Law Practice Management Asked and Answered Blog

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Sep 04, 2019

Merger vs Transitioning Our Firm to Our Associates

Question:

I am one of three founding partners in a twelve attorney insurance defense firm in New Orleans. The three of us are in our early sixties and contemplating retirement in the next several years. The three of us have been discussing our succession plans and are wondering whether we would be better off merging with another firm or transitioning the firm to our associates. What are your thoughts on this matter?

Response:

A majority of firms prefer transitioning to the next generation of attorneys within the firm whenever possible. Many founding partners at this stage of their career are often not ready to move to another firm unless they have to.

Advantages of transitioning to associates in the firm include:

Continuation of the legacy of the firm
Continued employment for associates and staff
Potential to receive founder benefit
Flexible buy-out arrangement
Retention incentive for associates in the firm
Ability to continue working in your present office surroundings without having to learn new procedures, form new relationships, and integrate with another firm at this stage of your careers,

Disadvantages of transitioning to associates in the firm include:

Time it often takes to effectively transition associates in the areas of legal skills, client relationships and client development, and firm management.
Associates on deck are simply “too green” and do not have enough experience.
Associates simply want a job, don’t want to be owners of a law firm, and are unwilling to step up and make the required commitment and investment.

I believe that you should start by taking a critical look at the demographics of your associates and raise the following questions:

What are the retirement timelines for each of you? Will you be retiring close to the same time?
Do you have the bench strength – your present associates – to serve your existing clients if the three of you are no longer with the firm?
If the three of you were no longer with the firm could your present associates retain your existing clients?
Do any of your associates have the leadership and management skills to lead and manage the firm?
Do any of your associates have the will to take over the firm and buy-out your interests?

Your answers to the above five questions will determine whether you should consider a merger strategy. It is often difficult to get a “founders benefit” (goodwill value) in mergers with other firms.

Click here for our blog on mergers

Click here for our blog on succession strategies

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

Nov 17, 2015

Law Firm Fee Increases – Should We Increase Our Fees?

Question:

I am the partner in charge of finance at our 12 attorney litigation boutique firm located in downtown Chicago. For the past two years our profits have been down and we are considering raising our rates but we are concerned that we may lose some of our corporate clients. We welcome your thoughts.

Response:

Raising fees is one approach you might consider. 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:

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.
Calculate the effective hourly rates for each matter overall as well as by timekeeper class. (partner, associate, paralegal)
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?
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?
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