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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.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC

Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. Our firm has been getting by for 18 months since start-up.  We are starting to get some repeat business and I think we are on our way. However, my partner looked at the numbers for 2008 and realized that she made about a third more money last year, both in terms of actual dollars for her work and in terms of origination. Our actual hours were roughly even, but there might have been some slighter disparity. Now we are having that first talk about changing from the straight 50-50 split to the perhaps the other extreme of "each woman for herself" (after jointly paying basic expenses).  What are your suggestions? A. I have reviewed your comments. In small firms the best systems are those that are simple, easy to understand and easy to implement. Often two partners start out on a 50%-50% arrangement and the arrangement eventually has to be changed when and if their situations change that has a major impact upon their overall contributions to the firm. (Notice I used the word contributions - not necessarily - fees collected). However, until level of contributions change - I have often seen 50% arrangements work well in small firms that are looking to build a Firm - rather than simply their own practice and earn as much money as they can for themselves. When level of contributions change - in a healthy partner culture - the partners will be able to talk to each other and sit down and discuss an alternative arrangement that makes sense for them. I encourage firms to look beyond single-year timeframes - typically 3-5 year cycles. Sometimes in healthy firm cultures one partner may need to carry the other partner for awhile.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. We are a five attorney personal injury plaintiff firm. 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. While we do not want to be a high volume PI advertising factory - we believe we need to be doing something different. Do you have any suggestions on how we should plan our future? A. 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 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. 3. Reduce case portfolio risk and improve case profitability by implementing a intake system whereby all new cases over a specified level of projected case value are reviewed and approved by the partnership (or a client intake committee) in order for the case to be accepted by the firm.
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. I am a member of a three attorney firm. I think we know where we are as a firm, where we want to be, but we just don't know how to get to the next level. Ideas? A. Rather that following the pack - attorneys need to find ways in which their firm's can "dare to be different." Many attorneys are providing the same service - solving the same sort of legal problems for their clients using similar tools strategies/approaches. To many clients - attorneys all look the same. What can you do to stand out? Marketing is about more than just promoting the firm to get clients. It is also about deciding on: 1.  What services to offer, where, and to whom? Sometimes less is more - by focusing on fewer areas of practice. Just because a law firm focuses on say three areas of practice - doesn't mean that it does not handle matters in other areas. It just means you are building you brand around the three core areas. These are the areas you primarily promote, speak about and write about. Broader geography? 2.  Pricing. Not just the amount to charge but how to charge. Clients are asking for budgetary certainty? Get creative. 3.  Delivery and producing the service. Are you doing all that you can using technology, staffing, work processes, etc. to minimize the cost of producing your services? If you are - aggressively promote it.
Asked and Answered By John W. Olmstead Q. I am sole owner of an 8 attorney firm. Two other attorneys are income partners - no equity - and the other five attorneys are associates. I am just turning 50 and am beginning to think about future retirement. What questions/issues should I be thinking about? A. Fifty seems to be the point at which attorneys being thinking about their retirement and their future. Some even consider and in fact make complete career changes at this point in their lives. Here are a few questions to begin thinking about: 1. Have you decided when you want to retire and leave your firm? Or do you want to work forever? 2. What amount of cash or annual cash flow do you need when you exit? 3. Do you presently have a retirement plan and how much income to you project that it will provide at different exit times? 4. To whom do you want to transfer your interest? Family members in law school, other attorneys in the firm, another firm, etc? 5. Based on future cash flow, do you know how much the firm is worth today? 6. Do you know how to best maximize the income stream generated by the firm - in the years ahead while you are still with the firm and after you leave the firm? 7. Have you been able to institutionalize the firm - or is it uniquely you? 8. Is the firm even marketable? 9. Do you have a succession/exit plan? 10. Do you have a plan for your business if the unexpected happens to you? 11. Have you taken steps to protect your family's wealth? John W.
Asked and Answered By John Olmstead Q. I am a solo attorney in private practice. I have been practicing for two years. The bulk of my practice is in the wills, trusts and estates area. I occasionally handle real estate transactions as well. I work from a home in office and meet clients in their homes at night. I have given thought about moving to an office outside the home, but even if I did I think I would still end up meeting clients in their homes at night. My clients seem to really appreciate this and as a result I have yet to walk away from a potential client's home without a signed retainer agreement. What are your thoughts on home offices? A. Sounds like working from home has worked well for your practice and it has caused you  to deliver personal attention to your clients which is so necessary in your practice area. I opened my consulting practice 25 years ago and had the overhead of an office and staff from day one. So much has changed since then. Now I have both - a small office in St. Louis and home offices that the rest of us work from remotely - less staff - and less space. We have downsized our office dramatically over the years and now primarily use it for client meetings/presentations when needed. Our infrastructure - phone systems, files, copiers, file servers, and people are primarily housed out of remote home offices. More and more of our work is being delivered remotely/virtually using GoToMeeting and other such tools. Take a hard look at your purpose and cost for the office and then go from there. Also, consider that sometimes we have to spend money to make money. Does the increased visibility that the office may give you generate more revenue than its cost?