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Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. I am a partner in a 14 attorney firm. Our bookkeeper has been with us for 20 years. We have a time and billing system, a separate bookkeeping system, and a separate database for clients, and something else for trust accounting. The other partners and myself do not know the name of the software that we are using, don't know how to access the software, and we have to ask the bookkeeper for any financial information that we require. We feel like "hostages". She gets offended when we ask questions. When we do receive information we don't know how to read or interpret much of the information. How can we get control of our firm back? A. It is imperative that owners and partners in a law firm have access to financial information on a timely basis, understand the information, and use the information in a proactive way to manage the practice. We suggest:
  • The owner, or an appointed partner(s) in larger firms, obtain a basic level of understanding in basic accounting/bookkeeping and law firm financial management.
  • The owner, or an appointed partner(s) in larger firms, obtain detailed training on the accounting software system(s) along-side the bookkeeper when the system is implemented.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. We are currently using an “eat what you kill” compensation system in our firm. Is this appropriate method for our firm to use? A. It depends. You must ask yourself what kind of firm you want to be – a team-based firm or a group of space sharers or a partnership of individual firms. Such systems are not appropriate for law firms that want to build a firm and create a team-based practice since such compensation systems typically reinforce “lone ranger” behavior resulting in a “me first vs. firm first” orientation. It is hard to build a team-based firm with such an orientation. However, some firms do not want to practice as team-based firms – they want to practice as groups of individuals. For these firms such a system may be appropriate. The challenge will be to nail down a method of allocation revenue and overhead that is fair and equitable to all members concerned. Compensation systems should do more than simply allocate the pie – they should reinforce the behaviors and efforts that the firm seeks from its attorneys. Many firms are discovering that desired behaviors and results must go beyond short term fee production and must include contributions in areas such as marketing, mentoring, firm management, etc. to ensure the long term viability of the firm. Eat-what-you-kill systems discourage these behaviors. John W. Olmstead, MBA, Ph.D, CMC, is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. I am an attorney that has been in practice for 10 years with a large firm (200+) in the Midwest. I represented fortune 500 clients in the area of business and commercial transactions. I was a non-equity partner in the firm. Recently I was let go due to the economy and I have no idea when or whether I will ever be called back to work. For three months I have been applying for positions with no success. I am considering starting my own solo practice. Where and how should I start? A. Being an attorney in solo practice will be a much different experience than what you are used to. You will have to handle more of the nuts and bolts of running and operating a practice. You will not have people to do everything for you like in your last firm. You will need to learn how to be an entrepreneur and think like a businessman. First, I suggest that you give some thought as to whether you have what it takes to operate your own firm and plan out your business. The best way to go about this is with a business plan. Click here for an article on the subject. After your have developed your plan, begin developing your business identity, firm name, tag line, website domain name and related graphic package.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. I do a good job of collecting initial retainers before doing work for my family law and criminal clients. But then I fall behind on retainer replenishments. Do you have any thoughts or ideas? A. This is a common problem I hear from clients in all practice areas. Here are a few suggestions:
  • Try to collect a larger retainer initially.
  • Actively push the use of credit card.
  • If it is capable, set your time and billing system to alert you when you are at say 85%-90% of time used. Some systems will alert you when entering a time sheet after this level has been reached.
  • Have someone assigned to review your Work in Process Report daily to identify any client reaching the 85%-90% level and notify you accordingly.
  • If more work is to be done insure that the client is promptly billed for additional retainer before work reaches the 100% mark.
  • Consider billing the client electronically if this is a method that works for the client.
  • Postpone work until an additional retainer is received. If this course is chosen insure that this does not violate any ethical guidelines or responsibilities.
  • The key here is assigning someone the daily responsibility of monitoring retainers, having a good time and billing system, and using the management reports from the system to stay on top of retainer usage.
John W.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. We are a small four attorney firm and recently lost a secretary that had also been doing our billing and bookkeeping. Frankly, while we have been using a secretary for this function in the past – we believe we need to hire someone with more accounting skills than we have had in the past. What should we be looking for? A. Many law firms in the six attorney and under size have shared with us their frustration in staffing the billing and accounting function. Often their investment in computerized billing and accounting systems fails to yield desired results due to poor accounting and management skills. Many small law firms assume that legal secretaries also have requisite accounting and management skills. This author’s experience has been that often this is not the case. Training, skills, and work behaviors are often different. Bookkeepers/accountants and secretaries are different animals. Many small firms are better off creating an accounting/bookkeeping position and staffing the position with a qualified bookkeeper/accountant. For many firms under six attorneys that have fully automated the billing and accounting function and have distributed time entry, this is not a full-time position. In such instances many firms have either recruited a part-time bookkeeper/accountant solely for the accounting function or have created a combined position of office manager/bookkeeper. This justified a full-time position.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. We are a small six attorney litigation firm. We have two partners and three associates. One of the partners wants to retire within the next five years. The other partner will continue to practice for another 10-15 years. We love practicing law and consider ourselves to be very good lawyers. However, we find firm management and administration to be a challenge and we are not skilled in this area nor do we want to be. We have a good book of business and clients. Recently, we began discussing the possibility of merging with another law firm. What are your thoughts about firms like ours merging with another law firm? A. Obviously, merger or acquisition of law firms is becoming more and more commonplace. Hildebrand reported 57 completed mergers/acquisitions in 2009 in firms with five or more attorneys). However, research indicates that 1/3 to 1/2 of all mergers fail to meet expectations due to cultural misalignment and personnel problems. Don't try to use a merger or acquisition as a life raft, for the wrong reasons and as your sole strategy. Successful mergers are based upon a sound integrated business strategy that creates synergy and a combined firm that produces greater client value than either firm can produced alone. Right reasons for merging might include:
  • 1. Improve the firm's competitive position
  • 2. Increase specialization - obtain additional expertise
  • 3. Expand into other geographic regions
  • 4. Add new practice areas
  • 5. Increase or decrease client base
  • 6. Improve and/or solidify client relationships

