![Featured book book image](http://www.lawbizblog.com/I"m proud to say that San Bernardino County Law Library is featuring my recent book on its site.....jpg)
Legal expenses - perception is reality
There are at least two components of legal costs: Fees and expenses. When one is clearly out of line, the other is perceived to be out of line. Perception is reality.
Much has been written about the $1,000 per hour legal fee. It's out of line, too high, much too expensive, etc. But the writers fail to assess the competitive market for those services and whether those services have some very special expertise connected with the fee that justifies the fee. If, for example, you're in a "bet the company" situation, you want the best lawyer you can get. If you're in a criminal trial as was OJ Simpson, you want a particular lawyer and team of lawyers. You will pay the asking price.
If you're facing a normal contract dispute, one might consider this a commodity type of legal battle, one not requiring the best lawyer in the state; a good lawyer will suffice and the cost of his/her services will be adjusted downward accordingly. Some call this commodity pricing.
If you're a very large bankrupt company, you need specialized professional expertise. According to Bankruptcy Court filings (attorney fees need to be approved by the judge), many lawyers in this arena are receiving $1,000 per hour. Nothing out of the ordinary here.... this is reality.
However, when these same filings show application for expense reimbursements that are out of the ordinary, then questions arise. For example, why should the bankrupt estate pay for first class airfare, for normal photocopying charges, for faxes, for overnight hotel stays at the Waldorf-Astoria, etc.? Many such expenses are considered part of a firm's normal overhead; many such expenses can be lowered by conducting oneself in the "normal course of business," such as charging for coach airfare (not first class or business fare), hotel charges (at a Marriott, etc. rather than the Waldorf).
Any "over" charges should be at the lawyer's expense not the expense of the estate. After all, isn't that why the lawyer is receiving the larger per hour fees? It's when the lawyer begins to "nickel and dime" the client or take advantage by charging more than "ordinary" expenses, the perception of over-billing extends over to the fee itself. When asked, I usually advise my clients to reduce the expense charges and their fee charges will not be questioned. It's usually the $5.05 charge that brings the whole bill into question, not the other way around.
Does your insurance policy cover contract lawyers?
This issue has arisen in a number of conversations with clients.
Why would you engage a contract lawyer? For one of several reasons: (i) even out the work flow; ii) engage expertise you don’t possess at the moment; (iii) gain time to observe the quality of work of a potential hire; and (iv) determine if you have enough work in the long term to hire a permanent employee.
Once you hire a contract lawyer, whether for a designated number of hours or a specific project, do you know whether that lawyer is covered under your errors and omissions insurance policy? Often, policies are written to include all the attorneys you hire after your policy commencement date up to the end of that policy term period. Then, your premium is based for the following year on the higher number of lawyers now on staff.
But, the question remains, are you covered for what is, in essence, a part-time employee. Check with your broker; read your policy. Make sure you know the answer. Many lawyers require that their contract lawyers specifically name them on their policies with an endorsement. Of course, remember that most policies are claims-made policies, not occurrence policies. So, your policy must be written in such a way as to cover negligence asserted in the current period though the alleged negligence was committed by your contract lawyer in an earlier period and is no longer present. Ask. Be sure.
What's Wrong With Your Practice ... Perception or Reality?
Most of us can notice when something “isn’t right” with our bodies, and we often are quick to jump to a conclusion about the cause. Yet what we perceive to be the problem, and the reality behind it, may be much different.
A urologist recently shared an example with me, saying that many people come to him to “fix the problem” of an over-active bladder at night. They typically attribute it to a “plumbing” issue that a pill or even surgery can cure. Yet this doctor suggested that, as people age, they sleep less and they’re likely to be awakened more easily by sounds that didn’t disturb them in earlier years – a dog barking, the house creaking. Once they’re awake, they decide to honor the bladder urge so they can go back to sleep. The perception is that there is a physical medical problem. The real cause is the natural aging process and the best “cure” is to accept it.
Transfer this lesson to a law practice. Most lawyers are quick to perceive a problem when there is less money coming in the door. They immediately jump to a conclusion about “the cure” – do more marketing, or raise rates. The reality is that declining revenue typically began long before as a problem with receivables. Generating new work to cover declining revenue simply isn’t the answer. The strategy is to make sure clients know they must pay their bills within 30 days. And the way to do that is specify clear collection terms in the engagement agreement. Lawyers perceive every client as valuable and hate to cut them loose; the reality is that continuing to do work for overdue clients who don’t pay shows those clients are not worth keeping.
A new study by George Washington Law School showed that realization rates (the amount of money billed that is collected) average 83.6 percent for all law firms, a figure that is a historic low. If you perceive your revenue is down, and the reality is that you only collect 80 cents on the dollar, you’re like the urologist’s patients – you won’t get many good nights of sleep.
Pricing contract lawyers
Are contract lawyers an expense or a fee item? This issue has been litigated before and, according to my reading, has been resolved in favor of the law firm. The law firm is entitled to engage contract or temporary lawyers for one price and charge the client a higher price. One rationale for this is that the firm can engage lawyers on a short term basis, without a long term commitment, to provide the work for the client that is necessary. When that job or assignment is completed, the law firm can sever the tie with the contract lawyer and retain a lower overhead. Everyone benefits: the lawyer who otherwise would not have been employed; the law firm that can take on additional work and its resulting benefits; and the client whose goals can be met more efficiently and timely.
The issue usually arises from a complaint by an insurance carrier who is responsible for payment of legal fees under a policy of insurance or a creditors’ committee that wants a larger share of available funds and finds the law firm(s) an easy target. Currently, the Citigroup class action legal fees are being challenged by a group called the Center for Class Action Fairness.
The allegations in this case go beyond the assertion that a law firm cannot charge more than it pays for legal talent. If this were the only issue, the challengers would have no standing; this issue has been resolved and it would be a major reversal of thought for the court to rule otherwise. But, the real issues are whether the engagement agreement mentioned anything about contract lawyers and, if so, what were the terms; what risk did the law firm accept when its fee was based on a contingency (was this a novel area of law or one in which plaintiffs had not been successful before); what was the expertise needed in the matter for which contract lawyers were engaged, and what was the expertise actually engaged; and were the fees charged “reasonable” under all the circumstances.
In this case, the total fees amount to less than 17% of the class action settlement. The court will have to decide whether this was a reasonable fee overall and/or whether each component of the fee requested reasonable. The added risk for any law firm taking on this type of case is that its fee is always reviewed on Monday morning ... the Monday morning quarterback always has a better perspective than does the game-day quarterback. While the large company client can protect itself by hiring the contract lawyers directly, though they could then hardly expect the law firm to oversee that portion of the work product. The client can further protect itself by objecting to paying the legal fee and litigating the fee. But, how does a law firm protect itself against the client (usually someone else speaking in the shoes of the client) so as to avoid an after-the-fact conflict?
Newsflash: McDonald's focuses on "value"
McDonald’s advertising is changing, according to one report. Last year, Big M promoted higher-priced menu items. While more healthy food is important, Big M couldn’t show the value of its new menu items to the consumer. Today, the company's emphasis is on “value,” the lower priced items that its customer base is accustomed to receiving.
If your market is the commodity-type legal services, then you will have less flexibility in setting legal fees. If your market is more toward the unique, the special or the bet-the-company type practice, then you will have greater flexibility and can charge more for your services. The key element is to understand the nature of your customer and then communicate effectively with the client.
Collecting Your Fee is still the key
Georgetown Law School's Center for the Study of the Legal Profession recently suggested that earlier realization rates of 92% have gone down to a historic low of 85%. That means for every dollar billed, the law firm is collecting only 85 cents.
My suspicion is that these numbers are reflective of "Big Law," and not the profession as a whole, certainly not the sole practitioner who comprises the bulk of the profession. That is why I wrote: Collecting Your Fee: Getting Paid from Intake to Invoice, published by the American Bar Association. Few lawyers understand the difference and fewer can cite the numbers from their own law practice. This is an area where additional revenue can be obtained easily, merely by paying attention to your clients payment records and understanding who doesn't pay your full bill and why ... and then dealing with this issue. This is one of the most challenging issues in my coaching/consulting practice...helping lawyers be more effective with their clients and receive a higher percentage of their billings from satisfied clients.
So you thought you had malpractice insurance coverage?
