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Best Practice tips

Best Practice: Financial strategies for surviving in the present economy

Posted on May 26, 2010 by Chris Bonjean
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. We are a 12 attorney firm located in the midwest. We are concerned about the impact that the economy is having on our practice and the current business environment. Our business is down and we are unsure what we should be doing financially to evaluate and improve performance - and survive. A. Management of cash flow is critical. Here are our suggestions of how to examine where you are based upon receipts and your pipeline of future collections: Monthly Billings Are you budgeting your fee billings? Are your billing and collections on track? Are your individual attorneys and other producers meeting their revenue goals? Why not? Collections and Receipts Are your collections in alignment with your cash requirements for firm expenses, client advances, loan repayments and attorney draws? Remember - the total expenses listed on the income statement does not represent all of your cash requirements. Balance sheet accounts such as partner draws, client advances, purchase of assets (equipment), and payments on loans also involve uses of cash and must be taken into consideration. Typically, there is a lag of three months between the time you incur expenses and do work for a client and receive payment. Be aware of potential cash deficits. Costs How are your actual expenses/costs tracking against your budget? Are you within your budget? If not - why? Investigate reasons. If over budget, should you cut costs or is there a way to increase revenue? Sometimes you have to spend money in order to make money. Which costs should be cut - and which should not? Be careful cutting marketing/client development investments. Accounts Receivable Are they increasing or decreasing? What percent are they of your annual billings? Fifteen percent is high - five percent is within the range of acceptability. Uncollected accounts can sink the firm - stay on top of them with an effective management system. Deal with collection problems early - formulate a client acceptance/credit policy - get retainers up front - reject problem clients from the onset.

Best Practice: Types of partner compensation plans

Posted on May 19, 2010 by Chris Bonjean
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. We are a four partner law firm on the west coast. Currently we each have a 25% partnership interest and we cut up the pie in accordance with these interests. Recently, our contributions have changed and we are considering other approaches to compensation. What are some of the systems in use by other law firms? A. Compensation plans in use in law firms run the gambit. But here are the typical approaches: Subjective Plans which review the performance of each partner and subjectively determine a relative value for each partner. These plans require evaluation of the individual, comparing the evaluation against those of all other partners and relating the determinations to available funds. Some firms use a democratic process in which each partner participates in the process and others use a committee to perform the evaluation. Increasingly, partners are required to submit personal business plans each year which must be approved by the partnership, executive, or compensation committee. Formula – Objective Plans which use a formula to assign value to various criteria to determine compensation. Approaches can range from eat-what-you-kill plans that focus only on a partner’s individual production to plans that assign values to the full range of compensation criteria. Some eat-what-you-kill plans employ a profit center approach in which each partner is set up as a department in the accounting system and fee revenue is assigned based upon generation, and indirect and direct overhead is allocated based upon a predetermined usage formula.

Best Practice: Top priorities for new firm administrator

Posted on May 12, 2010 by Chris Bonjean
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. I am a new administrator with my law firm. I am also the first administrator that the firm has had. Do you have any suggestions as to where I should start? What are my priorities? A. As a first administrator you will face a dual challenge. You will have to justify the new position as well as yourself and your performance. You will be second guessed and partners will from time to time question whether a legal administrator was necessary or wise. There will be problems with role clarification. Suggest that you insist on a job description for yourself and a governance plan that outlines the authority and responsibility of the administrator, the managing partner, the executive committee, and the partnership. This will set the boundaries. On your first day at work suggest that you start by meeting with all of the personnel. Meet individually with the partners and associates and get to know them, their desires and hidden agendas. Initially conduct a get acquainted meeting with the staff and then meet with each staff member individually. Discuss their jobs and their duties. Ask for suggestions. Work with the bookkeeper and get up on the accounting operations as quick as you can. Learn the office computer system. Initially your two biggest priorities will usually be personnel and accounting. Read the minutes of firm meetings and office administrative files. If you are weak in accounting and computers obtain whatever additional training that is required.

