Law Practice Management Asked and Answered Blog

Category: Personal

Jul 15, 2014

Law Firm Advertising – Should Our PI Firm Consider TV Advertising

Question:

Our firm is a three attorney personal injury plaintiff located in Los Angeles. We started the firm fifteen years ago. Two of the three attorneys are equity owners. Our firm is a high volume/low case value practice – we currently have 500 open cases. A high percentage of our cases are settled without a law suit ever being filed. We are an advertising driven practice. While over the years we have effectively used a variety of advertising vehicles we have never ventured into TV advertising. We are considering venturing into TV and would appreciate your thoughts regarding TV advertising.

Response:

I have personal injury plaintiff law firm clients that have had great success with TV advertising and other clients that have had poor results. High case volume/low case value firms such as yours have had the greatest success. In order to be successful you must have the budget to be able to stay the course and the infrastructure to support and manage the advertising effort and to support the work and cases. The worst thing you can "dabble" with TV advertising. Here are a few thoughts:

Be prepared to invest in TV advertising for a least six months – or don't do it.
TV advertising can be scary from two vantage points. If it is not successful you will have invested a great deal of money without receiving an adequate return on your investment. I have client firms spending one to two million dollars a year on TV advertising. You could easily spend $100,000 to $200,000 before you find out that the investment is not paying off. If your campaign is successful you may not be prepared to handle the volume of work that could result – either in the form of infrastructure or working capital. (Cash Flow)
Be prepared to respond to client inquiries 24/7.
Prepare your infrastructure scalability plan. Do you have the facilities, communications system capacity, staff and other resources to handle an immediate dramatic increase in case volume if it comes? If not, how quickly can you scale up? Do you have access to the capital to finance such expansion?
Measure and monitor ROI from your program and fine tune adjust your program.
Use a placement agency that has experience with personal injury law firms. Solicit law firm references from other markets and call each one and discuss their results in-depth.

Like any other business venture – if you do the proper due diligence and do your homework – TV advertising can be a great investment – if not it can be a nightmare. I have seen it go both ways.

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

Jun 14, 2014

Law Firm Succession: Buying Out the Owner of a Personal Injury Plaintiff Practice

Question:

I am the founder and owner of a personal injury plaintiff practice located in Lexington, Kentucky. I have two associates and four support staff members. All of our cases are handled on a contingency fee basis and our swings in fee collections from year to year can be substantial. I am 64 and would like to transition my practice and retire within the next three years. Both of my associates would like to take over my practice. I believe I am entitled to compensation for my practice and am desiring a fair buy-out. I would appreciate hearing your ideas concerning a buy-out approach.

Response:

You could look at the value of your practice from either a historical or a future perspective. Personally, if I were a law firm or your associates I would be more interested in the future perspective. In other words what fee revenues/cash flows will the practice generate over the next three to five years? In traditional time bill/flat fee firms a multiple of gross revenue is often used as a proxy. In a contingency fee firm such as yours the primary value beyond cash-based book value is the expected value of your cases. Sometimes a firm is able to review a list of cases and estimate the expected value of these cases or estimate a fee range per case. (High-Low, or Conservative-Optimistic estimate).

More often than not it is simply not possible to estimate the value of the cases until they are concluded. In this situation the values will be determined in the future as the cases are settled. If this method is used you would provide a list of cases in progress at the time of your retirement and when the cases are concluded apply a ratio of the time the case was with the firm before and after your exit, apply an overhead factor, and apply your ownership percentage to determine your share of the fee for that case. Your share of the case fees as the cases settle and cash-based book value is your buy-out.

Of course in the end you will have to balance your buy-out against what your associates are willing to pay. If your deal is too high you may run them off – if you make it too low you are leaving money on the table and not realizing the value of your sweat equity.

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