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Category: Management

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Dec 31, 2019

Law Firm Management – What Will Be Keeping Owners and Managing Partner Awake at Night in 2020

Question: 

I am the owner of a twelve attorney business litigation law firm in Northern, California. I started the firm fourteen years ago after practicing ten years in a large law firm. While the practice has been fulfilling both professionally and financially, the management side is often a challenge. As I sit here on December 31, 2019 thinking about management challenges that I may face next year I was wondering what you envision the challenges will be in 2020.

Response: 

The following were the common challenges that owners and managing partners advised us that they faced in 2019:

  1. Talent Management – Attorneys and Staff
    1. Hiring
    2. Training
    3. Motivating
    4. Compensating
    5. Keeping (retaining)
  2. Firm Succession and Transition
  3. Getting and Keeping Clients and Additional Sources of Business
  4. Managing Cash Flow
  5. Satisfying Hard to Please Clients
  6. Balancing Time Between Servicing Clients and Managing the Firm
  7. Getting Paid
  8. Competition from Other Law Firms and Non-Law Firm Service Providers
  9. Proving High Quality Legal Services at an Affordable Price and Avoiding Malpractice Claims
  10. Finding Time for Personal Life and Family

In 2019 the number one challenge was talent management and I believe this will continue to be the case in 2020. The other challenges that I have listed will continue to be the major concerns of owners and managing partners in 2020.

Here are some links to a few of our resources that you might find helpful:

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

 

 

 

Dec 11, 2019

Law Firm Financial Management – Financial Red Flags

Question: 

Our firm is a twelve lawyer firm in Chicago and our practice is a business litigation firm. We have eight partners in the firm and we are managed by a three-member management committee that was just formed this year. I am a member of the committee and I am responsible for the general financial oversight of the firm. I am trying to get a handle on law firm financial metrics and especially what are the financial warning signs that I should be aware. If you have an outline or list that you would be willing to share we would appreciate it.

Response: 

Here is a short list of what I call financial red flags that you might find helpful:

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

Mar 06, 2019

Law Firm Financial Management – Managing the Firm’s Inventory

Question: 

Our firm is a eighteen attorney firm in Portland, Oregon and I am the recently hired firm administrator. This is my first law firm. My previous employment was with a small manufacturing and distribution company. I have read some articles that discussed the importance of managing inventory in a law practice. Does a law firm even have inventory? I would appreciate your comments.

Response: 

Inventory (or pipeline) management is a term used in the management consulting profession to refer to the process by which you continually evaluate your active opportunities (prospective clients to booked clients) for their balance of QUALITY and QUANTITY. The goal is to continually stay on top of the overall health which is a full pipeline. Pipeline management allows client relationship managers to more accurately forecast fee revenues, better staff and manage client engagements, and close more client business.

I often also refer to Inventory or Pipeline Management in law firms in the context of using financial dashboards by which the individual charged with financial management responsibilities is continuously aware of significant changes in the firm’s Inventory or Pipeline (from prospects to cash):

By comparing these dashboard statistics to a prior month, quarter, or year – you are able to avoid financial surprises down the road.

Law firms do have inventory and that is their unbilled work in process (matters in process) or in the case of a contingency fee firm I usually refer to work in process as cases in process.

How well this inventory is managed – managing what is in front of you rather than what is behind you is a critical component of financial management and has a major impact upon the profitability of the firm. However, this responsibility falls primarily to the attorneys responsible for the matters. However, in your capacity as administrator you can provide the reports and oversight to help keep them on course.

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

 

 

Jan 09, 2019

Law Firm Management – Held Hostage by Office Manager or Bookkeeper

Question: 

I am a partner is a small family law firm in Tucson, Arizona. There are two partners in the firm and two associates. We have an office manager/bookkeeper, a receptionist, and two legal assistants. The office manager was hired one year ago. The other partner is retiring next year and I am purchasing the practice from him. I became a partner last year. I am new to the management side of the practice and have been relying on the office manager who also serves as our bookkeeper. I am at my wits ends with our office manager and I believe that she is not suited for the position. She has no organizational skills, she misses deadlines, vendor bills are not paid on time, and client bills are not sent out accurately and timely. I have counselled her on numerous occasions to no avail. I believe we need to replace her but I am reluctant since no one else here knows what she does or how she does it. A new billing and accounting system was implemented last year and she was the only one trained on the system. What do we do if we terminate her or she quits? We are hostages. I would appreciate any ideas of thoughts that you may have.

Response: 

I understand and appreciate your situation. It sounds like you have not documented your procedures in the form of a firm procedures manual and everything is in the office manager’s head. This makes it difficult for someone to take over her responsibilities if she leaves the firm for whatever reason but not impossible. It will probably be difficult to get her to develop one now as it may signal to her that her time with the firm is short and she may start looking for another position. You may have to just bit the bullet, terminate her, restaff the position, and go from there.  It won’t be fun but you will make it though. You might consider the following:

  1. The office manager probably has handwritten notes, etc. that she has used to roughly document how she does things. Collect these and review these.
  2. Contact your billing and accounting software provider and have them help you will any training needs you have as well as procedural issues. Back in my old life when I did software work with law firms I often was called and assisted firms with such situations.