In a recent case, the 7th Circuit appellate court said that the law firm failed to comply with its contractual notice requirement to the carrier. The law firm was required, as is true in most such contracts, to notify the carrier of a possible claim of negligence. The law firm said that notifying the carrier of every possible claim would delve it into minutiae and was unreasonable. The Court said the facts of this case suggest that any reasonable attorney should have known that a claim was likely ... and therefore the firm owed a duty to the carrier to notify the carrier.
If you take the time and expend the funds to purchase insurance, you must review your contractual obligations of notice ... otherwise you're wasting your money and leaving yourself exposed to massive claims.
Lawyers for sale
In today’s Wall Street Journal, the writer suggests that high priced lawyers are for sale, that is, that clients are pushing back and demanding lower fees irrespective of the stated hourly rates of their lawyers. The reporter’s perspective is skewed only to the larger law firms, “Big Law.” Small firm and sole practitioners have always walked this tight rope between client acceptance and lawyers’ fees, but this doesn’t make news.
The battle between lawyer as vendor and client as purchaser has always existed. The “battle” or adversarial conflict just never received so much publicity as it does now ... And yes, some clients have become bolder as a result of the recent Depression (aka Great Recession).
Also, however, some lawyers will raise their purported rates knowing the financial officer of the corporate client will demand a discount. This way, the law firm receives the engagement, the General Counsel gets served and can protect the rights of the company, and the finance officer can assert he/she saved money for the company. A nice game.
A lawyer who was interviewed for the article suggests the real issue for all concerned: The client must believe he/she/it is receiving value for the fee paid. In other words, it’s the total cost of the legal service, not the rate per hour, that is significant. With more clients and attorneys beginning to speak this language, the real issue is coming into focus.
IOLTA changes
Reminder note: IOLTA protection has changed as of January 1st ... Be sure you review your clients' trust account to confirm that your accounts are in balance and that they are below the maximum now protected. There no longer is unlimited protection ... and that means that you may be personally liable for a bank defalcation that impacts your holdings. Check with the FDIC, or call 1-877--ASK-FDIC, or talk to your local banker to learn more.
IOLTA accounts may be in jeopardy
Under current law, clients' trust accounts are protected under the IOLTA program. The FDIC provides unlimited insurance coverage.
However, unless extended by Congress, beginning January 1, 2013, such unlimited coverage will terminate and the new limit will once again be $250,000 per depositor. All funds held in such trust accounts as well as all funds held, personally, by the same client in the same institution will be considered in the $250,000 limit.
Be careful and review your bank's regulations and the funds you are holding for the benefit of your clients. Watch Congress for any "lame duck" laws on this and the FDIC and its responsive regulations. You may have to split clients' funds into two or more banking institutions in order to keep his/her money insured. And you may once again have the responsibility of checking on the financial soundness of the banking institution in which you maintain your clients' trust account.
Prices come down! Do sales go up?
Echoing an earlier comment I made about the decreasing salaries for first year graduates, NALP recently said the decrease is 35%! This further promotes change in the profession, from additional hiring, to out-sourcing, to independent contracting ... and much more.
Public Justice versus Private Judges
Justice should be free. However, the State of California has just cut the budget of its court system by more than $500 million! Litigants will be left to fend for themselves. One blogger suggests that private judges are not expensive when comparing the speed of justice in a private matter with the delays and increased costs of the public judicial system.
In the 1960s and 1970s, the State of California began changes to its pension system, which culminated in a major change in 1994. Judges elected or appointed before that year could with qualifications retire as early as age 60 at 75% of salary, but if they stayed on the bench after age 65 the percentage went down. Judges who assumed their jobs after 1994 got a further reduction. Many of these judges found it more advantageous to retire and hire themselves out as private judges. Thus began the two-tier system of justice, one for the rich who could afford to move quickly with a private judge, and the other for everyone else.
The recent budget cut further exacerbates the problem by giving incentives to even more people (who can afford it) to enter into the private judging world ... a boon for them and a catastrophe for the average citizen with an average matter who can't afford the added expenses of a private judge.
Our Constitution says everyone is entitled to right to counsel. In at least one instance, this applies to civil matters as well as criminal matters. Shouldn't this right also include that everyone is entitled to the right to be judged by a competent and objective individual, paid by the state? Private judging sounds too much like the old vigilante justice. Am I unfair when I ask whether these judges will be influenced by which lawyers use their services more? If this is a question raised in my mind, I wonder what the litigants might wonder .... And that is not how justice ought to be delivered or viewed.
As a postscript, there are already those who predict that the national system of health care under the now-validated Affordable Care Act will lead certain physicians to opt out of the system and care only for wealthy individuals who can afford them. Would such doctors refuse to see or treat a patient who could not demonstrate the required level of net worth?
Lincoln famously observed that a house divided against itself cannot stand. Ultimately the same can be said about a society divided against itself, between those who can pay and those who can’t.
Legal fees are high - according to whom?
In today’s Wall Street Journal, staff writer, Jacqueline Palank discusses the Justice Department’s attempt to control fees that bankruptcy lawyers seek. Creditors and employees may, at times, be a bit disgruntled by such fees. So, now, the U.S. Trustee Program appears to be entering the fray.
Before going further, it should be noted that i) any fee sought by an attorney must first be approved by the client going into bankruptcy; ii) the fee cannot be paid before a Bankruptcy Court Judge approves the fee request; iii) the legal fees most often are a pittance compared to the debts of the company and thus have little or no impact on either the creditors or the employees. In fact, the current proposal is limited to companies whose assets and debts exceed $50 million, hardly your "normal" bankruptcy.
The only reason for focusing on the legal fees is that this is a topic that makes good reading in the tabloids, including the WSJ. While the quoted hourly rate received by some attorneys seems high, by comparing this to the compensation received by incompetent CEOs and others in the C-suite offices, it is insignificant. Why don’t the tabloids focus on the cause of the bankruptcy? Why not focus on the compensation of the management team, oftentimes earning historically astronomically higher multiples compared the lowest paid employees of the company? Why not seek redress against the management that is responsible for bringing the company to its knees? Although this focus may be more important for us to understand how our economic system works, it clearly is not sexy enough to sell many papers.
The U.S. Trustee is proposing, according to the writer, several new approaches to control lawyers’ fees, including:
• Though the lawyer applicant must disclose his/her hourly rate now, the Department wants the lawyer to disclose the lowest, highest and average hourly rates the law firm charges in all its matters.
• The Department wants the lawyer applicant to create and disclose to the Court a budget for legal expenses. This budget would, necessarily, disclose to all involved, including the creditors who are adversaries of the bankrupt, the legal strategy to be engaged in by the client.
In the 1960s, the Supreme Court ruled that it was anti-competitive for bar associations to maintain a listing of suggested fees for different types of work. This listing, in particular, helped younger and newer lawyers set their fees at rates that were more in line with more senior lawyers. Not having such a list would compel lawyers to set their own fees, the theory being that lawyers would then be more competitive with one another to the consumers’ benefit. The Trustee by its first proposal ignores this. The existing disclosure already provides information that tends to be anti-competitive. Law firms can see what others are charging and price their services accordingly, causing rates to slowly increase over the years.
Intruding into practice areas, such as general business matters, estate planning, tax work, and other areas of work performed by the firms who also do bankruptcy work has no bearing on the special expertise of large company bankruptcy lawyers. No area of law other than bankruptcy requires such disclosure for court approval. Fees are left to be negotiated between attorney and client. Other than precedent, there is no reason disclosure should be made here either. But, the process should not be extended. “Transparency” is a bogus issue. This is not some backroom conspiracy. All the proceedings are public and must be approved by the Court before attorneys are paid anything.
Budgets are good. I recommend them to my attorney-clients with whom I consult. This is a process, however, between the client and the attorney. By requiring that these budgets, which reveal legal strategy, be made public, the U.S. Trustee is saying that bankrupt companies have no rights. They have no right to advocacy; they have no right to develop a strategy that might affect creditors' claims; and they have no right of privacy. This is clearly contrary to the U.S. Constitution and our entire judicial system. While the bankrupts, and their inept management, may have proceeded down an economically unwise path, they still have rights to seek the best of what is left to them in their economic environment.
Don’t worry about the lawyers hourly rates once the bankruptcy petition is filed. They are regulated first, by the client, and second, by the Court. Who is watching the compensation of the management team before they enter bankruptcy? Why are they not punished with fines, or worse, for malfeasance and negligent management tactics? Why are they allowed to benefit so expansively at the expense of their workers? Why don’t the tabloids focus their sharp light there?
Oh, I forgot, the tabloids need to sell papers, they are part of the industrial complex that both Presidents Washington and Eisenhower warned us about as they left office.
