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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.
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.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. We are a 17 attorney IP firm in the Southwest and I am the managing partner. We are having a lot of problems with poor attitude in the office, inadequate production, employee turnover, and we have recently lost a few key institutional clients. I believe that the core of our problem may be poor communication skills on the part of our attorneys. What recommendations do you have? A. Poor interpersonal communications is often the root cause of many of the management problems that arise in law firms.
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.