After you get the position staffed and past the crisis develop a detailed written manual of procedures for the office. Not just the office management side but the client service side – attorneys and paralegals as well.

I believe that it 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 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. Insure that you have accounting controls in place and appropriate segregation of accounting duties.
  4. Outline your expectations and requirements of the office manager/bookkeeper, meet with her/him, and communicate appropriately.

Click here for a bookkeeper listing of duties.

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

 

May 22, 2018

Law Firm Financial Management – Using Credit Line to Purchase Equipment

Question: 

I am the financial partner with our sixteen attorney firm in Indianapolis, Indiana. The firm has had a rough couple of years. We had several partners leave the firm and they took several corporate clients with them. Unfortunately, this was ongoing consistent retainer and time bill work. While we still have some retainer and time bill corporate work, a much larger mix of our work is now contingency fee work. As a result we have had some cash flow challenges and for the first three months of this year there was no money to pay partner draws. We have a credit line with the bank of $125,000 that we have not used. We only use our credit line for long-term equipment purchases. We would appreciate any suggestions that you have.

Response: 

A line of credit is designed to be used for financing short-term working capital needs – not long-term financing needs such as fixed asset acquisitions. I would use either leases or long-term bank loans for equipment and other fixed asset financing secured by those assets. This leaves your your credit line available for short-term financing needs. While I hate to see a firm use a credit line to pay partner draws, often there is no other choice in law firms that are not adequately capitalized, especially contingency fee firms.  Partners have to eat too. Contingency fee practices can have wide cash flow swings and often have to use their credit lines to temporarily fund payroll and partner draws.

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

 

Apr 25, 2018

Law Firm Management Committee vs Full Partnership

Question: 

I am a partner in a fourteen attorney firm in San Antonio, Texas. We have eight partners and six associates working in the firm. The firm was founded twenty years ago, so we are a first-generation firm. Two of the partners were the founders of the firm and the other six were made partners in later years. Currently our method of governing the firm is handled by the full partnership. While each partner has one vote, we try to manage by consensus. We do not have a managing partner or any committees. We have an office manager that primarily handles the accounting and the staff oversight. The partners meet weekly to discuss issues and make decisions. We are beginning to have issues with our management structure. Partners are not showing up for the weekly meetings and complaining about the amount of time it is taking away from servicing their clients. Should we consider a different approach? We would appreciate your thoughts.

Response: 

You are at a difficult size, still a small partnership but big enough that management by all may no longer be working for you. I believe that you should consider either a managing partner or a management committee of three partners elected by the partnership. For this to work all of the partners must agree to surrender some degree of independence to a managing partner or a management committee. I would start with putting together a list, or job description, for the managing partner or management committee. Partnership agreements often outline management decisions (powers) reserved for the partnership with all decisions handled by the managing partner or management committee. If your partners are unwilling to  surrender some degree of independence then changing to a managing partner or management committee may prove to be wasted effort.

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

Jun 06, 2017

Law Firm Collections/Retainer Management – Using a Retainer Follow-up Report

Question: 

I am the managing partner of a nine attorney general practice firm in the Chicago suburbs. We practice in the areas of estate planning/administration and family law. While our estate planning and uncontested family law work is done on a flat fee basis our estate administration and contested family law work is time billed. We collect initial retainers for these matters but we fail to insure that the retainers are replenished. We are having accounts receivable collection problems as a result. I would appreciate your thoughts.

Response: 

This is a common problem that I see in firms doing estate administration and especially family law. The best way of managing your accounts receivable is to have less in outstanding accounts receivable in the first place. You do this by staying on top of your retainer balances compared to your work in process and ask the client for additional retainer before the work in process exceeds the retainer balance. In order to stay on top of retainer replenishment you need to develop what I call a retainer replenishment report and have someone assigned to reviewing the report daily and advising responsible attorneys to contact the client when work in process has hit a certain threshold (percentage of retainer used). Some firm’s present the report at a weekly attorney meeting and determinations are made regarding additional retainers to request. Other firms assign the responsibility to the firm administrator to automatically bill for the additional retainer. It is also important to insure that ongoing work is managed in a way that an excessive amount of work is not committed to a matter until the additional retainer replenishment is received.

A retainer replenishment report is not a standard report in many billing systems. You may have to create a custom report in your billing system using a report writer or in a worst case drop a accounts receivable report to an Excel file and add in some columns for the other information.

Here are the suggested data fields/columns for such a report:

Responsible attorney
Client/Matter name
Retainer Balance (typically this would be the balance in the trust account)
Unbilled WIP Fees
Unbilled Cost
Total Unbilled WIP
75% Retainer Threshold
Amount Over/Under Retainer
Additional Retainer Requested
Total Amount Retainer to Bill (Amount WIP over retainer plus additional retainer requested)

Many family law firms have advised me that after learning the hard way they are now doing a good job at this and advising me that they have minimal accounts receivable issues.