Generation warfare will grow in law firms
In a recent issue of a major legal publication, as reported by the American Bar Association, the magazine looked at pension plans of law firms. It appears that a number of the country’s largest law firms have pension plans that are unfunded. In other words, these are firms with pension plans, but without money to pay the obligations of those pension plans as their lawyers retire. What we will increasingly see are law firms with the bulk of their lawyers leaving the practice for retirement with the hope and prayer that the fewer remaining, younger partners will be willing to fund the firms' obligations. We will also see many situations where these younger lawyers will find it to their economic advantage to torpedo the existing law firm and its pension obligations in exchange for creating a new firm with no pension obligations. Doing so will give them the opportunity to take on more of the revenue that is produced by their efforts. They will earn more and pay less.
This phenomenon will exacerbate the generation warfare that is building in today's law firms.
Check Clearing Policies
Your bank will not always let you withdraw your money! Ed talks about bank check clearing policies that could affect your law firm.
Alternative fees - proportionate refund
An interesting question was raised recently in the discussion about alternative fees. What happens in either of two scenarios: i) When the client terminates the relationship before the legal services are concluded and ii) When the fee is challenged in a dispute between attorney and client.
In the former case, how do you apportion work already done versus work yet to be done, especially when the fee agreement is silent on the subject? This question is set against the backdrop that a lawyer refund any advance payment of fee that has not yet been earned. And, though a fixed fee, the fee must be placed into the client trust account until earned. Does one have to refer back to the time spent (hourly billing)? And if the subject is covered in the fee agreement, are we building into the relationship all kinds of negative vibes between attorney and client?
And, though fixed fees/alternative fees are designed to reduce conflict between attorney and client, should a dispute arise, how do we test the reasonableness of the fee? Again, usually by reference to the hourly billing rate and time spent.
This subject once again points to the need for good client relations and effective, frequent communication between attorney and client to make sure such disputes don't arise and/or are settled quickly.
Alternative fees - Redux
The Wall Street Journal seems to focus on fees being charged by large law firms to large clients. It seems almost every other week, there is an article on the subject. In today's paper, Jennifer Smith writes about the "resetting of legal costs." Her basic premise is that clients who obtained the "upper hand" during the Great Recession" in negotiating fees with law firms are not going back to the old ways of the billable hour despite the more robust economy today.
Alternative fees have become a larger percentage of law firms' revenue. To use alternative fees, usually meaning fixed fees, requires a trusting relationship between law firm and corporate client. Of course, alternative fees also depends on the practice area. For example, it's easier for lawyers to quote a fixed fee in areas such as estate planning or a percentage fee in personal injury or debt collection than it is in litigation. But, even litigators are moving to alternative fees when they can work with the client as a trusted adviser ... and both sides look out for the interests of the other side.
What Ms. Smith ignores, however, is the real impetus for alternative fees. It is technology. Because of advances in technology,some tasks such as document review that used to take hundreds of lawyers many hours can now be done in a fraction of the time with a fraction of the number of lawyers. Further, when lawyers charge by the hour and see their time reduced, and thus their revenue, there is an impetus to charge a fixed fee. The client gets certainty. The lawyer gets to keep a portion of the savings resulting from the technology. Both sides benefit.
This is classic in every industry where technological innovation occurs. The legal profession is now experiencing the same upheaval. And both clients and lawyers are benefiting.
Cash Flow Runs the Law Firm
Cash flow is the lubricant that enables all businesses to function. When you grow your revenue, or when you take too much money out of the organization, you will have a cash flow challenge. Only a supermarket or amazon-type organization can function with losses -- they get great long term payment terms from their suppliers but receive cash immediately on making a sale.
A law firm is not like this. And in the case of many law firms, the lawyers get accustomed to larger-than-life styles of living, are unwilling to fund the organization out of a sense of entitlement, and are really only silos of sole practitioners under an umbrella. They are not organization people. They think, and oftentimes correctly, that they can jump ship and continue their flagrant disregard of the firm.
Lowering the lawyers' compensation to appropriate levels in accordance with the revenue and expenses of the firm, and keeping debt only for long-term purchases (not for lawyers' draws) is the only way to protect the cash flow and keep the law firm vibrant and afloat.
Internal financial controls
One would think that lawyers could keep their eye on the ball. But, somehow, despite the importance of cash and cash flow to the very survival of the law firm, lawyers tend to focus their attention elsewhere. I find this to be true not only in the small firm, but also in some of our larger brethren as well.
Recently, I was asked to consult about "missing cash." The bottom line is that it's easy, for even a longtime and trusted staff person, to lose his or her moral compass ... when money is readily available ... and not regularly monitored! Establish policies for handling cash and for paying bills, the two easiest areas of manipulation by one so inclined. Be persistent in the application of these policies. Ask for an external review of these policies periodically ... and their application. Insist that there be no shortcuts in handling the finances of the firm.
Nothing less than the firm's reputation and standing is at stake! ... And the lawyer's license to practice law.
Taxpayer changes for cell phones and mileage rates
Cell phones removed from listed property category
Cell phones have become so ubiquitous that the Small Business Jobs Act of 2010 has eliminated the need to create special record-keeping by taxpayers for employer-provided cell phones.
IRS makes mid-year 2011 adjustment to business standard mileage rate
For the third time in six years, the IRS announced a mid-year adjustment to the business standard mileage rate because of rising gasoline prices. The business standard mileage rate increased from 51 cents-per-mile to 55.5 cents-per-mile for the second half of 2011 and into 2012.
Lawyers fees are capped
Wisconsin is in the news again. A lawyer, who promoted himself as the "king of lemon law," won a judgment for $12,500 against an auto dealership for unauthorized repairs and an award of attorney's fees of $150,000. The Republican-controlled legislature was so incensed that they adopted a law (and signed by the governor) limiting attorney's fees at three times the judgment. With such limitations, lawyers will be less likely to tackle consumer abuses, the obvious intent of the legislature.
Wisconsin, the historical bastion of progressive legislation and politicians, has certainly served up a strange mixture of bedfellows in the last couple of years. It makes for interesting reading ... unless it's your ax that is being gored. The real question is whether this is limited to the state of Wisconsin or a harbinger of things to come on the national level.
Overhead percentages: What is optimum?
I was asked again about percentages of expenses. The inquiry came as a result of a recent survey that was being reviewed. What is the appropriate expense percentage of revenue for health, etc. was the question in this instance.
This was my response:
I don’t worry about surveys or what percentages others manage. Every business/law firm is different … and there are too many variables to look at others’ operations and then get depressed because you didn’t meet them or elated because you bettered them … each feeling may not be justified. Do the best you can under your particular circumstances.
When I coach and consult with lawyers, that is one of the areas of my inquiry … how we can do what we do better. If your profit is 20%, for example, who’s to say that it couldn’t be 25%? And if another firm manages 30%, does that make your percentage a poor performance? Not necessarily. Remember that percentages of this nature are based off the beginning figure of revenue. How is your revenue? If you can get it higher, then your expense percentages will be lower/better.
There are too many variables to give a definitive answer. Thus, I distrust the surveys that are floating around.
Outsource -- or Not?
Outsourcing jobs typically pay better than temp work — and certainly better than no work at all. This is the message of a recent article. The legal profession is developing its own caste system. We all understand some of the differences, or castes:
- Big Law vs. Small Law
- Sole practitioner vs. Large firm lawyer
- Specialist vs. Generalist
- Boutique vs. Full product line
- Domestic vs. Outsource (overseas as in India and Philippines)
And I’m sure there are other distinctions that I've overlooked. But, now there is another phenomenon appearing. ....
ROI for marketing
Even marketing folks are concerned about the return on the investment in one's daily activities. While some folks, yes, lawyers too, ignore the money, marketing professionals are trying to convince their management that they are important to the success of their organization, that they are responsible for a lot of new business.
AdAge says: "...Return on advertising investment has always been a priority for marketers, but in the recession it flew to the top of the list. As chief marketing officers fought to justify spending within their organizations -- often via spirited discussions with procurement departments about where the dollars are going... " The Days, the subject matter of this article, I'm pleased to say are friends ... and outstanding marketers who focus on providing a profit on marketing dollars spent.
Do you look at this issue? Can you determine whether the money you spend is producing a profit, is enabling you to expand in your practice area, is improving your skill as a lawyer, or otherwise contributing to the improvement of your law practice? You should. If not, you're in the gardening, playing with the dirt rather than growing gorgeous roses for sale to others who can appreciate your skills.
