Law Practice Management Asked and Answered Blog

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Apr 30, 2020

How are Law Firm’s Doing During COVID-19

Question: 

Our firm is a four lawyer estate planning firm in Bakersfield, California. As you know our state has been under stay at home orders for sometime. We have everyone except our receptionist and one attorney working remotely from their homes. We are doing much better than I expected. In fact we are getting new clients at close to our usual number per month and our fee collections have actually exceeded our normal monthly fee collections. How are other firms doing?

Response: 

It depends on practice area and firm size. Many of the very large firms are facing dramatic work slowdowns and are laying off attorneys and staff and or cutting partner, associate, and staff compensation. However, many small consumer facing practices such as estate planning/probate, general practice, family law, and personal injury advise us that they are doing well in terms of fee collections and new matter signups. Intellectual property firms also advise us that they are holding their own.

The biggest issues for many of these small firms have been:

Small firms that are “paperless” and are using cloud-based billing and practice management systems are having the easiest time of working remotely.

Don’t get too comfortable based on March and April’s numbers. I believe that May or June will provide you with a better glimpse of the future both in terms of new business and fee collections. There could have been initial client demand based on the need for people to get some things done in preparation for the virus lock-down and you could see in May or June client demand dropping off. Also keep in mind that some of your fee collections were based upon accounts receivable and prior unbilled work in process. In addition, some of the billable work for the past month or so was probably performed on matters or cases that you already had in the pipeline.

May or June may give us all a better picture.

Good luck!

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

 

Oct 03, 2019

How to Handle the Messaging and Public Relations When a Law Firm Partner Leaves

Question:

Our firm is a twelve attorney litigation defense firm in Phoenix, Arizona. We have eight partners in the firm and I am a member of our executive committee. Yesterday at a partner meeting we were advised by four partners that they were leaving, would be starting a new law firm, and would be taking several key clients that they handle with them. A couple of associates and staff members will be going with them. What do we tell people and how do we go about it? You suggestions are most welcomed.

Response: 

My first suggestion is to move very quickly otherwise the rumor mill will get started and rumors will get ahead of you. You must get in front of the message to all audiences. The remaining and the departing partners should meet immediately, come to terms and agreement with the message, and be prepared to answer the following questions:

  1. Who is leaving
  2. Why following
  3. Whether the relationship is contentious or amicable
  4. How the departure is going to effect clients
  5. Whether the departing partners are named partners
  6. Future name of both firms
  7. Where the two firms will be located
  8. Contact information

I further suggest that you:

  1. Plan and advance and drill
  2. Identify your audiences and appropriate messages for each
    1. Clients
    2. Employees
    3. Legal community
    4. General public community
  3. List anticipated questions that your audiences will have
  4. White out the answers to the questions
  5. Write out the message for each audience
  6. Designate a single spokesperson to respond to the press and others so that messaging remains consistent from firm management.
  7. Identity clear lines of authority.
  8. Ensure that you follow the rules of professional responsibility in regarding client communications.

Situations such as this can be very stressful for all concerned. Try not to let your personal feelings cloud your vision and get in the way of a properly planned transition. There will be a lot of work to be done on the part of the remaining partners and departing partners. A well designed project plan will be helpful in managing all the tasks that will have to be handled and managed. The public relations should be at the top of the list.

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

May 16, 2018

Law Firm Client Surveys – How to Collect and Report the Data

Question:

Our firm is a sixteen attorney firm in Chicago. Our marketing committee has been discussing implementing a client survey program. We are not sure where to start or how best to collect and report the data. Your thoughts would be appreciated.

Response: 

Surveys can be used for a variety of purposes including the following:

I assume that you are planning on doing a client satisfaction survey in order to solicit feedback on how well the firm is meeting client needs, quality of services being provided, and additional needs that the client may have where the firm can provide services.

