Law Practice Management Asked and Answered Blog

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Oct 04, 2016


Law Firm Client Business Development – Motivating Lawyers to Develop New Client Business

Question:

I am the managing partner of an eighteen attorney firm in New Orleans. We have six equity founding partners, four non-equity partners, and eight associates. We represent institutional clients. Four of the six equity partners are in their sixties and two are in their late fifties. The six equity partners are concerned about the future of the firm as they approach retirement. If they retired today the firm would cease to exist – the non-equity partners would not be able to retain our existing clients and acquire new clients. We have not been successful at motivating our non-equity partners to develop and bring in new clients. We have harped on this for years and encouraged all attorneys to develop business. We implemented a component of our non-equity partner and associate compensation system to compensate them for new client origination. Unfortunately, we have not been able to motivate our non-equity partners and associates to develop new sources of business. Our non-equity partners and associates have a nine to five work ethic and an entitlement mentality. Would you share your thoughts?

Response:

Often law firms hire associates simply to bill hours and perform legal work. Then years later they are asked to develop clients. Many are unprepared and at a loss as where and how to start. I believe that if you want attorneys to develop clients you have to hire attorneys that have the personality, ability, and you have to get them started on business development in their early years.

To turn your non-equity partners and associates into rainmakers at this stage will be difficult but not impossible. Here are a few ideas:

  1. Insure that your compensation system reinforces and rewards business development  results. However, don't be surprised that even if your system rewards business development behavior does not change.
  2. Extrinsic motivators such as compensation often are not as impactful with professionals as intrinsic motivation that involves engaging in a behavior because it is personally and professionally rewarding – performing an activity for its own sake rather than the desire for external reward. Many law firms are requiring attorneys to submit annual personal business goal driven plans that are incorporated into annual performance reviews. I have found that these plans as or more powerful than compensation in developing new behaviors such as client development when an attorney is uncomfortable with such behaviors.
  3. Integrate the compensation system with personal goal plan achievement.
  4. Implement an equity partner admission program (partner track) that outlines requirements for admission. Make business development goal attainment a component. Make it clear that to become an equity partner you must be a rainmaker.
  5. Provide business development training and coaching for attorneys willing to participate.
  6. Have serious discussions with non-equity partners and terminate those that are not meeting production and client development goals.
  7. Consider hiring lateral attorneys with books of business or merging with another firm.

Click here for our blog on compensation

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

 

 

 

 

Sep 20, 2016


Law Firm Startup – How to Get Started – Best Practices

Question:

I am a relatively new attorney. I graduated three years ago from John Marshall Law School in Chicago. After law school I started with a small firm in the northern suburbs. Now with three years under my belt I am considering starting my own firm. I would appreciate your suggestions on how to get started.

Response:

Owning your own practice will be much different that working for someone else. You will have to handle the nuts and bolts of running and operating a practice. You will not have people to do everything for you like you did in your last firm. You will need to learn how to be an entrepreneur and think like a businessperson. 

First, I suggest that you give some thought as to whether you have what it takes to operate your own firm and plan out your business. Read my article on Starting, Building, and Managing a Law Firm. Click here for the article

Then write your business plan.  Click here for the article

After your have developed your plan begin developing your business identity, firm name, tag line, website domain name, and related graphic package. 

For ideas download a copy of our best practices guide

Consider legal structure for the firm. Register with appropriate governmental and tax authorities.

Determine where you will practice, how you will staff your practice, and technology needs. Keep as much of your overhead as variable and low as possible. Consider virtual employees. At first do as much work yourself as you can. Add staffing resources as your firm grows. Don’t skimp on technology. 

Implement a first class website on day one.

Good luck.

Click here for our blog on new firm startup
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John W. Olmstead, MBA, Ph.D, CMC

Aug 09, 2016


Law Firm Financial Management – What Reports Should I Give To the Attorneys in My Firm

Question:

I am the firm administrator of a sixteen attorney firm in San Diego, California. We have six equity members, four non-equity members, and six associates. We also have four paralegals and six staff members. We are managed by a three member executive committee. Each month I provide the equity members and the executive committee with the same reports from our software system. They are quite numerous. The equity members and the executive committee complain that they get too many reports and they don't look at them while the non-equity members and the associate complain that they don't get access to any financial information. Do you have any suggestions?

Response:

Less is often more. I would rather see partners receive less reports and read and use the reports they do receive. They can always request additional detail reports if they desire them. Think of a pyramid – at the top are equity members, then non-equity members, associates and then the executive committee and the firm administrator. At the top of the pyramid the information is more summarized and more detail is provided as you work you way down the pyramid. For example, do the equity members need to see journal registers, cash receipts registers, etc.?