Have we hit bottom?
"The NLJ 250 collectively employed 9,567 fewer lawyers in 2010 than it did in 2008, a decline of nearly 8 percent in headcount, with the 10 largest firms in the U.S. alone losing more than 1,000 lawyers last year. This is just the second time in the 34-year history of the NLJ 250 survey that the nation’s largest law firms have experienced a net reduction in employed lawyers for two consecutive years."
This group of law firms, the largest of which is Baker & McKenzie at 3,700+ lawyers, makes up less than 5% of the attorney population. Their growth, like all corporate growth, has its expansion and contraction phases. There are at least two questions that come to mind:
1. Is this contraction permanent? Is this contraction a reflection of the entire industry?
2. Does this contraction reflect a major shift in the way legal services will be delivered in the future?
My crystal ball does not give me the answers. But, I believe that
i) even sole and small firm practitioners felt the change;
ii) though the numbers in the survey reflect 2008 as the base year, there does seem to be a cautiously upbeat attitude among lawyers today. More lawyers are contacting me with the serious questions of how do we make our practice better, how do we grow our practice ... in other words, lawyers are starting to come out from their caves, a bit shell shocked, but ready to understand the needs of clients and focus on providing solutions to their clients;
iii) it's not the contraction that will cause the shift in the way services are delivered, it's the continuing evolution of technology that will impact the delivery of services. And this conclusion would have been the same with or without the contraction. It's just that, because of the contraction, we're more sensitive to the changes. But, these changes began before 2007-2008, and they will continue after 2011.
Lawyers have to be more sensitive to technological changes and how these changes can improve their efficiency and mode of delivery. Clients certainly are and they are looking for those lawyers who can reduce their legal costs (not necessarily hourly rate). Thus, even the decades-old billing and pricing models will be subject to pressures that mere conversation failed to impact until now.
As Oprah said yesterday while interviewing the President and First Lady, "... keep your eyes on the prize." Know what you want in your practice. Know what your clients want from you ... what is the ultimate solution they are seeking by engaging your services? Stay focused and you will have happy clients ... happy clients pay their bills ... happy clients refer their colleagues and friends ... While doing good, you will be able to do well.
Client Trust Account Recordkeeping Altered
In most states, strict compliance with trust accounting regulations is required. Where such regulations require a paper trail that includes retaining canceled checks and other features of an older era, lawyers are inadvertently out of compliance. How? Why?
The banking industry has moved on. They are into the electronic age and we have not kept up. For example, few banking institutions, if any, still return canceled checks. They send photocopies and, after a short time, destroy the canceled checks. See the federal Check Clearing for the 21st Century Act.
In August, 2010, the American Bar Association's House of Delegates adopted the new Model Rules for Client Trust Account Records to replace the Model Rules on Financial Recordkeeping, in effect since 1993. The ABA rules now enable lawyers to use electronic tools to comply with Model Rule 1.15 concerning holding clients funds and property.
Check your State rules -- not all states have updated their regulations.
Big Brother Expands His Watch
The States are now using more creative ways to increase their revenue. If they can't raise taxes, they increase the cost of parking tickets. What used to be a few dollars is now close to $100. What used to be $100 for a moving violation is now $468 for making a right turn on a red light where not permitted.
And, now! Where a taxpayer is delinquent on taxes due and owing, financial institutions subject to a new California law must provide to the Franchise Tax Board (the State equivalent of the Internal Revenue Service) on a quarterly basis the name, record address, and other information for those people who maintain an account at the financial instiution.
The cost of this new initiative will be paid by banking consumers on opening new accounts. And/or banks may decline to open accounts for depositors who are on the delinquent tax debtor list.
How do you get on this list? Fail to pay a demand for payment for 30 days. Nothing is said about the right of the taxpayer to protest the validity of the State's demand.
Technology is becoming a bill/tax collector ... First, for deadbeat dads who have a job or who receive money from the government. Now for those who have money in a financial institution but don't pay their taxes to the State. And, as we know from recent exposes, we are being tracked by the use of our Smartphones. And tracking us by the use of our credit cards at gas stations, ATM machines, seems to be commonplace.
There seems to be no plalce to hide. What's next?
Credit Card Use -- Beware!
On February 10, 2010, the California Supreme Court handed down its decision in Pineda v. Williams-Sonoma Stores, Inc., — Cal. Rptr. 3d —, 2011 WL 446921 (Cal. Feb. 10, 2011). This decision should be studied by everyone who accepts credit cards in payment for goods and services. Yes, this applies to gas station pumps that ask for your zip code as well as to attorneys and others.
The Pineda decision held that merchants who request a consumer’s zip code to complete a retail credit card transaction have violated California’s Song-Beverly Credit Card Act (“SBCCA”). The SBCCA contains a provision that prohibits merchants from requesting and recording “personal identification information” about the cardholder. Penalties for violating the SBCCA range from a maximum of $250 for the first violation to $1,000 for each subsequent violation. Needless to say, the potential damages for a retailer who routinely processes hundreds or thousands of credit card transactions per day could be astronomical.
What's the big deal? Well, the zip code, plus the name of the person, can be reverse "mined" in order to get the address of the person along with other important personal information, the precise thing the law was designed to prevent.
Of course, if you have this information as part of your file, I would guess the law doesn't apply because you're not asking for the zip code specifically in relation to accepting the credit card for payment. But, be careful.
$1,000 per hour club
The Wall Street Journal does it again, in today's edition. Their headline talks about the few (less than 2.9%) lawyers in this country who can command $1,000 or more in hourly rates.
Their headline ignores some of the very important considerations client think about when deciding who to represent them and how much to pay:
- The lawyers who receive the big bucks are thought to be folks who can get them out of very expensive matters more quickly than others could, thus saving them thousand and millions of dollars in litigation expenses or other business expenses ... or close deals faster that would enable the client to start making a lot of money sooner.
- The attorney might have a unique set of skills needed by the client at that moment.
- Lawyers who command high prices tend to be in limited practice areas such as bankruptcy, taxes and M & A, where the stakes are extremely high ... and the cost of the lawyer is really only a blip on the screen for the client.
- The cost per hour is irrelevant to the total cost of the legal services delivered.
- Fees to lawyers are more frequently now based on value to the client. The lawyers compensation becomes his/her equitable contribution to the benefit delivered to the client, making the "cost" per hour irrelebant.
- U.K. based lawyers, according to WSJ, charge more.
The writer also ignores the thousands of lawyers, more than 50% of the profession who earn less than $100,000 per year at hourly rates as low as $50 per hour, sometimes lower. Is there a cognitive dissonance here? I think so. One's reality, the high-flyers, is not the reality of all. And the WSJ should recognize that instead of flaming the flames of hatred against lawyers by throwing around large numbers of an infinitesimal group of people -- they are not representative of the profession. And, oh by the way, where is the companion piece that talks about how much money the CEO, CFO, et al of these very same companies that are hiring these lawyers? Let's look at a balance and fair perspective.
Open Letter to the State Bar President
I agree with you completely. There is a tremendous "justice gap." I'm glad the State Bar is seeking to do something about this. I wonder, however, why the State Bar doesn't expend the same energy on helping its own members, lawyers. One study reported by the State Bar several years ago indicated that 50% of lawyers in this state earn less than $100,000. Just think, if the State Bar would actually help its members be more effective with their clients, be more efficient in the delivery of their services and, yes, be more profitable, members of the Bar would then i) be less tempted to invade client trust accounts (a public service issue) and ii) have money to contribute to narrow the "justice gap."
Instead, however, the Bar does things that are perceived by our members to be antithetical to the interests of lawyers … The list is rather long and I won't bore you here with issues on which I've spoken before. But, until you (the organized, mandatory Bar) works with its members … until you (the organized, mandatory Bar) has as at least one of its primary goals the interests of its members, you have a great deal of courage (some might say gall) to ask struggling lawyers to contribute more than they already do.
If our Bar were a voluntary Bar, I suspect less than 50% would join … Then we would not have governance issues imposed on us by the legislature. Of course, we would also be far more interested in the thoughts and concerns of our members than is currently the case.
Clearly, these are my own thoughts, not those of any Section or other body of the State Bar … but these thoughts were clearly expressed to me just this morning by another attorney. I thought you should know, considering you're asking us for money.
And let me take this opportunity to wish you and your family the best of the holiday season. You've taken on a very tough job, some would say a thankless job, and I wish you great courage and strength.