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

 

 

 

 

May 31, 2017

Law Firm Governance – Partner Participation in Management

Question: 

I am the founder, majority partner (80%), and managing partner of a twenty two attorney firm in Phoenix, Arizona. The firm practice is focused in the area of health care. There are twelve equity partners, five non-equity partners, and five associates. I manage the firm as a benevolent dictator. I am becoming overwhelmed trying to manage the firm and practice law and I believe the firm is now at a size where others must become involved in managing the firm. I have been considering forming a committee of all the equity partners to manage the firm. Your thoughts are welcomed.

Response: 

While I believe that you are of a size that warrants broader participation in the governance and management of the firm you can go too far. Broad participation in decision making and consensus building slows things down. It can also make it difficult to reach a definitive conclusion. Getting all the partners to agree takes time. Broad participation can also diffuse responsibility. If everyone is in charge no one is in charge. In law firms whose partners are overly deferential to their partners’ views, the decision-making process often seizes up. Unless firm partners who, when necessary, will assert themselves and use their influence to press for action, the only decisions it’s likely to make are decisions not to decide.

I believe that you should stop short of broad participation by all the equity partners. Consider a three member executive committee elected by the equity partners on three-year staggered terms. This committee would have responsibility for the general management of the firm not delegated to your firm administrator if you have such a position in your firm. Committee responsibilities would include financial management, human resource management/oversight, client development, IT systems oversight, procedures and policies, etc. Establish proper structure for the committee with a chair, identified roles and duties for each member, defined meeting schedule, and agenda and meeting minutes. Define in your partnership agreement those powers that are restricted to a vote by the full partnership and the rules for voting – one partner one vote or vote by percentage interest. Other than those powers restricted to the full partnership partners should let the executive committee manage the firm and not second guess.

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

Apr 11, 2017

Client and Management Transition in a Larger Law Firm

Question:

I am a member of the executive committee of a seventy-five attorney firm in Houston, Texas. We are a first generation firm. Several of our founders are in their sixties and we have recently begun discussing succession planning and how clients and management duties will be transitioned. We would appreciate your thoughts in these areas.

Response:

In larger firms, clients are more likely to be large sophisticated clients, possibly Fortune 500 companies, which refer many matters to the firm during the course of a year. Often such clients may be both a blessing and a curse for the firm. A blessing in that their business provides the firm with huge legal fees during the course of a year. A curse in that their business represents a large percent of the firm’s annual fee collections and a significant business risk if the firm were to lose the client. An effective client transition is critical, takes time, and must be well planned.

Successful client transition – moving clients from one generation to the next – is a major challenge for larger firms. Shifting clients is not an individual responsibility but a firm responsibility. To effectively transition clients the individual lawyer, with clients, must work together with the firm to insure the clients receive quality legal services throughout the transition process. Both the individual lawyer and the firm must be committed to keeping clients in the firm when the senior attorneys retire. Potential obstacles include:

In larger firms, partners may have management responsibilities as well as client responsibilities. A retiring partner may be a managing partner, executive committee chair or member, or serve as a chair or member on other firm committees. Retiring partners will have to transition these responsibilities to other partners in the firm.

Transitioning client relationships and management responsibilities effectively can and where possible should take a number of years – preferably five years – typically not less than three years. For this reason, many firms use five-year phase down programs for retiring partners. These plans provide detailed timelines and action steps for transitioning client relationships and management responsibilities.

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

 

Dec 27, 2016

Law Practice Management – Goals for 2017

Happy New Year and Best Wishes for a Personal and Professional 2017

As 2016 comes to an end we begin with a clean slate for 2017. As with anything new – the uncertain future can be scary and exciting at the same time. Year-end provides an opportune time for reflection on the past year and setting goals for the next year – both personal and professional. Goal setting can improve your personal life and your practice.

Here are a few ideas for 2017:

  1. Whether you are in a small firm or a large firm have a sit-down with your team and discuss the past year business results, (successes and failures), what went right and what went wrong, what can be done this year to improve over the past year, and aspirations for the upcoming year.
  2. If billable hour/revenue goals are not set for attorneys and paralegals set expectations for each individual, measure accomplishment, and provide feedback monthly on how they are tracking toward expectations/goal.
  3. Writing and speaking are excellent ways for attorneys to develop their referral networks and enhance the firm’s brand as well as their individual brands via their bios on the firm’s website. Published articles – on the firm’s website and elsewhere – lead to speaking opportunities as well as interviews by reporters and writers as sources for articles that they are writing for other publications. Multipurpose your articles in more than one publication and venue. Turn an article into a webinar, webcast, or live presentation. Commit to writing one article a quarter in 2017 (4 during the year). If you have been writing four articles a year consider writing a book in your field of expertise.
  4. Consider adding a new skill set this year. It may a new legal skill set such as a LLM in tax, litigation, etc. or it may be a non-legal skill set such as in management, counseling, medication, etc.
  5. For attorneys in their late fifties or early sixties give some though this year to your retirement/succession/transition goals.

Best of luck for a prosperous 2017!

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

 

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