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Illinois Bar Journal

The Magazine of Illinois Lawyers

September 2011Volume 99Number 9Page 444

September 2011 Illinois Bar Journal Cover Image

Law Practice Management

The Five Biggest Business Mistakes Lawyers Make

By
Helen W. Gunnarsson

In an effort to make themselves attractive to clients, too many lawyers - especially new ones - undervalue their services. It's a short-sighted approach that can lead to big trouble, this lawyer argues.

Timothy J. Storm, a solo practitioner based in Wauconda, an appellate lawyer, an adjunct law professor at John Marshall Law School, and chair of ISBA's General Practice, Solo and Small Firm Section Council, talks to a lot of lawyers about the practice of law as well as to a lot of soon-to-become members of the profession in the course of his practice and his work with ISBA. Over the years, he's heard many stories about problems lawyers encounter in setting up and running their law offices.

"Often, lawyers don't realize that a situation that doesn't present itself in neon letters is a problem. They think it's a challenge," Storm says. "After a while, they realize they've been led down the road into a business mistake that they could have avoided if they'd identified it as a problem in the first place."

Storm has found that most business mistakes lawyers make fall into five cate­gories. He characterizes them as working on an involuntary pro bono basis, financing clients for free, discounting to get business, defending a collection case on two contingencies, and failing to communicate. (Storm will address this topic more expansively at ISBA's Solo and Small Firm Conference next month - see sidebar.)

Pro bono work should not be involuntary

What lawyer in a solo or small firm will not have performed involuntary pro bono work at some point? This business mistake happens after you've engaged a client and have begun working on the case. Maybe the client has paid your bills for a while - but then stops.

"That's a big problem for all lawyers who bill by the hour," says Storm. "You want to make sure that doesn't happen."

Storm says lawyers get themselves trapped into working for free because they start buying into myths about legal fees. First among those myths, he says, is that lawyers, especially those who are starting out, have slack time that they can and should use to work on nonpaying matters to become familiar with an area of practice. "What else would I be doing?" lawyers may rhetorically ask themselves.

But working for free doesn't build up a lawyer's business, Storm says. "Business development, not involuntary pro bono work, builds up your business. If you do have slack time, you should be engaging in new business development, not involuntary pro bono work."

Another myth is that a lawyer has a responsibility to provide free legal services.

Certainly, Storm says, lawyers should do legitimate pro bono work. "I have no problem if a lawyer says, 'I want to do this case for free because of my relationship with the client or my feelings about the case.' That's great."

Genuine pro bono work is an excellent way of becoming familiar with a new area of practice as well as helping those who truly cannot afford to pay lawyers. "But the lawyer also has the obligation to make a living and provide a living for his family. You can't do all the free legal work you'd like to do."

And then there's the myth that lawyers charge too much. "The lawyer has the obligation to set fees fairly in the first instance. If you've done that, there's no reason to be subject to an involuntary discount when the client decides he's paid enough."

Other myths? That the client will pay after the lawyer has performed the work and that the client has a good reason not to pay the lawyer on time. "If you don't collect your fees from the client when the client needs the work done, it's not more likely that you'll collect them later - it's less likely. The lawyer gets further and further down the totem pole" of creditors.

"We can all think of times when clients have given lots of good reasons why they can't pay their bills on time. There may be many good reasons, but there's never, ever, any good excuse. The client has agreed to pay the lawyer on a certain schedule. The lawyer has to enforce that schedule.

"I see no reason why a lawyer's expectancy of a fee should not be secured" by lawful and ethical means, Storm says. "A lawyer has every right to be paid according to the terms of an agreement."

Don't finance your client's case

Storm likens clients who want their lawyers to perform legal services now but pay later to Wimpy, the hamburger-loving character from the Popeye cartoon whose signature expression was, "I'll gladly pay you Tuesday for a hamburger today." Recognize this situation for what it is: "This amounts to an unsecured interest-free loan. The client is borrowing money from you which the client then uses to pay your fee."

Don't succumb to this plea. "You are a lawyer, not a bank." Unlike a bank, "You are not generally in a position to do credit checks or demand sufficient security."

When presented with a client's request for free financing, Storm suggests, "Explain 'I'm not in a position to give you a loan, but maybe you can go to a family member, a friend, or a credit card for a loan to pay my fee.'" If the client expresses astonishment at such an idea, consider this: "The client has walked into your office, never having met you before, and asked you for a loan. What's wrong with this picture? Lawyers need to understand what is really going on in this client exchange."

The cheapest lawyer in town?

Discounting as an inducement for a client to bring in more business is something lawyers must avoid, Storm says. "I hear lawyers talking about this a lot. My position is very simple: don't do it."