Continue Reading...Compensation strikes again!
Today, a client called me to ask whether I know a compensation systems consultant who can help their firm create the right environment for non-equity partners to become equity partners. My response was i) compensation systems are a function of the firm culture and governance; ii) one first must analyze what the goals of the firm are and ought to be; iii) for any system to work, it must have the acceptance ("buy-in") of the principle stakeholders in the firm.
Most systems will work so long as the participants deem the system in place to be fair and reasonable. The system is better, in my opinion, when there are objective metrics in place. But, even subjective metrics work as long as the participants think there is fairness and justice working ... with an appellate process in place that is also fair and just.
Oh, by the way, I concluded, I do that! <g>
Apropos of this conversation, I read that another law firm is being sued for unfair compensation system that works against the women in this firm. See my earlier post on this subject.
Compensation is where the rubber meets the road
As in most law firms, compensation systems is where governance and other issues are expressed.
In a recent matter, a female partner claims that Dewey & LeBoeuf, a law firm that has received diversity awards, discriminates against women. She asserts that women partners receive less compensation than men in the firm.
The firm's partner distribution system is apparently based on origination, not just billable work. This is the case in many firms. What do you do, however, when "the old boy network" was created years ago, when women were not major law firm players, and there is no "sunset" provision in the firm for compensation? Seemingly, this would entrench old relations as the basis for current compensation ... and allow little or no access to women, to younger lawyers, and to other diverse groups in the firm.
Firms unwilling to look anew at their compensation culture will continue to face challenges from within as well as pressures from clients from without.
How do you know if your fee is too high?
The press will fixate on this lawyer's hourly billing rate. But, that is not why he was disbarred. Rather, he was disbarred because of his wild and bizarre conduct.
There is no prohibition to charging a high hourly rate so long as at least 3 factors co-exist: 1.) The client receives value commensurate with the charge; 2.) The client perceives he/she has received value commensurate with the fee; and 3) There is sufficient communication between the lawyer and the client to confirm that the client understands what the charges will be ... and the client is sophisticated enough to accept or reject the engagement agreement and fee being proposed.
The difficulty with fee disputes is that they are always "Monday morning quarterbacking," usually being determined by people who are using outdated standards of evaluation. The only real issues are 1) Did the client understand the fee structure and 2) Did the client receive sufficient value (not time) to justify the fee.
Merger off, lawyers fired, and lawyers hired - Rational?
A major player in the IP field announced that its merger plans with another IP firm have been called off. The assertion is that there were conflicts issues with one major client that could not be resolved and the client would not waive the conflict. While I may be dubious about the veracity of this assertion, sitting on the outside, it does happen.
But, then the firm announces that "... the downturn in patent litigation persists, with fewer cases being filed and more settling earlier.... (C)ases coming in are smaller with tighter budgets and leaner staffing expectations...." And this results in firings/terminations/layoffs (say it anyway you want, the people are gone) of lawyers and staff. In other words, the troubled economy is still having its impact on law firms.
So far, so good. But, then the firm also announces that it sees an increase in patent prosecution, counseling and reexamination work, particularly in the electronics and software practice and the firm will hire first-year associates. Again, from the outside, it looks like the firm is firing experienced lawyers who get paid 3X and will hire first year associates who will get paid 1X. You fill in the numbers. When industry does this, it's called "age discrimination." It may also be called "stupid" because it negatively impacts the morale of the organization ... and you don't build a loyal, cohesive and capable workforce by seeking the least expensive team members. Why couldn't the firm offer the presumably lower paying jobs to the experienced folks? In this economy, they might not like it, but they'd rather stay employed and working with colleagues they know and like and trust. And, the organization will look like a caring place to work, making needed economic changes but also sensitive to the needs of its current work force.
Just seems to me to be a better way to do things. And, at the very least, the PR ineptness of these announcements coming on the heels of one another is just astounding.
Financing contingency cases
In a conversation with a client, we discussed his current predicament. He is strapped for funding in several large contingency matters. He's looking for funding. That struck a cord in me and I write about it today at LawBiz Forum.
There are finance companies, in addition to other resources, that lend money on such cases. That is what my client was seeking. Tell us how you handle your cash flow and financing of large cases. Perhaps you can identify the names of lending companies. I look forward to hearing from you.
Join us at the Forum for further discussion on this and other topics that are challenging and stressing you.
Nixon Peabody fees are cut
Litigation fees charged by Nixon Peabody in a recent case won on behalf of its client were slashed by $400,000. Though still receiving more than $1,000,000, this is a substantial reduction! See my comment today at LawBiz Forum.
Crammed?
There are several meanings for this word, but now a new one enters my vocabulary.
The term for bogus charges in a phone bill is cramming! The current issue of AARP's magazine discusses the history of the activity and suggests that there is only way to prevent unauthorized third-party charges on your phone bill:
- Call the phone company (AT&T: 800-288-2747; Verizon: 800-837-4966; Comcast: 800-266-2278; Qwest: 800-491-0118)
- Or send an email to the writer of the article, Ron Burley.
Lawyers are not the only ones with realization issues
PTinMotion is the magazine for the American Physical Therapy Association, my daughter’s professional association. While reviewing its contents, waiting for her to receive her specialization certification, I read an article entitled “Make-or-Break Strategies for Tough Economic Times.” Perhaps the author read an advance copy of my new book, Growing Your Law Practice in Tough Times.
Here are some of the salient points made by the author:
• Bill Gates started Microsoft in a recession
• Risk is defined as the probability of a financial loss.
• Managing the bottom line or minimizing risk is essential in tough times
• Care for the bottom line: It’s the difference between closing, surviving & thriving
• Perform an internal audit and look at your billing and collection practices
• Identify potential for cost savings
• Risk management is about protecting a company’s assets
• Manage risk in terms of the type of clients accepted
• Lower one’s profit margin in order to attain larger volume
• Review your books twice a month to review your revenue and expenses
• Talk with your staff - they are on the front-line and can suggest improvements
• We have great untapped intellectual and creative capacity. The sky is the limit.
I’m not sure I could have said it better!
Lawyers get paid a lot
Today’s Los Angeles Times discusses the high cost of its corporate parent’s bankruptcy proceeding, again mentioning the specter of $1,000 per hour fees for some lawyers and the average of $500 per hour for all the lawyers. Why should lawyers be paid so much?
At the outset, it’s easy to understand the emotional reaction to lawyers getting so much money. Society, and the media, love to hate lawyers. Just read Shakespeare. Why is it that such visceral reaction is not visited on entertainers or ball players? Why is it that we don’t ring our hands at the low compensation when talking about teachers who mold our next generation of thinkers and leaders? Ah, but that is a different subject, right?
Let’s remain with the lawyers, for now. First, we’ve allowed industry to get huge. In this case, one person, Sam Zell, was able to borrow over $8 billion!!!!! He acquired the Tribune, with all its subsidiaries including the L.A. Times, Chicago Cubs, and others. This alone would make the task one of great complexity.
Then, add to this the federal Bankruptcy Reform Act of 1978, new enough to still be uncertain in some of its applications and broad enough to enable debtors to have a larger hand in the restructuring of their own organization. Next, add the increasing complexity and sophistication of the financial markets, and you have a cauldron that requires very sophisticated counsel and other professional skills. All of this increases the cost of legal services. It’s the opposite end of the spectrum of work ... it certainly is not commodity work. In effect, this type of work may be in the category of “bet the company” work ... and this always is expensive.
Restructuring student loans
In the only case decided today, in United Student Aid Funds, Inc. v. Espinosa, (No. 08-1134) the U.S. Supreme Court allowed the restructuring of a student loan. I didn't think such loans could be part of bankruptcy proceedings, but apparently I was in error.
My question now is: How many more students/former students will be pushed into bankruptcy just to reorganize these normally very large debts?
Lost time = Lost revenue
In an interview with Todd Gerstein, President of SmartWeb Parts, he talked about attorneys' time "leaks." This is an interesting concept, one supported by a number of different surveys. These surveys all point to the fact that time is lost (and therefore not billed) when an attorney fails to make contemporaneous notations of work being done.
Todd suggests that at least one in five timekeepers are guilty of failing to contemporaneously record their time. That's 20% of the profession. Actually, I thought it would be much higher. But, perhaps our discussions over the years on this topic have sensitized a growing number of attorneys about the need to pay attention to their billing practices. He also suggests that almost 80% record their time days or even weeks later! This is just short of criminal negligence!