Best Practice: Client Survey – Insurance Defense Firm

Posted on May 5, 2010 by Chris Bonjean
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. Our insurance defense law firm is considering doing a client survey. What type of responses might we expect? A. We recently completed telephone interview surveys for several insurance defense firms. Here is an illustration of some of the qualitative responses:
  • The firm generally does fine work. I don’t use them as often as some other firms because their bills run higher, primarily because of associate activity. Research takes a long time.
  • Attorneys need to be more aggressive and pro-active.
  • Primary problem is responsiveness, consistent failure to follow-up on questions, promised information. The firm seems strong in Workers Comp, weak in other areas.
  • Our office has had great difficulty in receiving return calls from several attorneys and, when approached, have been advised by those attorneys, "Sorry but we’ve been extremely busy," then they promise to get info and call and they don’t call again. For these reasons, we’ve begun using other firms. Also review of our file materials needs to be reviewed closer. Info requested sometimes has been included already.
  • We want to work with firms that aren’t afraid to try cases.
  • Sometimes it appears that claims are handled very routine while more imagination and new approaches should be explored.
    John W. Olmstead, MBA, Ph.D, CMC, is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics.

    Best Practice: Training and use of technology

    Posted on April 28, 2010 by Chris Bonjean
    Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. We recently implemented a new computer system and spent a lot of money on initial software training. However, our attorneys and staff must have forgotten everything they learned. It seems that they are only using a fraction of the software’s capabilities. A. Training and skill development is not easy. Studies reveal that 90 percent of the people who attend seminars and training sessions see no improvement because they don’t take the time to implement what they learn. Practices create habits and habits determine your future. Up to 90 percent of our normal behavior is based on habits. The key to skill learning is to get the new skill to become a habit. Once the new habit is well developed it becomes your new normal behavior. This requires practice. Unfortunately, law firms do not give employees time to practice and experiment. Research on memory and retention shows that upon completion of a training session, there is a precipitous drop in retention during the first few hours after exposure to the new information. We forget more than 60 percent of the information in less than nine hours. After seven days only 10 percent of the material is retained. Most memory loss occurs very rapidly after learning new information. Your employees can improve their memories by:
    • Engaging in rehearsal/practice
    • Scheduling distributed practice
    • Minimizing interference
    • Engaging in deep mental processing
    • Emphasizing transfer
    • Organizing information
    Skills become automated through practice.

    Best Practice: News rooms on web sites - Generating media attention and interviews

    Posted on April 21, 2010 by Chris Bonjean
    Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. More and more law firms are using web sites. Where are these sites falling short? What about news rooms? What are your suggestions? A. There is another audience besides clients and prospective clients. That audience is the media. Law firm web sites need to direct more focus on the media and recognize the benefit of effective public relations. Law firm web sites should incorporate first-rate online press rooms. The first wave of law firm web sites was often the brainchild of the marketing department or the attorneys. As a result reporters were often forgotten in the rush to publish.  However, for most firms, the news media is a clear and well-defined audience. What type of information should we provide that is key to this audience? Contact Information Too many web sites bury any contact information, much less specifics on whom to call for an “on the record” statement. Many sites, if they include any contact information, will only include an address, phone and fax – no names. If you want to make friends with the media, make it easy for them to call (or e-mail) you. Whether it is a link from the home page, or an easily-found link in the “about us” or “news” sections of your web site – give the media basic information about branch offices – along with names and phone numbers. Don’t forget the area code. If you are concerned about e-mail overload, set up a special e-mail address for media inquiries (but make sure that it is checked more than once a day).

    Best Practice: How can we determine if our partner compensation system is working?

