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Best Practice tips

Law Firm Overhead and Profit Margins

Posted on May 2, 2018 by Sara Anderson

Asked and Answered

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

Q. I am an attorney in New Orleans who has been in practice for ten years. I practiced with a small firm for eight years as an associate and then opened my own firm two years ago. I primarily work from home supplemented with a virtual pay-as-you-go office. I do not have any staff employees. I have been approached by a 14-attorney firm that would like me to join their firm as a partner. Their offer includes a salary that I feel is low and a bonus based upon a percentage after covering my salary, other direct costs, and indirect firm overhead. The overhead allocations seem extremely high to me. In my practice, I am bringing in around $100,000 in gross fees and my overhead averages $10,000-$15,000 per year. My profit margin is around 90 percent. I feel like I am better off building up my practice rather than accepting their offer. What are typical overhead and profit margins for law firms?

Law Firm Management Committee vs. Full Partnership

Posted on April 25, 2018 by Sara Anderson

Asked and Answered 

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

Q. I am a partner in a 14-attorney firm in San Antonio, Texas. We have eight partners and six associates working in the firm. The firm was founded 20 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 who primarily handles the accounting and  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.

Subjective Law Firm Partner Compensation Systems

Posted on April 18, 2018 by Sara Anderson

Asked and Answered

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

Q. I am a partner in a 12-attorney commercial litigation law firm in Palm Beach, Florida. There are five partners in the firm. We are contemplating merging with another firm in the area of similar size. We have done our due diligence and have come across a possible non-starter—our compensation system. Our compensation system is an objective, formula-based system. The other firm has operated under a subjective system and they are pushing for the firm to operate similarly. We would appreciate your thoughts on this method of compensation.

Associate Attorney Motivation

Posted on April 4, 2018 by Sara Anderson

Asked and Answered

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

Q. Our firm is a 14-attorney firm in Chicago. There are nine partners and five associates in the firm. Our practice is limited to insurance defense. I am one of the founders and senior partners in the firm and have been practicing for 35 years. We are having problems getting our associates to produce at the levels that we need for the firm to be profitable. We have an annual 1,800 billable hour requirement and several of our associates are not even close. We have a bonus system that pays associates a bonus based upon billable hours exceeding 1,800 billable hours. What are we doing wrong?

Law Firm Growth Planning

Posted on March 28, 2018 by Sara Anderson

Asked and Answered

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

Q. I am a partner in a six-lawyer insurance defense litigation firm in Jackson, Mississippi. There are three partners and three associates in the firm. Our firm has been at its present size for many years, revenues have been flat, and profits have been shrinking. The partners have been discussing the pros and cons of growth and we would like to significantly grow the practice. A couple of our insurance company clients have asked us to open offices in other states and we are giving this consideration. Initially, we would open two other offices and we anticipate that this would require us to hire six additional attorneys. We appreciate any thoughts that you have.

Best Practice Tips: Law Practice Acquisition Proposal

Posted on March 21, 2018 by Sara Anderson

Asked and Answered

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

Q. I am a partner in a three-partner, six-attorney firm in Chicago. We have had discussions with another law firm in the city regarding us acquiring their practice. The owner is 70-years-old and wants to retire and exit his practice. My partners and I have looked over the numbers and believe this would be an excellent opportunity for us to expand our client base. The practice handles the same type of work that we do. We are unsure what our next step should be. Do you have any suggestions?

Best Practice Tips: Attorney Career Progression

Posted on March 14, 2018 by Sara Anderson

Asked and Answered

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

Q. I am a member of a three-member executive committee with a 12-attorney firm in San Antonio, Texas. One of our responsibilities is oversight of our career development program for associates and non-equity partners. We have been discussing our policy of admitting associates to non-equity partner and non-equity partners to equity partner. Presently, we do not have anything in writing regarding timeline for consideration or what qualifies one to move to the next level. Associates and non-equity partners are unhappy with the present process. They want more clarity concerning their career advancement within the firm. Your advice would be helpful to us.

Best Practice Tips: Demonstrating Expertise Through Marketing

Posted on March 7, 2018 by Sara Anderson

Asked and Answered

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

Q. I am a new non-equity partner in a 16-attorney firm in Phoenix, Arizona. My equity partners are telling me that I have to do more than generate billable hours and perform quality work for clients. They now expect me to bring in clients. Where do I start?

A. I often advise attorneys that while what you know is important what you want to be known for is more important. Just having your name known is pretty useless unless it is known for something. For example, it is best to be known as an outstanding personal injury plaintiff lawyer – not just a good lawyer. In law firms it is the reputation for expertise that matters, not just the reputation. Therefore, a successful marketing program must project and demonstrate expertise. This can be accomplished in the following ways:

Best Practice Tips: Selling My Law Practice to My Associate

Posted on February 28, 2018 by Sara Anderson

Asked and Answered

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

Q. I am the owner of a general practice firm in Chicago’s west suburbs. My firm has three associate attorneys and three staff members. I am 64 and contemplating my retirement and exit from the practice. I would like to start phasing back over the next three years and be out of the practice by December 31, 2021. There is one associate in the firm to whom I would like to sell the practice and he has expressed an interest as well. What are your thoughts as to how I approach this?

Best Practice Tips: Law Firm Staff Work Distribution Analysis

Posted on February 21, 2018 by Sara Anderson

Asked and Answered

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

Q. I am a new firm administrator with a 35-attorney litigation firm in Los Angeles, California. The accounting department has seven staff members handling a variety of tasks. My partners are concerned that we are inefficient and over-staffed. I am having a hard time finding where to start so to get a handle on this issue. Please provide any information that you are willing to share.

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