Attorneys defend their actions (or lack thereof) on a number of grounds: Too busy doing the work for the client; not in the office to input time into the firm's system; forgot to do it now, but will catch up later in the day or week. While these are all good reasons for not making a time entry, they are not good excuses.
The real question, then, becomes what is the impact of failing to record time contemporaneously with the work? What is lost, if anything, by failing to record one's work effort? The simple answer: Revenue!
Todd mentioned a new survey that I found interesting.
If you fail to record your time while you're in the office, the loss is 12 to 30 minutes per day. If you fail to record time while you're out of the office, the loss is 30 to 60 minutes per day. Let's use the latter number, 60 minutes per day, for ease of calculation, times $200 per hour billing rate. Using a 50 week year, you're now looking at $50,000 revenue that is lost ... that is, never billed! Forget about the issue of realization rate and collection. You never can realize what you don't bill. Your client will never pay what is not billed.
You've "cheated" yourself out of a very significant amount of revenue by not adhering to good operating procedures in accounting for the time you spend on clients' matters.
Listen to Todd's podcast for more.
Transparency for E & O Insurance - Finally!
It didn’t take all that long ... I received in the mail today, along with more holiday greeting cards, an errors & omissions insurance policy application. Finally, the insurance industry is showing its true colors in the recent campaign to have uninsured lawyers painted with the “yellow band” brush.
The cover letter for the application says, in bold print: “The Rules in California are Changing” and continues to talk about new Rule 3-410, effective January 1, 2010, to the effect that lawyers must disclose to clients in writing that they do not have E & O insurance coverage. The obvious ploy here is to scare lawyers into buying malpractice insurance.
How much more premium money will carriers earn from this new rule? And how much client defections will 20% of the California Bar suffer as a result of the inadequate measure recently adopted by the California Board of Governors and approved by the State Supreme Court? I suspect enough to have made the insurance industry’s efforts worth their while.
As though the bad economy hasn't hurt the sole and small firm practitioners enough this year, the Bar throws more oil on the fire by either causing this group's expenses to increase (to the obvious delight of the insurance industry) or its revenue to decrease. Either way makes this generally economically marginal group's life more precarious ...
Credit lines dry up - Law firms impacted
It's reported in today's Los Angeles Business Journal that SBA loans have evaporated. "Banks really are stingy..." is the headline. Small Business Administration guaranteed loans, funded by banks, have fallen by 53% from the 2008 level, a year in which the number of loans also decreased from the preceding year. This is further evidence that banks' credit for business and for real estate ventures has been dried up. With TAARP money going to make financial institutions healthier rather than a stated purpose of loosening credit strings to jump start employment and business activity, the financial executives just don't get it. They wonder why Main Street is upset with them as they sit back and take large bonuses; if they also were to spend the funds to help as intended, I suspect the American people would not be so upset. Also, in U.K. where there will be a 50% tax on bonuses. Wow. Wake up Wall Street and bankers before we tumble backward ...
Law firms seeking either an extension or increase in their lines of credit are walking in this same environment. It's tricky, at best, and possibly disastrous. Creating and enhancing a good working relationship with your banker is even more critical in these times. That's the point I make in my book, The Successful Lawyer Client Relationship: A LawBiz Special Report. Just as lawyers are being told to create a "partnership" with clients, so, too, they should create a "partnership" with their banker. This will pay dividends.
Recalibration of law practice economics
NALP survey suggests that 2% of 2008 graduates opened a solo practice within 9 months of graduation! That's a lot of folks who will be representing clients without prior experience either in the management of a practice or much experience in the technical practice areas (tax, family law, bankruptcy, etc.).
I wonder what kind of representation their clients are receiving ... and how does one interpret or define "competence?'' What do you think?
There is a movement afoot to create an apprenticeship program for lawyers. Georgia and Utah both require first year associates to enter a mentor program; of course, there is no requirement that senior lawyers be mentors, so I'm not sure how their programs work in actual practice.
And Howery has recently announced an apprentice program that is getting a lot of attention. Their new hires will split their time between shadowing senior partners, taking classes and working on "low-grade" client matters, being billed out at very low rates.
The recession/depression ("The Great Reset") has provided the excuse for a recalibration of the economics of law practice by many, both clients and law firms.
Suing for legal fees
In a suit, Williams & Connolly, a D.C. law firm, is seeking payment of more than $2 million in legal fees. The client and law firm apparently resolved their differences and created a payout plan, with the client pay 1/3 of the amount ... and now refusing to pay the balance or 2/3 remaining amount.
What makes this case more interesting is that a resolution of the fee dispute was achieved. And later, the client refused to honor the settlement agreement. The client ostensibly believes it can harrass the law firm and then settle again for a lesser amount.
Questions for the law firm:
1. Why did you allow fees to get so high in the first place? Collections should have been more aggressive.
2. Did you have a budget for the litigation for the client that the client accepted ... or was nothing said about the extent of the legal services to be delivered?
3. Was the size of the legal fee a surprise to the client?
4. Why didn't you fire the client before $2 mil?
5. Why didn't you get security for payment of the settlement amount, such as a stipulated judgment in the event of a default or other guarantee such as a letter of credit?
Someone was asleep at the switch...both during intake and during the representation ... and seemingly also at the negotiation for settlement of the fee dispute.
Client security fund amended
The California Client Security Fund has been changed! Now, instead of $50,000, the amount available has been doubled to $100,000 .... AND ... there is no "marriage penalty." That means that a husband and wife are considered as two applicants, raising the amount to $200,000 possible reimbursement from the state's client security fund for a lawyer's fraud.
Not sure, but do you know any other state that equals this amount.
Disclosure of Lack of Malpractice Insurance
The California Supreme Court has now made it official, unfortunately, to the detriment of sole practitioners once again. See Insurance Disclosure as CRPC 3-410, approved by the Supreme Court on August 26, 2009.
See earlier blog posts for the arguments against this new rule.
Lawyers should go where the competition ain't
In a recent NY Times article, several recent law school graduates lamented the recent economic changes, as well as they might. Big Law has, in effect, shut down their recruiting efforts and the lush $160,000 starting salaries seem to have evaporated. "Lock step" compensation models have been transformed to merit based models. And a number of law firm's recruiting programs have been either postponed or canceled entirely.
How can these recent graduates, and even some experienced lawyers laid off from their large firms, survive or even thrive? One way might be to lower one's income expectations. Where is it written that lawyers are entitled to earn $X?
Helping others deal with the intricacies of our society with its many complexities can be rewarding. Will we earn $1,000,000 by doing so? Perhaps not. Can we earn a very good income? Yes.
One suggestion is to go where the competition ain't. Go to the smaller communities, to the "second tier" communities. They are still large enough to have prospective clients with sophisticated challenges. But, many of these communities have been ignored by Big Law and even large regional law firms.
In the interim, until there is a new balancing of economics, quality law school graduates and lawyers who have left larger law firms might set up shop in these smaller areas; they might join smaller law firms even in the large cities. Here, smaller law firms have a unique opportunity to engage outstanding talent at substantially lower cost .. and expand the services they provide to their existing client base, as well as expand their client base.
What will be the impact on law schools? That is an interesting question. Big law firms have postponed and even canceled many of their recruiting efforts. That will provide a glut of talented graduates looking for a diminishing number of positions in law firms. And the anticipated assurance, guarantee if you will, of gainful employment on graduation from their school may be passing. If so, will law schools still be able to charge high tuition as they have? Will students be willing to take on huge student loans when employment is no longer assured?
Economics will continue to control the legal profession as in the past. Those economics today include greater supply of talent (lawyers), clients with greater power of the purse (reduced demand) and lawyers who are becoming more attuned to improving their efficiencies ... and thereby lower cost to clients ... and thereby again impacting the relationships between lawyers and clients.
Surgically remove lawyers
For the second day in a row, the WSJ ragged on lawyers. It's front page headline says "How to Surgically Remove Lawyers From Hospitals" .... Without reading more than the front page headline, one would think that lawyers are a problem for hospitals and need to be removed ... and here's how to do it.
But, when you turn to the Personal Journal section of the paper, the article talks about hospitals' negligence and the fact that many deaths and serious injuries/illnesses are caused by the hospitals and their staffs after the patients enter for other maladies than that which resulted in death.
The writer states that some hospitals are admitting their negligence and approaching the patients and their families with apologies and financial offerings that make sense. Under such circumstances, of course, the patients don't need to work with lawyers ... and that's one way of keeping lawyers out of the discussion. (There are other issues here from the perspective of the patient's protection; that's a subject for another time.)
