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Best Practice Tips

Asked and Answered

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

Q. I am a senior associate in an eight-attorney elder law firm in Miami. There is one owner (founder) and seven associates including myself. The owner has approached me with a proposal to over time buy out his interests. I am the only senior associate in the firm and the only associate that he has approached concerning selling his interests. Specifically his proposal is as follows:

  1. Pay him $825,000 for the practice over five years.
  2. After five years I will own 100% of the shares.
  3. My compensation arrangement will remain the same (salary plus formula percentage incentive bonus based upon my responsible attorney collections) until I have acquired 100 percent interest of the firm.
  4. The owner wants to work in the firm indefinitely after his interest are acquired as an employee or Of Counsel.

I don't know how to respond to this proposal and would appreciate your thoughts? Is it fair? Does it make sense?

A. It makes sense for him. Seriously, you are going to need much more information than this proposal.To get started you need to ask for and review the following:

Asked and Answered

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

Q. I am a new law firm administrator for a 16-attorney firm in Chicago. This is my first law firm and after attending a few partner meetings I am concerned about how and where to start getting some ideas and projects implemented. I have a lot of ideas and would appreciate your suggestions.

A. Lack of focus and accountability is one of the major problems facing law firms. Many times, the problem is having too many ideas, alternatives and options. The result, often, is no decision or action at all. Ideas, recommendations, suggestions, etc., are of no value unless implemented.

Look for ways to insure that all time spent on management is spent wisely. At first identify a few (maybe three) management initiatives that you can move forward fairly quickly and get implemented. Then build upon these successes.

Don’t hide behind strategy, planning, and endless debate. Attorneys love to postpone implementation. Find ways to focus the firm and foster accountability from all.

  • Keep strategy and planning simple.
  • Undertake a few projects at a time that can be realistically accomplished.
  • Delegate tasks across the firm.
  • Build upon initial successes and move to more complex strategies, which will require more difficult degrees of change.
  • Adopt management structures that enable the firm to act decisively and quickly. Replace structures that do not support such a culture.

Don't attempt to initially, in the short term, take on management projects that the firm is unwilling or unable to implement.

Asked and Answered

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

Q. I am a partner in a three attorney litigation firm in Boston. Two of us are partners. We are in our fourth year in practice after leaving a very large firm. We are concerned that we could be doing better financially. We are haphazard in our record keeping, have no goals, and are not even sure what numbers matter. What are your thoughts are to the key number (metrics) for a small firm like ours?

Asked and Answered

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

Q. I am the sole owner of a three attorney firm in San Francisco. I started the firm seven years ago. We are an estate planning firm. Everyone is working hard and putting in the hours but we are not making any money. I am only making around $110,000 net income/earnings after overhead. Should I take a meat ax to my expenses?

Asked and Answered

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

Q. Our firm is an 8 attorney general practice law firm located in Kansas City, Mo. Five of the attorneys are equity partners and the other three are associates. The two founding partners are the only ones in the firm that bring in clients - the other partners are just workers. Currently the partners are paid based upon their collections for cases/matters to which they are assigned. They are also credited for work that others do on their assigned matters as well. We are concerned that in a general practice firm such as ours, everyone must be bringing in clients and we are considering changing our compensation system to factor in credit for client origination. I would appreciate your thoughts.

Asked and Answered

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

Q. I am the managing partner in a 12-attorney firm in Chicago. We have six partners and six associates. We are a boutique litigation firm. Three of our partners are in their mid to late 60s and should be thinking about retirement, but they seem to be in denial. How do we begin to address this issue?

Asked and Answered

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

Q. I am the sole owner of a debtor bankruptcy practice. I have one other attorney and three staff members. Last year we spent $50,000 of advertising. Our fees collected were $550,000 and Net Income was around $160,000. Are we spending too much?

A. You are spending 9% of fee revenue. I believe that in a consumer practice such as personal injury and debtor bankruptcy you have to spend around 10% of fee revenue to get the business you need to sustain the practice. I have some practices spending 19% of revenue.

So, I don't think you are necessarily spending too much if the advertising is working for you. You have to constantly measure the ROI on your advertising and fine tune it when needed.

Also, insure that the business is actually coming from the advertising - in other words don't advertise to get business you would have had anyway or in a market that you have saturated and more advertising will not yield any additional business.

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Asked and Answered

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

Q. Our firm is a six attorney personal injury plaintiff located in Kansas City. We have been in practice for 20 years and the firm has been very successful. However, in the last few years the cases are getting larger, more complex, and really putting a drain on our cash flow. We are always into our credit Line. Your thoughts would be appreciated.

A. Cash flow has always been a challenge for contingency fee practices. However, times are getting harder. Insurance companies are refusing to settle personal injury cases, stretching out timelines for paying out cases they do settle, paying less, and becoming even harder to deal with. Other contingency fee practices are also facing similar challenges and everyone is finding it harder to find adequate lines of credit. Many firms that were once 100% contingency fee practices are looking for ways to improve cash flow implementing different fee arrangements or by adding non-contingency fee practice areas.

I suggest that you evaluate ways that you might re-balance your case portfolio to say 60% contingency/time-bill mix. You might consider:

Asked and Answered

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

Q. I am the managing partner of a 14 attorney firm in Los Angeles. We are primarily a transactional practice and we are considering looking for a litigation firm to merge with our firm. I would appreciate your thoughts on locating merger candidates.

A. For larger firms that have a talent or book of business void or solo practitioner and sole owners’ merger is often an appropriate strategy and approach. It all comes down to the finding the right firm, the right culture, and the right fit. The search process can take time as we.Here are some suggestions to help get the search process started:

Asked and Answered

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

Q. I am a solo attorney in upstate New York. My practice is limited to estate planning, estate administration, and elder law. I have just hired my first associate and am trying to get a sense of the number of billable hours I should expect her to produce. Your comments would be appreciated.