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Asked and Answered

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

Q. Our firm is a personal injury plaintiff law firm located in Austin, Texas. We have 4 attorneys in the firm and all are partners who have been practicing for over 25 years. One hundred percent of our practice is PI plaintiff. We have been extremely successful over the years and handled some very large cases, have had some big wins, and handled several class action cases. Our current challenge is cash flow. The cases we are involved with seem to be bigger and more complex with fewer smaller cases that can be resolved quickly and contribute to cash flow. We are getting in deeper to our line of credit. Of late we have been discussing pros and cons of diversifying the practice and adding a non-PI practice area to our practice. What are your thoughts? Have you seen PI plaintiff firms do this successfully?

A. More and more of our PI plaintiff law firm clients have been raising this question during the past year. While a lot can be said about specialization - a firm can also sometimes be too specialized. I have seen many hybrid firms over the past 20+ years that have successfully combined a plaintiff personal injury practice with a transactional practice.

As one firm told me "we transactional folks bill the hours and pay the bills while we turn the PI folks loose to go after the big hits." Firms that operate the firm as a "firm-first" firm tend to be more successful with such a practice mix than do firms that are "lone ranger" firms operating as a collection of individual practitioners.

You fear Mrs. Jones has diminished capacity. Can you allow her to make a decision you advise against? Must you? In the November IBJ, Kerry Peck explores this and other issues, like conflict of interest and confidentiality, that arise in serving elderly and other estate-planning clients.

Asked and Answered

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

Q. I am a solo owner of a small law firm in Southern Illinois and have been solo for ten years. I have two staff members in the firm. Recently I have been contemplating either bringing in a partner or joining another firm? What are the advantages and disadvantages?

A. Partnership can offer its lawyers a measure of value independent of the skills, talents, and contributions of its individual partners?

Pros

The advantages that the best law firms have over sole practitioners or groups of lawyers who share overhead include:

  • Shared skills and expertise
  • Backup or additional help when needed
  • A safety net during economic downturns
  • Shared resources, such as technology, library and research access, forms, and work products
  • Cross-selling and/or referral of work
  • Access to the expertise of lawyers in various disciplines
  • Highly trained associates, legal assistants, and support staff
  • A firm name or reputation that makes marketing easier
  • More-sophisticated and highly skilled management
  • Opportunities for individual lawyers to become highly specialized
  • A system of partner coaching that brings out the best in each partner
  • Emotional support, encouragement, and personal recognition
  • Flexibility that allows lawyers to be more involved in probono, community, and bar activities
  • Continuation of the firm beyond the tenure of the current owners

Cons

How many lawyers really know where they want to take their practices? How many have a strategic plan, complete with a mission, goals and an action plan flowing from that mission, and a system for measuring success? Find out why you should be one who does in the November Illinois Bar Journal.

Asked and Answered

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

Q. We are a five attorney personal injury plaintiff firm in central Missouri. In the last few years we have gone through tort reform, increased competition from other law firms doing extensive advertising, and now trying to weather the recession. From a profitability standpoint - we are holding our own. However, we are concerned about the future. What are your thoughts for firm such as ours?

A. We are hearing this question quite often and have provided some thoughts in past blogs and articles. The majority of our PI law firm clients are advising that they are having to work much harder at getting clients and investing more heavily in marketing - both time and money. PI firms were feeling the most of these challenges before the recession. However, the recession may accelerate the pace with which law firms re-evaluate existing processes and consider new business models. PI firms may want to begin by:

1. Develop a firm strategic plan and individual attorney marketing plans which include aggressive network/contact plans for past clients, attorney referral sources (non PI attorneys), attorney referral sources (other PI attorneys), and other referral sources.

2. Evaluate the feasibility of adding an additional practice segment to reduce the level of risk in the case portfolio and reduce cash flow variability.

Asked and Answered

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

Q. I am the managing partner of a 24 attorney firm in San Francisco. We are becoming frustrated at our inability to achieve a consensus and make timely decisions on matters of firm policy, strategy, marketing, and management. We are missing out on opportunities. We have no management scheme and no one to lead the charge -- no team effort. The attorneys can't decide anything and firm management is a free for all. Things don't get done because no one is responsible. Conflict exists because anyone may be in charge. We are strong on ideas but weak on implementation. We lack leadership and focus. What are your ideas regarding leadership? Where should we start?