I suggest you develop a report distribution guide that outlines who gets what and when and have it approved by the executive committee. Here is an example:

The objective of these guidelines are to provide timely, meaningful reports to firm management, equity and non-equity members, associates, and other timekeepers. Therefore, as few reports as possible should be distributed to reduce bulk and information overload. All other reports not listed for equity member distribution should be available to them on a per request basis.

Daily Reports

 Weekly Reports

 A detailed time report will be generated weekly (by Wednesday of each week for the conclusion of the preceding week) and will be distributed as follows:

Monthly Reports

        Monthly reports should be distributed no later than the 5th of each month according to the         following schedule:

        Equity Members             

        Non-Equity Members

        Executive Committee

        Director of Administration

        Associates

        Paralegals

        Staff (Timekeepers Only)

Quarterly Reports

Annual Reports

Annual reports are generated at the end of the year and maintained in a end of year section of the reports binder for the year (or computer system)

        Equity Members

        Same reports as received monthly.

        Managing Member/Executive Committee

         Same reports as received monthly

        Director of Administration

        Same reports as received monthly

        Note: At year end each of the above reports should be printed and saved to a file to the         reports folder that has been setup on the computer network. This should be done prior to         running the year end close.

        Associates

        Same report as received monthly.

        Paralegals

        Same reports as received monthly.

        Staff (Timekeepers Only)

        Same reports as received monthly.

Click here for our financial management topic blog

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

 

Jul 20, 2016


Law Firm Compensation – Moving From an Eat-What-You-Kill System to a Totally Subjective System

Question:

I am a partner in a 20 attorney firm in San Francisco. We have five partners. Two of the five partners are founders and the other three were made partners five years ago. Our firm was started twenty years ago by two partners of our existing partners. From day one our compensation system has been an eat-what-you-kill compensation system based on a formula with two factors – working attorney collections and client origination. While the system worked okay for the founders, it is not working for the present firm. The newer partners are unhappy with the system and believe that it does not consider other factors that a partner contributes to the firm. Some of the partners are hoarding work, refuse to serve on committees, and don't want to do anything but bill. A couple of my partners suggested that we move to a totally subjective system. I would appreciate your thoughts.

Response:

More and more firms are moving to more subjective based systems for some of the reasons that you have outlined – especially larger firms. Success of such a system is dependent upon the compensation committee that is put in place (typically a three- member committee elected by the partnership) and the level of trust that partners have in the partners serving on the committee. With only five partners you don't have a large enough partnership to put in place such a committee. It would have to be a committee of the five which would probably not be feasible. In addition, your culture may not be conducive at this time to such a system. Your founders have grown up under the present system and will more than likely resist such a formidable change. I suggest that you make some changes to the existing system and see how that works. For example:

  1. Include responsible attorney as well as working attorney and originating attorney fee collection in the equation with a possible weighting of 60% working attorney, 20% responsible attorney, 20% originating attorney.
  2. Factor in overhead or if not have a reduction provision for attorneys that are consuming un-fair share of overhead.
  3. Factor in effective rate/realization and reduce compensation for realization that is below a certain threshold.
  4. Setup a bonus pool (15% – 25% of firm net income) for exception performance decided by the five partners. If there is no exceptional performance or the partnership cannot agree the funds are cycled back into net income and distributed in accordance with the formula.
  5. Provide production credit or paid special compensation for serving on management committee or as managing partner.
See how modifications to the present system work and consider a subjective system down the road as the firm's partnership ranks gets a little larger.
 

 

Jun 28, 2016


Law Firm Succession – What to do When No One is Interested in Equity Ownership

Question:

I am the owner of a fourteen attorney insurance defense practice in Baltimore. I started the firm twenty years ago after leaving behind my partnership in another firm. Of the other thirteen attorneys there are four non-equity partners and the rest are associates. I am sixty three years old and beginning to think about retirement and how I am going to transition out of the practice. Two of the non-equity partners are well seasoned attorneys, have major case responsibility, and have developed solid relationship with clients. I have discussed equity partnership vaguely with two non-equity partners but their interests seem lackluster and they have been non-committal. I would appreciate your thoughts and advice on what my next steps should be.