The type of survey will depend upon whether your clients are individuals or institutional clients such as corporate or governmental. If your clients are institutional I recommend that you conduct telephone structured telephone interviews with these clients using a interview questionnaire consisting of quantitative and qualitative questions. If you have a large number of institutional clients then you may want to consider conducting these interviews with your top fifty, twenty-five, or ten top clients and use a paper mail survey or online survey for the remainder. For individual clients you may want to use a paper survey or online survey for your entire database of individual clients and thereafter a paper mail survey or online survey at the conclusion of a matter. Another option would be to survey a random sample of your clients.

Once the surveys are completed – whether telephone interviews or paper mail or online surveys the questionnaires/surveys will need to be tabulated and provided in some form of a report. Some firms use two Excel spreadsheets – one for the quantitative responses and one for the qualitative/narrative responses for interview and paper mail questionnaires.  Then averages, percentages, and other summary statistics can be calculated for the quantitative responses. If you use an online survey service such as Survey Monkey the tabulation and the statistics will be done already for these surveys. If you have a Survey Monkey account you could also enter your interview questionnaire and paper mail questionnaires responses into Survey Monkey and use it rather than Excel. If you want more sophisticated statistical analysis you might want to look into statistical software such as SPSS which is sold and marketed by IBM.

Once you have summarized analyzed the questionnaires you may want to prepare a summary report document using your word processing software. Include the tabulation, statistical calculations, charts, etc. as attachments to the report.

There are several articles on our website – see links below – that discuss client satisfaction survey programs and how to get started.

Click here for our blog on client service

Click here for our article on client satisfaction

Click here for our article on client surveys 

Click here for our article on analyzing survey results

Click here for our article on developing your client service improvement plan

Click here for our article on tips for rewarding and recognizing employees

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

Nov 01, 2016

Law Firm Associate Compensation – How to Deal With Overpaid Associates

Question:

I am the managing partner of a twelve attorney defense litigation firm in Santa Monica, California. We have four partners and eight associates. Associates are paid a salary. We have several associates that are being overpaid – they are being paid $150,000 – $180,000 and just barely generating $300,000 in working attorney fee receipts. I would appreciate your thoughts.

Response:

Do they have enough work? Do they put in enough hours? Are they good time managers and good timekeepers? If they have enough work – then meet with each of them – lay out the expectation of 1800 hours and consequences for non-achievement. If they have issues with time management or time keeping impress upon them the importance of improving these skills – in the meantime they may have to simply put in the extra time to get in the hours.

Suggested consequences:

  1. For those not meeting expectations. Manage and coach them in real time- but be firm about your expectations. You are paying them a salary for a certain level of expectations and performance. If there is not enough work reduce their working hours and compensation. Consider production in future salary reviews and bonuses. Don't pay them an incentive bonus to perform the work you are already paying them to do. In worse case situation you may have to reduce salaries.
  2. For those exceeding expectations. Reward them with a performance-based discretionary bonus. But when advising them of the bonus advise them specifically what it is for and that is it a variable bonus and award for specific performance exceeding expectation. 

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

Sep 07, 2016

Law Firm Profitability – How Do I Know if We Have Enough Work for the Attorneys?

Question:

I am the owner of an eight attorney estate planning firm in Jacksonville, Florida. Our firm handles estate planning and estate administration. For this entire year our financial numbers are way down and I am getting concerned. For example, compared to last year:

I would appreciate any ideas on what I should do next.
 
Response:
 
Several of my estate planning/administration firms from different areas of the country are advising me that business is way down this year and they can't put their finger on the problem other than demand and timing.
 
I would start by:
 
  1. Take a look an your new matter intakes for the year – month by month.
  2. Examine the referral and marketing sources as to where this business is coming from.
  3. Prepare a open matter inventory report by attorney and matter type to get a count of the number of matters each attorney is handling
  4. Examine billable hours, non-billable hours, collected working attorney fees and realization rates for each attorney.
Compare each of the metrics above with last year and prior years. Meet with all of the attorneys and review their matters in progress and discuss their workloads. Also review your marketing budget and marketing programs to see if changes are warranted.
 
This should give you a feel for what is going on. You could have problems in the following areas:
 
While you may find that you have problems in each of the above areas I suspect that your biggest problem is that attorneys do not have enough work and your business is down. If this is the case I would question how they are using their non-billable hours – are they doing more business development and marketing – or they simply pacing their time so they fill an eight hour day.
 