The real reason for the lawyer is that the institution denies culpability and seeks to stonewall the injured party. What a novel idea -- actually talk to the injured party, admit responsibility and seek to negotiate/mediate a solution acceptable to all parties.
That, however, is not the tone of the headline, nor the attitude of the newspaper. Too bad. Truth should be the standard, not paper sales. I should admit that the headline is not false, just conveys the wrong impression of the article's content.
The Billable Hour Questioned
Today's Wall Street Journal must have read my last blog post that legal costs are controllable. Flat fee pricing is the model that is discussed in the WSJ article. The assertion is that flat fee agreements will result in lower costs for the client ... and less revenue for the law firm.
I'm not yet convinced.
The flat fee provides the client with the ability to better budget the cost of legal services. This is important for the client. It also allows the law firm with the ability to be more efficient (better staffing and use of technology) in the delivery of legal services ... and therefore more profitable. Lower costs to the client will come when there is a competitive environment and another law firm underbids the flat fee of the first law firm.
Of course, we have the same issues. Listening to the client; collaboration with the client; and loyalty from the client. Changing the pricing model does not automatically change the need for these items to create a successful, long-term attorney-client relationship.
When clients impose strict guidelines on the law firm in terms of staffing, for example, the law firm may not be able to adjust. The theory is that once the client, the major corporate client, gets a flat or fixed fee, that client should no longer care about anything but receiving a quality final product. The intricacies of get that final product should then be left to the law firm. If that happens, then the law firm can use less or more expensive staff, less or more technological improvements and younger or more experienced lawyers. The client should not care.
The undercurrent, I fear from listening to corporate counsel, is that their time has come. They want to reduce legal costs at the expense of the law firms. Partnering and collaborating, many law firms believe, are euphemisms, not reality-based. If so, the current change will be a fad, not a sea change.
Cost of legal services is controllable
In a recent conversation between Inside and Outside Counsel, Inside Counsel expressed their concern over the escalating cost of legal services.
They seemed to concur that the greatest impact on cost is not the hourly rate being charged; staffing has the greatest impact on the overall cost of legal services. The next element with the greatest impact is strategy.
Starting with strategy, if you have a "scorched earth" approach, this contentiousness will result in higher legal fees. Appropriate sometimes and not at other times. Pick your poison ... and then look at the cost involved. Next is the staffing; who you have working on a matter is significant. Is this a partner with a higher rate but greater experience who can rip through the analysis and work? Is this a young associate who will take longer to get up to speed but whose rate is lower? And what is your fee arrangement, a blended rate, pure hourly or a variation alternative fee? These are factors that general counsel are reviewing.
Another tool used by Inside Counsel to control costs is to get a budget from their law firms. In litigation matters, almost 100% are budgeted. Quite a change from the time when lawyers were saying they couldn't predict what the other side was going to do and therefore couldn't project the cost of litigation. If you can build the Empire State building on a fixed fee contract, you can budget for litigation. And that is now happening with great frequency.
Clients are wanting to assure that the legal fee is justified in relation to the value of the matter. Thus, the budget is a tool not only for the client to decide whether to go forward, but also to make sure the law firm does not get out of control.
How large should your retainer be?
A very interesting question was asked today on our Forum about how high one's retainer should be in order to assure payment of your billing.
The answer, I believe, is to focus more on the intake process and to assure that the client has the principal to pursue his principle; then, it is a question of educating the client sufficiently that he understands he has received what he has asked for .... in other words, that the client has received the value he bargained for.
What do you think? Share your comments.
Malpractice insurance should be affordable for everyone
President Obama said yesterday that "If you want health care, you should be able to get affordable insurance."
This should be the same for malpractice insurance. If bar associations want lawyers to have malpractice insurance, they should provide affordable opportunities for lawyers.
Why don't our bar leaders see this? Is it that they're not walking in the shoes of their members?
My wife made an interesting observation: Pass an insurance health care bill that gives Americans the same health care that they receive. After all, don't they work for us? Why should they have better health care than they're willing to provide us? Hmmm. President Obama said as much yesterday in his news conference. Our leaders aren't listening.
Choosing between food and rent
In a conversation today with a client of mine, he presented me with an interesting dilemma. He is a sole practitioner with two associates. They both acknowledged that they were down to 50% capacity.
His dilemma now: What is his best choice?
1. Fire one of the two lawyers
2. Take work from his desk and transfer it to them ... this would give him more time to market the firm or more leisure for himself, but it wouldn't immediately increase the firm revenue
3. Have the two associates begin to focus more on practice development efforts that are within their comfort zone to take up the slack time and hopefully succeed in additional revenue
What are your thoughts? Are there other options you can suggest?
He would like to keep both associates fully occupied. But, if he can't, it's like choosing between food and rent. You need both but can't afford to pay full boat to do so.
Legal fees - New proposal prevents retainers
A new proposal, supported by the Board of Governors of the State Bar of California, appears to make it illegal for a lawyer to charge and accept an advance retainer in matters involving loan modifications. Do you think that, after the work is completed, the lawyer will be able to get the client to pay the fee?
How similar is this to the new San Francisco City ordinance that forces landlords to reduce their rent if a tenant loses his/her employment?
I thought these matters were the government's responsibility or charities? Perhaps lawyers and landlords are being conscripted now as charities.
Age discrimination should not be automatic response
Wilmer Cutler Pickering Hale and Dorr has told some of its more experienced lawyers that they will not have a future with the law firm. Without knowing more, it's difficult to come to any conclusions about why there will be termination notices, and why those notices will be directed to more senior or experienced lawyers.
Continue Reading...Suing the client
It's "never pretty" to sue a client. One could be brougt before the state bar disciplinary board, could face a counterclaim for malpractice, and could find one's malpractice insurance premium increased, not to mention bad publicity.
That is why it is so important that the lawyer be ever alert. That means that the lawyer must carefully go over the engagement agreement with the client during the intake session, including having the client acknowledge that the client has an obligation to pay the billing timely and that the relationship is a two way street.
Also, it means that the lawyer should not continue to work for a client who doesn't honor this commitment. As I said to a group here in New Orleans today, your first loss is your best loss. When you see that the client isn't paying timely, why would you continue to work.? Withdraw! (In accord with the RPC)
Otherwise, you're rewarding poor behavior. Would you do similarly with your children? On second thought, perhaps that's the problem. But, in this case, you must ask the question: Would you rather work and not get paid, or would you rather not work and not get paid? The choice is yours.
FDIC unlimited bank account protection
I just met with my banker and she told me of a new program that is very significant for many.
As you know, FDIC insurance protection was available up to $100,000 per customer; for the first time in 28 years, Congress changed this to $250,000. And then, for clients trust accounts, the FDIC instituted a new regulation that stated all clinets' trust accounts, under certain guidelines, could be insured without limit.
Now, the FDIC has instituted yet another change ... only for certain banks that make application and are approved. The FDIC will insure all non-interest bearing accounts without limit. This will even allow you to transfer funds from an interest bearing account to a non interest bearing account, and then be protected for the full amount.
Check with your bank to find out if you can get this added protection in these uncertain times. The program is scheduled to extend through December 2009, though it's suspected that the program will be extended further.
The Business of Law® reigns supreme
It looks like The Business of Law® is no longer an afterthought to the big firms.
Seyfarth Shaw recently announced that its profits in 2009 will fall by 5 to 7%, less than the estimated 10 to 15% projected for the legal industry, that is the large law firms.'
Usually a very private matter, this law firm with a nationwide work force of about 1600 made the announcement after also announcing the layoff of a third layer of people. Why? One guess is that the firm wanted to suggest that it is dealing well with economic realities and that the remaining members of the firm will be in good financial shape. Giving some reassurance is very appropriate since people usually fear the unknown more than the known, no matter how bad it may be ... And in this case, the downturn is better than the expected industry average.
But, making this information public is unique, the American Lawyer notwithstanding. This is like the public stock market. And the audience is more than the "public." The audience is its clientele, to reassure them that the firm is economically viable ... and to potential lateral partners, telling them that the return to equity partners will remain substantial, as well as to placate current equity partners who may fail to pay attention to the periodic financial reports issued by management.
While unusual, this simple announcement may have been unique ... and may have achieved much goodwill for the firm.
