Law Practice Management Asked and Answered Blog

Category: contingency fees

Jan 29, 2013

Cash Flow in a Contingency Fee Law Firm: Re-Balancing Your Case Portfolio

Question:

I am sole owner of a law firm in Western Kentucky. My practice consists of myself, a legal assistant, a part-time bookkeeper, and a part-time contract attorney. The practice is limited to employment law – both plaintiff and defense side. Approximately 80% of my business is contingency fee and 20% is time-billed and or retainer. While the practice has done okay over the past fifteen or so years worrying about paying bills (cash flow) is a constant source of stress for me and my family. I do no marketing – all of my business comes from lawyer referrals. Do you have any suggestions?

Response:

Cash flow has always been a challenge for contingency fee practices. However, times are getting harder. For personal injury plaintiff firms insurance companies are refusing to settle cases, stretching out timelines for settling cases that they do settle, paying less, and becoming even harder to deal with. Other contingency fee practices are also facing similar challenges and everyone is finding it harder to find adequate lines of credit. Many firms that were once 100% contingency fee practices are looking for ways to improve cash flow implementing different fee arrangements or by adding non-contingency fee practice areas.

I suggest that you evaluate ways that you might re-balance your case portfolio to say 60% contingency/time-bill mix. You might consider:

Billing and collecting up front for all client costs even if the fee is contingent.
Flat fee paid up front for a certain segment or phase of work – then contingency fees for the rest of the work.
Actively marketing and targeting certain small business firms, establishing relationship, and seeking out defense employment work billed on a time-bill basis.
Adding a different practice area that would not be billed on a contingency fee basis.
Bring in a another attorney with a book of business in a complimentary non-contingency fee practice area.

Review your case pipeline report and your work habits to insure that you are putting the right effort and mix into the cases that you have so that when your time bill matters come up for billing at the end of the month – all can be billed.

Good luck!

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

Dec 04, 2012

Ideas For Law Firms Desiring to Take On More Contingency Fee Work

Question:

Our firm is a 18 lawyer general practice firm in the western Chicago suburbs. Recently, we are beginning to take on more personal injury cases on a contingency fee work which is creating some cash flow strain. Do you have suggestions regarding firms doing contingency fee work?

Response:

Contingency-fee work can pose major risks for law firms, as they earn no fees if they lose those cases and sometimes have profits deferred in protracted litigation. In addition, cases can be lost with no fee whatsoever recevied. Whether your firm is considering "big deal" litigation or bread and butter run of the mill personal injury litigation you may want to consider the following:

Don't dabble in contingency fee work. Take it seriously and insure that your case portfolio is adequately diversified.
Reduce case portfolio risk and improve case profitability by implementing a sound case intake system to insure that you are selecting quality cases.
Realize that you have to spend money to make money and that you simply may not have the financial resources to take on certain cases. Learn how to say no and when to refer these cases out to others.
Insure that you have an adequate portfolio of cases (number of cases, size and type) to insure diversification and manage risk.
Analyze the profitability and return on each case and ascertain what can be done differently on future cases. Typical metrics include effective rate and/or LODESTAR.

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