Response:

It sounds like your non-equity partners are on the fence as a result of the "vague" nature of your discussions. It is hard for non-equity partners or associates to commit to equity and taking on the risk of ownership when they don't know what the deal is. This is a scary proposition for them and they need detailed information so they can evaluate and make an informed decision. A vague discussion doesn't cut it. I suggest that you put together an equity partnership proposal that includes:

  1. Profit and loss statements for past the five years.
  2. Balances sheets for the past five years.
  3. A current accounts receivable and unbilled work in process report.
  4. Tax returns for the past five years.
  5. Malpractice insurance application.
  6. Building and other leases.
  7. Proposed Partnership Agreement
  8. Proposed Equity Partner Compensation Plan
  9. Planned date of admission
  10. Governance and management plan
  11. Ownership percentage being offered
  12. Capital contribution or buy-in requirement
Meet and discuss the proposal with your candidates, allow sufficient time for candidates to discuss with their families and advisors, and set a timeline for their decisions. I think you will see a different reaction. If they still are unable to commit your may have to begin thinking about an external strategy and looking around for merger candidates.

Click here for our blog on succession

Click here for out articles on various management topics

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

 
 

May 31, 2016


Law Firm Succession – Transitioning Clients to the Next Generation

Question:

I am a member of a three-member executive committee for a 34 lawyer firm in Austin, Texas. We have been in practice for over one hundred years. While we have had partners retire in the past with no issues we are now facing a situation where seven partners are approaching retirement at the same time and each of them controls significant books of business. What can the firm do to ensure that retiring partners properly transition their clients so the firm can continue to flourish after the partners are no longer here? We would appreciate your thoughts.

Response:

This is problem that many law firms are facing as baby boomers approach retirement. Rather than one or two partners coming up for retirement many firms are experiencing a "bunching of retirees" all at the same time. This can have a significant impact upon cash flow planning, client development, and attorney talent management.

Here are a few thoughts:

  1. Access your lawyer talent pool to insure that you have people in place that can service the needs of the retiring partner's clients. If your talent pool is insufficient develop a strategy (lateral recruitment, merger, etc.) and develop a plan for locating lateral/merger opportunities.
  2. If the firm does not have a plan for dealing with the upcoming partners retirements and the transition of their clients write a client transition plan and commence its implementation. The plan should include an action plan that is structured like a project plan with beginning and ending dates, specific times, and individuals assigned to specific tasks. The plan should serve to keep things moving over a three to five year transition time period.
  3. Your committee should be communicating with your partners approaching retirement, talking with them about their goals and timelines concerning retirement, and getting them to commit to a date certain even if it is many years into the future.
  4. The compensation should include incentives that encourages retiring partners to transition rather than hoard clients.
  5. Determine a shortlist of who in the firm should take over clients.
  6. Begin client introductions to successor attorneys early. Go deep with relationship building – not just a simple introduction. Your committee and the retiring partners should monitor and follow-up with successors to insure that they are developing relationships with these clients.
  7. Assign co-responsible attorneys to all matters that a retiring partner is assigned.

There are a lot of other ideas that you can explore. The key point is to communicate with your senior partners, get them thinking about retirement rather than pushing it under the rug so there is a three to five year transition period, and start early. I have seen too many situations where a partners walks in and announces that he wants to retire in the sixty days, six months, or one year. This is not enough time if the firm wants to retain retiring partner's books of business.

Click here for our blog on succession

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

 

May 24, 2016


Law Firm Marketing – Using Webinars to Market an Estate Planning Practice

Question:

I am the managing partner of a six attorney boutique estate planning practice located in Madison, Wisconsin. We had a great year last year financially as we have the last several years. However, this year (2016) we are off to a terrible start. Our new matter intakes are down by twenty-five percent. We have a very proactive marketing program – print advertisements, directory listings, top notch website, and we do seminars for prospective clients. I know other estate planning attorneys that do more seminars than we do. Should we be doing more seminars? I would appreciate your insight. 

Response:

I have other estate planning law firm clients telling me that their new client intakes are down this year as well. I think it is a demand/timing issue. Regardless of the amount of advertising I find that most estate planning firms receive the bulk of their clients from past client referrals, referrals from friends, and referrals from other professionals including lawyers. Some of my estate planning law firm clients that spend the least on advertising are the most successful financially.

Regarding seminars, I believe they are not having the same impact that they did in the past. More and more people are going to the internet for information and content. State Bar Associations are reporting that more and more CLE programs are being delivered electronically via the internet in the form of webcasts and webinars. College degrees, law degrees, and LLM degrees are being offered via the internet. I believe that traditional face-to-face seminars will draw less qualified prospective clients than in the past.

