” focused.
  10. Know that you have to spend money to make money and encourges the firm to invest in the firm’s future.

The first two practices will provide you with the knowledge and insight about the firm that you will need. The next four will help you convert knoweldge into action. The next four will ensure that the whole firm is responsible and accountable.

Early on, as you transition into your managing partner role, you and the firm should formulate a constitution (governance plan) for the firm which outlines roles and decision-making rules for the partnership, your position, and other management or administrative positions in the firm. In order for this new structure to be successful you and the firm must:

  1. Stop talking about the firm’s future destination, and start thinking about the rules that all firm members will have to live by in order to get there; and
  2. Confirm that firm members are, in fact, prepared to be held accountable and live by these rules.

Rome was not build in a day. Your new structure and role will take take time. Be patient and it will all come together.

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

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