If your problem is lack of work you are going to have to see if additional marketing can generate the business needed to support the attorneys you have on board or reduce your attorney headcount.
 

Click here for our financial management topic blog

Click here for our law firm profit improvement blog

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

 
 
 
 

 

Jul 26, 2016

Law Firm Marketing – How Much Should We Be Spending on Marketing?

Question:

I am the managing partner of a 12 attorney firm in Providence, Rhode Island. In our recent partner meetings we have been discussing ramping up marketing. How much should we be spending on marketing?

Response:

Studies that have been conducted indicate that law firms that provide services to business firms (B2B) spend approximately 2.4% of fee revenue on marketing. However, law firms that focus on individual consumers (retail law if you will) spend much more – 10%+ of fee revenues on marketing – especially if strong referral networks are not in place. I have several PI, SSDI, Elder Law and Estate Planning firm clients that are spending 10%+ of their fee revenue or greater on marketing. I have some extremely successful PI firm clients spending 20% of their revenue on marketing. 

The amount of appropriate investment can depend upon referral networks in place. I have successful PI and Estate Planning firms that are spending very little on marketing, are getting all of their business from their referral networks, and spending next to nothing on marketing and advertising. (By referrals I am speaking about professional referrals not involving a referral fee and client referrals. If referral fees are involved they should be considered a marketing cost) So it depends upon your situation, the type of cases you are going after, etc.

Be careful of spending to be spending. Marketing expense scan be a deep hold that yields no return on investment. Insure that your marketing investments are targeted, well thought out, measured, and are working. Determine up from whether your goal is long term brand building or short term lead generation going in.

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

Feb 23, 2016

Law Firm Partner Capital Contributions – How Much?

Question:

Our firm is an 18 attorney firm in Chicago that was formed by the existing four equity partners ten years ago. We have four equity partners (founders), eight income (non-equity partners), and six associates. The income partners are not required to contribute capital. We are considering admitting a couple of the income partners as equity partners and also approaching possible laterals. What should we require in the form of buy-in or capital contribution?

Response:

While capital contributions are all over the board ranging from zero to $100,000 in firm's your size I often see capital contributions ranging from $25,000 to $50,000. All depends upon the number of ownership shares being offered. I am seeing firm's requiring more as many firms are resisting the temptation to take on bank debt to finance their short-term working capital requirements. Citibank's Private Law Firm Group reports that between 2004 and 2007 capital contributions averaged 20 to 25 percent of a partner's income. Citibank's recent survey reports that partners are now contributing an average of 30 to 35 percent of their earnings. Thus, a newly admitted partner that will be earning $150,000 upon admission would be expected to contribute $45,000. Contributed capital is returned when a partner leaves the firm in full upon withdrawal or more commonly according to an incremental installment payment schedule.

Click here for our blog on partnership

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

Dec 08, 2015

Law Firm Merger – How Do Firms Handle Integration of Assets

Question:

I am the managing partner of our six attorney civil litigation firm in Lexington, Kentucky. We are in the early stages of merger discussions with a fourteen attorney firm in Lexington. My partners have asked me how other firms integrate their assets when the merger become effective.  We would appreciate your thoughts?

Response:

A variety of approaches are often taken in upstream mergers.

One approach is to transfer all of the assets and liabilities to the other firm and receive a credit to your capital accounts for the value of the contributed assets/liabilities with a check from the other firm if the value of the assets contributed exceed the required capital contribution based upon the ownership shares that you are being offered in the merged firm.

The more common approach that I see taken in upstream mergers is for the smaller firm to retain the firm cash accounts, accounts receivable, work in process, and sell the fixed assets (furniture and equipment) to the other firm for cash or receive a capital account credit for the value of the fixed assets contributed. If additional capital is required, each partner would write a check to the merged firm for their capital contributions. Your existing firm would be responsible billing out old work in process and collecting old receivables and when the income is received these funds would be deposited in your existing bank accounts and entered in your old books. You firm would also be responsible for accounts payable and other liabilities that exit prior to the merger.

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

 

 

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