I would still look for opportunities to "partner up" with organizations that are willing to sponsor seminars but I would resist the temptation to sponsor and fund seminars yourself.

You might want to experiment with sponsoring your own educational webinars for clients and prospective clients and look into webinar products such as www.GoToWebinar.com. The expense would be minimal and you may have better results.

Click here for our blog on marketing 

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

 

 

 

Mar 22, 2016


Law Firm Partner Retirement Buyouts – How to Keep from Breaking the Bank

Question:

Our firm is a 14 lawyer firm in the Boston suburbs with 4 founding partners and 10 associates. Two of the partners are in their 50s and two are in their 60s. Several years ago we adopted a retirement buyout plan for the founding partners where each partner upon retirement is paid the balance of his cash-based capital account and a multiple of one times an average of his last three years earnings paid out over a five year period. I am concerned that when partners begin to retire the retirement payouts will place undue stress on operating funds and the firm's ability to continue to be successful. I would appreciate your thoughts.

Response:

If nothing else you should consider a cap that places a limit on how much can be paid out in a single year where aggregate payments to all retired partners in any one year are capped at 10 percent or less of distributable net income. Any obligations that cannot be paid in one year as a result of the cap would be rolled forward to the next year also subject to the same cap.

Unfunded plans can present problems down the road if they become unaffordable for the next generation of attorneys as they have to be funded out of future earnings. You should look into ways to fund your partner's retirements as much as possible through 401k and other retirements plans, life insurance policies (on each of the partners that can fund the buyout in the event of death or where paid up cash values can be used upon retirement to apply toward buyouts, and sinking funds (Rabbi Trusts, etc.) where funds have been set aside out of current earnings.

We all have been witnessing what is happening with governmental unfunded pension programs. The same thing is happening with law firms that have unfunded retirement programs as baby boomers are retiring in record numbers.

Click here for our blog on succession

Click here for out articles on various management topics

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

Jan 26, 2016


Law Firm Merger – Initial High Level Summary Financials to Provide

Question: 

I am the managing member of an 14 attorney firm in Miami. We initiated discussions with a large firm in Boston concerning the possibility of our firm merging with their firm. We met with one of their partners recently at their offices and he presented our interest to his other partners. He has advised us that there is an interest in having us meet the other equity partners and taking discussions to the next level. He would like some initial financial information from us. We feel that we must provide them with some financial information at this point but unsure as to what to provide them with at this stage. I would like to hear your thoughts.

Response:

Law firms exploring possible merger partners often move to quickly to financials and I try to hold on providing financial information until after three get acquainted meetings. I like to see the initial focus on the people, culture, and general fit. Poor fit causes more merger failures than practice economics. However, in your situation the door has been opened and the large firm is going to want to see some initial financial information to "qualify" you and determine whether further discussions is worth their time investment.

I suggest that both firms sign a non-disclosure statement and that you initially provide them with the following high-level summary information in a spreadsheet in columns for the last five years of history. The per lawyer/equity partner calculations can be calculated in the spreadsheet based upon the headcount data inserted in the spreadsheet.

I would not provide any more data at this stage pertaining to clients or detailed financials. The next step will be for the other firm to share information with your firm.
 
Good luck!
 

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

Jan 06, 2016


Law Firm Managment – Do Your Non-Equity Partners and Associates Really Want to be Equity Partners?

Question:

I am a member of our firm's executive committee. We are an 18 attorney firm in Baltimore with four equity partners, five non equity partners, and nine associates. Recently we asked one of our non-equity partners to join the equity ranks and he said no. We were shocked and taken by surprise. Is this a common occurrence? We would like to hear your thoughts.

Response:

This is becoming a more common occurrence and this is causing havoc with growth, succession and transition plans. Many law firms are seeing a growing sense of disillusionment from young lawyers that may not want to be an equity partner. While they want to be lawyers they do not want to take the financial and other business risks nor make the other work commitments such as working nights, weekends, and the 24-hour commitment that has historically been the requirements for equity partners in law firms. Work-life balance has become a priority for more younger lawyers.

I believe that you should through performance reviews, survey questionnaires, and other tools gather information sooner than later to get a feel for where your non-equity partners and associates stand as far as attitudes toward business and financial risk, desirability of being an equity owner, and willingness to invest capital and time in the firm. This will give you a feel for your mix. If it looks like you have too many worker bees – revamp your recruiting strategy – new attorneys or laterals – accordingly and look for attorneys that have an interest and the mindset that it takes to be an equity owner.

Click here for our blog on partnership

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

 

 

 

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