A. This is a common in firms of all sizes. In general, the foundation of leadership is built upon exhibited behaviors illustrating a proven track record of trust, respect, and accountability. These are the building blocks required for the development of leadership practices. Without these building blocks leadership cannot exist or be developed. The law firm culture must be nourished in such a way as to support these behaviors. These behaviors must become a part of everyday practice in dealing with clients as well as partners and others within and outside of the law firm. Law firm leaders must develop and practice the following behaviors:

The pick-off move isn't limited to baseball, as Hon. James Fitzgerald Smith and Sonja Dimitrijevic explain in the latest issue of the ISBA's Trial Briefs newsletter.

In class action cases, defendants "pick off" a class representative by tendering him or her complete relief before the class is certified. That moots the class action and "compel[s] plaintiff’s counsel to seek another class representative, which is frequently tricky," the authors observe.

Appellate courts, not fans of the move, developed a pick-off exception that allowed the class to be certified despite the tender. But the supreme court put a stop to that this year in Barber v. American Airlines, "explicitly rejecting the 'pick off' exception" and reaffirming "the 'pick off' rule, under which a tender prior to certification automatically results in the mooting of the class action," Smith and Dimitrijevic write.

They go on to discuss Gatreaux v. DKW Enterprises, LLC, a first district case from last month that implements the Barber pick-off rule. Read their analysis.

Tim Storm reveals the dark and dirty truth in the first paragraph of his column in the latest General Practice, Solo & Small Firm newsletter.

"I remember a moment during a session of my bar review course many years ago. The instructor paused in the midst of his lecture, turned to the audience of recent law school graduates and asked: 'Don’t you hope that new doctors know more about practicing medicine than you know about practicing law?' The wave of nervous laughter sweeping the room showed that the others were thinking just what I was."

Law schools -- most of them -- teach graduates how to "think like lawyers" but not how to be lawyers. Immediately after law school comes the bar review, closely followed by the bar exam. "Most everyone else in the [review course] knew that they, too, had no business being unleashed on the public as full-fledged attorneys," Storm writes. "And yet that was exactly what was about to happen for the 80 percent or so of us who would pass the bar."

We've lived with this approach for decades. What's different now? "The proportion of new graduates who will hang out their own shingles continues to grow," Storm writes. He sympathizes with them, and with the "judges, other attorneys, and clients who may encounter those who hold the same license to practice as the rest of us, but who have never been fully socialized into the practice of the learned profession."

What is to be done? Read Storm's insights and suggestions.

 

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

Q. As the administrator of our 17 attorney law firm, I am charged with the responsbility of managing and controlling costs. Our management committee is always complaining about our overhead - and then looking to me for solutions - with the focus usually on cost reduction. Do you have any recommendations?

A. I am often asked to help law firms design and implement profitability improvement programs. In most of my engagements the real problem is insufficient gross income and lack of sufficient investment (spending and time) on marketing and initiatives designed to stimulate client and revenue growth. For most firms increasing revenues is the most effective way of impacting the bottom line. However, we do find that there is waste and unnecessary overhead that eats away at profits and a cost control program is also recommended and implemented. During recessionary times such as we are currently facing – drastic cost controls are often the only option. Reducing overhead can immediately and effectively improve a firm’s bottom line.

The first step in an expense control program is to identify those areas where potential savings exist. Review your profit and loss statement. Resist the temptation to arbitrarily cutting costs which could cut the muscle with the fat and result in revenue loss as well. You have to spend money to make money – so if cost cutting is the appropriate strategy – cut the right costs. Think strategically about cost reduction.

After you have identified areas where savings can be made prioritize and develop specific strategies and implement action plans to achieve the savings.

 Here are a few ideas:

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

Q. Our five lawyer firm has had a very successful past couple of years. We have been growing in terms of clients, billings and revenues. However, we are getting deeper into our credit line and we simply don't have adequate cash to pay our bills. I would appreciate your thoughts on this matter.

A. Sounds like you are caught in the growth-cash flow trap. Growth puts strain on cash and increases demand for additional working capital. There have been many law firms and small businesses that were profitable - but failed due to simply running out of cash. While you cannot escape this paradox - by actively managing your cash flow (timing of the intake of cash against the outflow of expenses) you can minimize the impact of the following traps:

1.     Lack of Attention Paid to Financial Management. Many law firms, especially solos, often give this task a low priority on their to do list. Servicing clients and new client development are given higher priorities. There is often a lack of understanding of financial reports and statements. Understanding financial reports such as income statements v.s. cash flow statements are important is providing early detection of potential cash problems requiring corrective actions. Law firms should develop reasonable monthly, quarterly, and annual cash flow projections as well as income and expense projections.