    Posted on April 14, 2010 by Chris Bonjean
    Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. Do you have any suggestions concerning how we can determine if our compensation system is functioning properly? A. You can start with the following firm - self-test. Has the firm experienced or is it experiencing:
    • Partner defections
    • Firm splits and breakups
    • Personal fiefdoms
    • Maverick partners
    • Hoarding work
    • System perceived as unfair
    • Problems acquiring and retaining top legal talent
    • Low productivity
    • Low profitability
    • Client dissatisfaction
    • Low morale
    • Disputes with former partners
    If your firm is experiencing or has experienced the above symptoms, it is time to really examine where the firm is headed and what messages your compensation is sending out to your partners. Is the firm trying to be a firm or merely a group of lone rangers. It is not just a matter of whether people are happy with their compensation – it is also a matter of whether the firm is achieving its goals and targets. John W. Olmstead, MBA, Ph.D, CMC, is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA General ListServ, which John and other committee members review, or view archived copies of The Bottom Line Newsletters.

    Best Practice: Getting control of the financial side of your practice - Part II

    Posted on April 7, 2010 by Chris Bonjean
    Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC In my March 10 post, I discussed financial implications when law firm owners and partners do not have a working knowledge or a handle on the financial side of their practice and are held “hostage” by their bookkeepers. Here is an e-mail that I received from an attorney in Chicago that offers additional insight on this topic. “Regarding the heavy-handed bookkeeper, I read your column and it struck a nerve. I agree with your advice on this one but would add one point. If you are not happy with the person handling your firm's finances, make a change. Do it. You will be happier within 45 days and much happier within six months. If the problem is with the accountant taking control over the books and treating them as his or her personal fiefdom, then the members of the firm should sit down and determine whether the problem should be treated as an accounting problem or as an HR problem? From where I am sitting, it appeared to be the latter. If the problem is in fact an HR problem -- and this is especially true with the accounting function of a firm -- a firm should never hesitate to make a change in accountants. Doing so will be the only practical solution to what is a personnel problem, as opposed to an accounting problem.

    Best Practice: Why do law firm mergers often fail?

    Posted on March 31, 2010 by Chris Bonjean
    Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. Our firm has been discussing the possibility of merging with another law firm of similar size. We are a 25 attorney firm. We have heard horror stories of firms that have merged and been unhappy with the experience. Why do mergers fail and what should we look out for? A. There can be a whole list of reasons for failure including poor financial performance, attorney defections, loss of key clients, and leadership and management issues. However, it has been our experience that most failures have been the result of poor cultural fit. The merging firms - after they have moved past conflict checks and excitement about new client potential - jump immediately to an examination of practice economics and the financials. They fail to perform proper due diligence on the people. It is critical that firms insure that cultural due diligence is a key component of the merger assessment process. Philosophies, personalities, and life styles should be generally compatible. The partners should like each other and the deal should make sense. Do all the due diligence that you can - start with the people - then move through the rest of the process. John W. Olmstead, MBA, Ph.D, CMC, is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics.

    Best Practice: What is primary financial problem for most firms?

    Posted on March 24, 2010 by Chris Bonjean
    Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. Our firm, a seven attorney personal injury firm in the southwest, seems like we can never get to the next level financially. Do you find that excessive overhead (expense) is the major problem for law firms? A. Not really. In fact, in many cases I find that law firms should be making larger investments in their future and spending more money. Often monetary and time investments in marketing, talent, and technology are insufficient in many firms. The problem in most firms is insufficient leveraged fee revenue. In other words - many small firm practitioners - only think in terms of whether they have adequate work to keep themselves busy - they do not think in terms of being a net exporter of work so they can keep themselves busy plus two or three other attorneys and or paralegals. A well leveraged practice is what takes you financially to the next level. In reality - more marketing is needed - to create a sufficient volume of work to support this leverage. Once this is accomplished - attorneys must learn how to manage and supervise others - and the compensation system must shift emphasis from personal working collections to responsible (billing attorney) collections. John W. Olmstead, MBA, Ph.D, CMC,  is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics.