Two Great ISBA Member Benefits Sponsored by
A Value of $1,344, Included with Membership

Best Practice Tips

By John W. Olmstead, MBA, Ph.D, CMC Q. I am a solo attorney and have had my practice for 15 years. I have one secretary that has been with me 14 years. I have heard you and others state that solo and small firm practitioners need to work on getting to the next level. What is the next level? A. The next level is when your practice begins to build synergy – when one plus one equals three or four rather than two. It is when you have a sufficient consistent volume of work that you are able to add additional layers of attorneys and staff. When lawyers start out their practices, most support themselves on their own work or time production. However, eventually there must be others in the firm who generate more profits than they consume and thus provide additional income to the owners. This is leverage. Leverage can come from junior level owners, associates, paralegals, and legal assistants. The important takeaway here is eventually a structure must exist within the firm whereby each owner can make a reasonable income but not have to provide all of it himself or herself. This must come to pass if the senior lawyers are to spend more time on firm investment activities (non-billable matters) such as generating new business, training and mentoring new associates, or managing the firm. While the getting to the next level can improve profitability if done right – new challenges and frustrations come into play as well. You must now manage others – motivate them, hire and fire, and retain quality lawyers and staff. You are now a manager as well as a lawyer – like it or not! John W.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. I am the managing partner in a three attorney firm and am having problems with office staff members getting along. Office conflict is rampant. Any suggestions? A. You must begin by identifying some of the causes. Poor communications often can be the root cause of such problems. Interview each of your staff members individually and probe. What do they think? Is communications a problem? Are roles, duties, and responsibilities clarified? Lack of clarity can in these areas can lead to turf wars. You may want to design job descriptions for each employee and clarify roles, duties, and responsibilities for each employee. Conduct short weekly staff meetings to enhance communications. Use agendas. Take minutes of the meetings. Advise everyone of your expectations including all members working together as team members. Let them know that working together as a team is a performance factor that will be considered in performance evaluations and reviews. Conduct periodic performance reviews. Counsel and take action against problem employees. 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 listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. We are a 24 attorney firm in Northwestern Wisconsin. We have recently been discussing the feasibility of hiring our first legal administrator. How large should a firm be when it is time to hire an administrator? A. There is no magic size. We just completed an engagement recruiting an administrator for a 14 attorney firm. A couple of months ago we recruited one for a seven attorney firm. We also have law firm clients with over 40 attorneys that don’t have an administrator. I believe that an administrator, or office manager, is appropriate in firms of all sizes. It is a matter of attitude and commitment on the part of the partners and whether they are willing to delegate responsibility and authority to an administrator to run the day-to-day operations of the firm. The firm should start with a job description and then decide whether the firm is willing to delegate responsibility and authority. If not, the firm should not hire an administrator. 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 listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Using RULES to Improve Profitability and Cash Flow Q. Our seven attorney firm is struggling with poor profitability and cash flow issues as well. How have other small firms fared during the past year? What should we focus on? A. In general – small firms have fared pretty well during the recession. Some actually had best year ever. Many experienced flat or 10% revenue declines in 2009. Small firms that had biggest problems were those that had issues before the recession. Successful firms play by the RULES to improve profitability, make more money & improve cash flow. Here is the general idea. R = Rate & Realization U = Utilization L = Leverage E = Expense Control S = Speed Realization Rate The percentage of your time that turns into cash over a specific time period
  • Time Write Downs
  • Accounts Receivable Write-offs
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. We have recently lost a key partner, several key institutional clients, and we don't know why. We are considering doing a client satisfaction survey to insure that we are not falling asleep at the wheel and providing the best service possible. We also want to make sure we understand current client needs and whether our services are still adequate. What are your thoughts? A. For institutional clients we would recommend telephone interviews, face-to-face interviews, or a combination of both. Typically, when we work with a client we establish the initial research objectives of the project and then the best way to achieve them. For example, do you just want obtain feedback from your top 10, 25, or 50 institutional/business clients or your entire client base? In the case of a study population of your top 10, 25, or 50 clients we usually recommend a telephone interview technique. We shoot for a 90%+ response/participation rate. We develop the questionnaire with the client and then conduct the interviews and compile a report consisting of both statistical metrics (grades if you will) and client commentary/narrative. Often it is the narrative commentary that provides the most actionable information. Recently, when conducting interviews of an insurance defense law firm's insurance company clients, a client advised us that they had stopped sending new files/cases to the firm because of poor communication and status reporting. Based upon our interviews, the firm was able to resolve the internal issues and repair the relationship with the client.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. We are a 12 attorney firm located in Chicago. We are struggling with cash flow and having problems covering payroll and meeting our draws. Do you have any suggestions? A. Small firms that have weathered the storm and faired the best during this recession were those that:
  1. Were focused
  2. Had a sense of where they were & where they were heading
  3. Had a vision and a strategy
  4. Had business and financial plans
  5. Had goals and measured attainment
  6. Fostered accountability from self and others
  7. Were proactive
  8. Worked the books and aggressively managed the RULES
Here are a few cash flow tips:
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.
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.
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.
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.