Storm lists three reasons for lawyers not to discount their fees. The first should require no explanation: "You don't want to be known as the cheapest lawyer in town."

Second, Storm says, discounting carries with it an undesirable paradox. "If my regular hourly rate is $300, and I decide to give you a 50 percent discount, every time I bill you for an hour of time I'm thinking of the $150 I'm not collecting. You, on the other hand, are thinking about the $150 you're paying." The client in this example, he says, is likely thinking, "Your fees were inflated to start with. Your discounted fee is probably also inflated." The end result is that "I think I'm getting cheated and you think you're getting cheated."

And discounting fees makes for bad public policy, Storm says. "Abe Lincoln said that lawyers should resolve disputes, not perpetuate them. Sometimes disputes get resolved because people can't pay a lawyer's fee." So, "If you enable people to continue arguing by discounting your fee, you're effectively fomenting litigation."

Don't defend collection cases on "contingency"

"I'm not really talking about collection cases," Storm explains. "I'm talking about a contract dispute in which your potential client is accused of owing money that he or she is not paying."

Such clients frequently have many reasonable-sounding explanations why they should not have to pay this money, Storm says. "But they want you to take this case without being paid up front and being paid as late as possible in the process."

That, he says, is not "officially" a contingency fee matter, "but what's going to happen is that it will turn into a contingency fee matter because that's what it is in these clients' minds. If you take the case and lose, the client will not pay you."

Winning such a case isn't much better, in Storm's view: "If you take it and win, the client will file an ARDC complaint and a malpractice action." Why? "Because this client is a deadbeat."

Not everyone accused of not paying according to the terms of a contract is a deadbeat, Storm acknowledges. But "you have to be careful you don't become the next person in line behind all the others who say this guy didn't pay them according to their contract."

For those considering taking on chiseler clients, Storm advises, get the money up front. "The true chiseler is not going to pay you up front. He is shopping for an attorney who will fall for the contingency arrangement. Only the attorney doesn't realize it's a contingency arrangement until the end of the case."

The three Cs: communicate, communicate,…

The final biggest business mistake on Storm's list will sound familiar to anyone who's read the Attorney Registration and Disciplinary Commission's annual reports of most common reasons for client complaints: failure to communicate. "Confused, angry, and uninformed clients are a major disciplinary concern for lawyers. This does not have to be."

Keeping clients informed about their matters is the minimum, general requirement for attorneys under RPC 1.4. But Storm provides more specific guidelines for lawyers than the rule. "Keep the client informed before and after taking an action. Get the client involved in the decisionmaking process."

The flow of information is two-way traffic that lawyers must manage, he says, because lawyers need not only to keep their clients informed but also to make sure that they're informed of what their clients want. "Keep the client satisfied and document it. That's much easier in the age of e-mail than when we had to write a [snail mail] letter following up on every conversation."

Follow Storm's directions to communicate and document, and "It will be much less likely that the client will complain at the end, because he was kept involved at every step. And it will be much harder for the client who does complain to make a good case, because you'll have a record showing at every step what was done."

 

Helen W. Gunnarsson, a lawyer in Highland Park, is an Illinois Bar Journal contributing writer.

2011 ISBA Solo and Small Firm: "I really believe in this conference"

For more tips from Tim Storm and MCLE credit to boot, view his presentation The Biggest Business Mistakes Lawyers Make and How to Avoid Them on Friday, October 28, 2011, at the ISBA's Solo and Small Firm Conference in Springfield (www.isba.org/soloconference). He'll first identify and explain each problem and then take it apart to show what kinds of mistakes commonly flow from it. After that, he'll discuss what business strategies lawyers can use to avoid those common mistakes.

Storm, who chaired the Hanging Out Your Shingle track for this year's conference, is enthusiastic about the programs on tap at the October 27-29 event. "This is one of the really great things that ISBA does for solo and small firm lawyers. SSF is a phenomenal CLE event and offers networking opportunities with other lawyers, making it a special and unique conference."

A highlight of this year's conference is plenary speaker Chief Justice Thomas Kilbride of the Illinois Supreme Court. "We think it's a terrific match to have a chief justice who was a sole practitioner before going on the court deliver the keynote address," Storm says

Referring to his own solo practice, Storm says, "Lawyers, especially those in solo practice and those in litigation, can often feel disconnected from the practice of law. Much of the time their only contact with other lawyers may be friction, because they're handling cases in conflict. SSF is a way for lawyers to come together in a cooperative way, get 12 hours of CLE all at once, and get to engage with other lawyers who are also in solo or small practices.

"Law is not just a bunch of people independently running businesses around the state - it's a practice and a profession," Storm says. "It's important to get together with other lawyers in similar situations and engage with them. I really believe in this conference."


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