Law Practice Management Asked and Answered Blog

Category: Structure

Jan 29, 2019

Law Firm Structure and Growth

Question: 

I am the administrator with a firm in Buffalo, New York. We have fourteen attorneys – seven partners and seven associates. We are an eat-what-you kill law firm. All the partners have to weight in and agree on any and all management decisions. Our management team consists of “all partners”. While I have been hired as the administrator to management the firm, I have very little authority to do anything. The partners all have the freedom to do as they please and there is very little accountability to each other. Recently we have been discussing the pros and cons of why we might want to change our governance and overall structure. I would be interested in your thoughts.

Response: 

I believe that law firms that are “firm first” team based firms and organized along these lines have (or will have) a competitive advantage with respect to clients, legal talent, and merger partners. As law firms grow the “lone ranger” confederation approach no longer works. Decision-making is too time consuming, partner time is wasted, and opportunities are missed. Synergy (where one plus one equals three or four) is not achieved and the firm achieves little more than any one of the attorneys could achieve in solo practice.

Recently I was working with a similar size firm in Chicago that was looking for a merger partner. When the other firm learned that my client was a “lone ranger” firm they discontinued discussions. Larger firms that are “team-based” are not interested in merging with “long ranger” firms – they tend to cherry pick key talent from these firms rather than pursuing mergers or combinations.

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

Jul 19, 2018

Law Firm Structure and Elevating Associates to Partnership

Question: 

I started my firm as a solo nine years ago in New Orleans. My practice focuses on maritime defense litigation. Over the years I have added associates and currently I have six associates working for me. I am overwhelmed with work – from the legal work that I am doing in addition to the business development and firm administration. My thought is that I should consider restructuring the firm by making some of my associates partners so I can offload and share some of the administrative responsibilities. I would like your thoughts. What are other firms in my situation doing.

Response: 

Years ago when I started in this business there were solo practitioners and there were multi-attorney firms that were partnerships. There were not many multi-attorney firms that were what I call sole owner firms – firms will many attorneys and just one owner. This has changed. More and more attorneys don’t want to be in partnerships with other attorneys. Sometimes this is a result of bad experiences in other partnerships. In other cases they simply want to go it alone. Also, more and more associates don’t want to take on the stress and financial obligations of partnership – they simply want a job that provides them with a decent income with work life balance. I have law firm clients with sole owners, fifteen to twenty attorneys, and fifty to seventy staff employees. These firm owners have hired firm administrators, marketing managers, and other such talent to offload the administration. While these firm owners have been enjoying the fruits of sole ownership eventually they will have to reevaluate their situation when they begin planning their succession and exit strategies.

I think you have to ask yourself the following questions:

  1. Is adding partners the best way to offload your administrative responsibilities? Should you hire a firm administrator?
  2. Are  you ready for partners?
  3. Do you have associates that meet your requirements for partner admission? Have you thought about these requirements?
  4. Do the associates that you would consider for partnership have an interest in being partners?

Give this some more thought – don’t just make partners to have partners or to have someone to handle administration.

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

 

Jan 17, 2017

Law Firm Structure – Sole Owner vs Having Partners

Question:

I am the owner of an eight attorney insurance defense firm in San Antonio, Texas. I have been practicing fifteen years. I am forty-five years old. Many of my peers in firms my size are in partnerships. Is my situation unusual? Should I consider having partners?

Response:

Years ago I would have said that a firm such as yours would be a partnership or other organizational form with multiple equity owners. This has changed. I am working with more firms your size and larger with sole owners and no other equity owners. One such firm has twenty-five lawyers and seventy-five support staff.

I am assuming that this has worked well for you. You have the benefit of financial leverage and not having to share the pie with other equity owners. You call the shots and don’t have to share decision making with others. You probably are earning a nice income.

At your present age there is nothing wrong with continuing this for awhile. However, eventually you will have to consider your succession strategy, how you will exit the practice, and to whom you will pass the baton. The other issue is a career advancement strategy for your existing associates. Some may expect to eventually have an ownership stake in the firm. Your associates need to progress in their careers – not just as technicians – but also as business men and women and managers.

Don’t wait to long to begin this process. However, resist the temptation to make everyone an equity owner. In a insurance defense firm with eight attorneys I would try to maintain a ratio of four associates to each equity owner – thus no more than two – maybe three equity owners.

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

 

May 03, 2016

Law Firm Management Structure – Firm Administrator and Marketing Director

Question: 

I am the founder and managing partner of a 27 attorney firm in Dallas Texas. I own 90% of the stock in the firm. I have a three member management committee that serves as a sounding board, a firm administrator, and several people in accounting that work for the firm administrator. We are anticipating hiring a marketing director and are trying to think our way through how to structure this new position as well as future management positions down the road. I would appreciate any thoughts that you may have.

Response:

It will depend on the depth of experience of the marketing candidate that you hire and the level that you want them to perform. If you hire a heavy weight, they will be expected to have "director" in their title" and you will want them to have the respect of other attorneys in your firm, your clients and prospective clients. Therefore, they may carry a title such as Director of Marketing, Director of Client Development and Marketing, etc. If this is the case this position should report to either you, the managing partner, or the management committee, not the firm administrator. Depending on the level of your administrator it may be appropriate to retitle the position as Director of Administration and have it also report to you, the managing partner, or the management committee. Before long you may need a Human Resources Director and when that time occurs that position also could report to the you, the managing partner, or the management committee. Accounting and administrative staff would report to the Director of Administration, marketing staff would report to the Director of Marketing, etc. I would develop job descriptions for each position as well as your position and the management committee.


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

Jun 11, 2014

Law Firm Accounting – Structure of General Ledger Chart of Accounts

Question:

I am the newly elected managing partner of a twelve attorney business transactional firm in St. Louis. The firm is trying to implement a more disciplined approach to financial management. I have been charged with developing our first budget and I am having difficulties due to the overall structure of our general ledger. Our system was setup by our outside accountant and the expense accounts lump too many expenses into too few categories. Do you have any suggestions?

Response:

This is a typical problem that I see in many firms. Accountants often setup law firm accounting systems to facilitate preparation of income tax returns as opposed to systems designed to facilitate internal management accounting, budgeting, etc. Often too many expenses are lumped into single categories or are not assigned to categories based up cost behavior. The attached sample general ledger chart of accounts has been a standard recommended for use in law firms for many years by law firm management consultants, the Association of Legal Administrators, and others. Click here for a sample general ledger chart of accounts

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

 

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