Asked and Answered

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

Q. I am a partner in a 5 attorney firm in downstate Illinois. We had a difficult year last year and are trying to plan 2010 and beyond. Do you have any thoughts as to what we should be thinking about? A. As law firms begin to plan for 2010 and beyond we suggest the following key strategies:
  • Develop an ongoing brainstorming program to facilitate the process of identifying new business opportunities. Incorporate client surveys into the process. Consider small client advisory boards and focus groups.
  • Get that business/marketing plan that you have been talking about for years done for 2010.
  • Focus - Focus - Focus your firm
Research indicates that three of the biggest challenges facing professionals today are: time pressures, financial pressures, and the struggle to maintain a healthy balance between work and home. Billable time, non-billable time or the firm's investment time, and personal time must be well managed, targeted and focused. Today well-focused specialists are winning the marketplace wars. Trying to be all things to all people is not a good strategy. Such full-service strategies only lead to lack of identity and reputation. For most small firms it is not feasible to specialize in more than two or three core practice areas. Based upon our experience from client engagements we have concluded that lack of focus and accountability is one of the major problems facing law firms. Often the problem is too many ideas, alternatives, and options. The result often is no action at all or actions that fail to distinguish firms from their competitors and provide them with a sustained competitive advantage. Ideas, recommendations, suggestions, etc. are of no value unless implemented. We suggest the following: Recognize that unless your firm is a large firm - full-service may not be an appropriate strategy. Small firms should identify fewer areas of practice and specialize and aggressively market these areas.
  • Limit your practice
  • Consider industry niches.
  • Identify three to five key goals and strategies for the year.
  • Be selective in client acceptance
  • Use your business/marketing plan as a tool to keep you on track.
  • Create an environment in your firm for effectively getting decisions implemented.
  • Increase your marketing investments.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. I am the sole owner of a 12-attorney practice. I am 55 years old and am beginning to think about retirement. The other attorneys are associates in the firm. What do I need to be thinking about in order that I can transition out of my practice and have money for retirement? While I have put some money in a 401k, I am not yet financially secure enough to retire. A. You are not alone. As the baby boom generation ages - more and more attorneys are asking this question. Unless you have an appropriate Exit Planning Strategy and put in place a sound Exit Plan, it is doubtful that you will be able to cash in on the full value of the goodwill that you have created. To exit successfully you need:
  • A plan - a roadmap - that outlines the process and helps you decide on where you want to go and how you will get there.
  • Timeline - a disciplined implementation timetable keyed to your Exit Plan.
  • Start Early - Getting ready for exit takes time. Start early 5-8 years before you are ready to retire or exit.
  • Decide - When do you want to leave the practice?
  • Decide - How much cash do you need when you exit?
  • Decide - To whom do you want to transfer the practice?
You will need to consider whether you should consider merger, sale of the practice to an outside buyer, or sale of the firm to the other lawyers in the firm.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC

Q. At a recent partner meeting we discussed the current economy and what changes we need to be thinking about both now and when we come out of the recession. What are your thoughts? A. As law firms emerge from the current recession many will face many new business realities and be forced to consider whether existing business models are still appropriate for the future. Legal process outsourcing (LPO), off-shoring, virtual offices, alternative billing, etc. We believe that the recession may accelerate the pace by which firms reevaluate existing processes and consider new business models. Ten years ago (1999) the ABA hosted the "Seize the Future" conference in Phoenix, Arizona. Click here for my coverage of the event. The conference predicted massive change fueled by the Internet. Many of these changes we have already witnessed and experienced - others are yet to come - possibly in the near future. Richard Susskind's popular book The End of Lawyers: Rethinking the Nature of Legal Services paints an interesting future. As we emerge from the recession pressures will exist that may accelerate some of the other changes that have been predicted. Here are some changes that some firms are already implementing:
  • Outsourcing back-office support functions such as accounts receivable management and collections, leased employees (PEO), billing and accounting, IT support, payroll, facilities management, copying and duplicating, etc.
  • Outsourcing legal services to contract attorneys and paralegals and on-shore and off-shore legal process outsourcing (LPO) providers
  • Unbundled legal services by clients with segments of work assigned to in-house counsel, outside counsel, and on-shore and off-shore legal process vendors
  • Partnering by U.S. law firms with on-shore and off-shore legal process vendors
  • Internet service delivery models
  • Flat fee billing arrangements by large law firms with large major corporate clients
  • Success fees and risk sharing with clients
  • Virtual employees
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. I am one of the founding partners in a 25 attorney law firm in the northeast. We have three equity partners, six non-equity partners and sixteen associates working in the firm. We focus totally on litigation. Each of us three equity partners have equal ownership percentages and since day one (20 years) have divided firm profits equally along those lines (1/3, 1/3, 1/3). We each put in the same amount of effort and work - but since I am managing partner - my fee collections are much lower than those of the other two equity partners and I am concerned that they may feel that I am not carrying my weight since my fee collections are lower. How should this be handled in our compensation system? A. This is a common question that we hear often. It sounds like you are still allocating income in the same manner that you did when the firm first started. Often when a firm grows the partner compensation system needs to be re-examined when and if partner roles or contributions change. As the firm has grown I suspect that your time spent on management activities has grown as well. I, as well as many other legal management consultants, believe that firm management (running the business) is as important as generating client fees and should be so considered in partner compensation systems. We have numerous law firm clients where at least one or more of the equity partners "run the business" and do not provide billable client services at all. Management time should not be used as a non-billable time category (excuse) to simply "dump" time.