DuPont Law Firm Model Cracks
In an article in the ABA Journal, DuPont is reported to be looking at regional law firms, not just Big Law, for its outside counsel arrangements. DuPont started the trend to consolidate its outside counsel needs into fewer, larger law firms. This made sense. The more you can consolidate your resource needs, the lower per unit fee you can negotiate because of your increased power. Also, you can reduce your costs of operation because you have fewer billing statements to review, enabling you to keep better track of the accounting and reduce inadvertent errors.
As I've written before, however, Big Law, with all of the negotiating power of DuPont, still charges more than smaller firms with lower overhead and a smaller profit appetite. They're hungrier for the business. I chided ACCA and its members for failing to see this.
They are about to get the message ... good news for the smaller law firms whose quality of legal work is equal and whose economic appetite are more reasonable.
Budgeting for the law firm
Budgeting for the law firm … and budgeting for individual client matters (both litigation and transactional) has been an important tool for success for the law firm on the one hand and controlling legal costs for ton the other.
Incisive Media’s LegalTech West Coast panel will discuss how budgeting can be most effectively used by those who have ignored it in the past … A “why” and “how” session at a fast pace. Further, unless one bills for services, one doesn’t get paid … My mother used to say “You don’t get something unless you ask for it.” And without collections, you cannot keep the lights on or food on the table. This discussion will also focus on billing for work done, hoping to suggest collection tips as well. “Bottom line,” this is a numbers game that lawyers need to learn and be more effective. If not, they will not survive, let alone thrive.
Join me as moderator of an outstanding panel in Los Angeles on Thursday, June 25th.
Fee or Free
A client of mine asked me whether he should charge a prospective client a fee for their initial consultation, the meeting before being engaged.
There are three approaches to this issue, long debated amongst lawyers:
1. Free initial consultation
2. Paid initial consultation
3. Paid initial consultation with the payment applied to the total bill if they engage you.
There is no one right answer or magic bullet in response to this question. Obviously, everyone wants to get something for nothing. But, we then also run into the bromide that "you get what you paid for." In this case, nothing.
Whether you can charge for the initial consultation is normally a question of the client’s trust in you, their confidence in you … and how long it takes to generate those feelings in the client toward you …
I don’t think “free” connotes expertise … and that’s what prospective clients are looking for. In deference to the current economy, and the need attract clients, you might consider alternative #3 ... charge them an initial consultation fee, and apply that amount toward the total fee in the event they should retain you.
This is never an easy choice. But, we must remember that people do believe they get what they pay for ... and anything free is usually viewed with suspicion either as to motive or expertise. A discount in an on-going relationship, however, is viewed differently and not to be confused with the issue at hand.
Can you afford to retire?
While the economic crisis is being felt by nearly every segment of the working population, one group of workers is faced with particularly tough decisions regarding their futures. Law firms need to be prepared to assist them in making a transition during challenging times. Six-in-ten workers (60 percent) over the age of 60 say they are putting off their retirement due to the impact of the U.S. financial crisis on their long-term savings, according to a survey by CareerBuilder.
I agree with Ron Friedmann that lawyers, even partners in larger firms, are feeling the economic strains of today's world and therefore delaying anticipated retirement. But one group of lawyers may not: Sole and Small Firm lawyers. These folks have something of value that they can sell .. converting their equity into cash. Most lawyers never thought their law practice was a saleable asset. So, while their investments may have tanked, they can look to their law practice for ready cash.
Increasing purchasing power for lawyers and staff?
There is so much happening in our profession that it’s hard to keep track …
I read an interesting article in a recent issue of the New Yorker Magazine that employed workers are actually seeing an increase in purchasing power because of declining prices all around. Yet wages are not going down because, historically, companies have chosen not to change wages for reasons relating to employee morale. I’m not sure whether that historical fact holds true in this environment. I just read that a couple of the large law firms are telling their new hires that the starting compensation will be $145,000, NOT $160,000. Obviously, change is in the air.
The purchasing power for employees is an interesting thought. The key, of course, is to keep your job and even lawyers are facing challenges here.
50 Financial Tips to Thrive in a Down Economy
Join me for an ABA teleseminar. Outstanding panelists in a fast paced presentation that will provide tips to thrive in the new economy! Geared for sole and small firm lawyers. Sign up today!
Pay attention to your clients
I was coaching a client today. She pulled at my heart strings by telling me the problems she is having with several of her clients who owe her money, big sums of money.
One of the clients paid her $37,000 two weeks ago and already owes her another $27,000. After complaining about some of the services and getting a $5,000 reduction in billing, he has not yet committed to a date certain for payment of this amount. Oh, yes, you guessed part of it. "The check went out last week."
Should she continue working for this client? My advice was to review your file to make sure it's clean and not susceptible of negligence claims, make one last effort to collect by telling the client he has to pay what is owed within 7 days or you will file a motion to withdraw because the client has not honored his agreement commitments, and then be sure you are far enough away from trial to have sucha motion granted.
Bottom line, however, while you are taking care of your client, you must take care of yourself! If, while focusing attention on the client's issues, you ignore your own billings and accounts receivable, you will lose the respect of the client, you will not get paid the full amount owed to you, and you will not get more referrals from this client. Lawyer Beware!
Put your best billing foot forward first
Put a “positive spin” on the description of your services. I have been saying this for many years in the context of preparing your billing statements for work done for clients.
Continue Reading...IOLTA funds update
See the latest edition (March 3rd) of our newsletter featuring a discussion about the safety of IOLTA funds and the responsibility of lawyers for the failure of banks holding their accounts.
Economy strikes again
California's Governor is now suing the California Controller. The Gov wants to furlough government employees for 2 days per month, unpaid! He says that will help the cash-strapped state. Funny how top paid folks always look to the lowest paid folks to carry the burden. How about the auto industry flying to Washington to ask for money in corporate jets! Or bank executives getting hundreds of millions of dollars in compensation buyouts ... all the while asking/blaming the ones who least afford cuts to reduce their compensation.
Oh, and the latest! .... California is withholding payment to appointed attorneys in criminal defense matters ... who, among lawyers, gets paid the least, and who, among lawyers, needs the cash flow the most? Appellate lawyers who take on appointments from the State ... Wow! And it's these folks who are now being stretched in receiving payment for services delivered.
What will be the cost of malpractice insurance?
Insurance rates are based on three elements:
1. Losses. Carriers normally allow 5% to 10% for claims payouts, or losses.
2. Reinsurance. The cost of reinsurance, where the primary carrier passes some of the risk of their policies to other insurance companies, called reinsurers.
3. Investment income. Carriers normally invest their cash reserves in stocks, bonds and other income producing products to increase their own net profit or return for the benefit of shareholders.
Malpractice insurance under study again
I'm currently involved in a meeting at the State Bar offices in San Francisco. The focus of the meeting is to understand the availability and affordability of malpractice insurance.
Interesting that there is no consensus on the definition of affordability. The professionals in the room suggest that some lawyers will say that no amount of premium is affordable. My contention is that a 1 or 1.5% of gross receipts would be affordable. But 5, 6, or 10% of gross revenues is outlandish.
The discussion is also framed in the context that the malpractice insurance market today is "soft," that there are almost 30 carriers in the market ... But, insurance rates will rise in the not too distant future. Premiums are based on loss experience, reinsurance availability and investment income. With the current financial crisis, investment income will decrease and this will dramatically impact insurance companies and their financial health ... and then increase the premiums! No such decision should be based solely on this fact. The Bar needs a longer term perspective.
The Board of Governors has adopted the Rule of Professional Conduct requiring disclosure if the lawyer has no malpractice insurance coverage; thus, the focus of this group is how to help lawyers comply ... that is, how the Bar can ferret out insurance premiums that are as small a percentage as possible of gross revenues (affordability).
The net result of the meeting is a mandate to do a survey to find out what lawyers think is "affordable." Hopefuly, the survey will produce meaningful information.
Financial concerns
West LegalEdcenter will host a one hour teleseminar on Selected Aspects of the Economics of Law Practice in today's chaotic environment. Ed Poll will be your host. I hope to "see" you there.
Lowering legal fees
Clients seek to control the costs of their legal challenges. According to a study by the Association of Corporate Counsel, as noted by Larry Bodine, corporate general counsel do so in the following ways:
"The most common methods to control outside legal spending during the past year were: case/matter budgets (52.9%), discounted/alternative fees (52.9%), re-allocation of work to firms with lower rates (43.7%), billing guidelines/ spending rules (43.7%), and electronic bill reviewing and auditing (34.6%)."0
While reallocation of work seems to be an obvious choice, I've always wondered why more law firms don't do this. If you have several choices among quality law firms, why wouldn't you go with the less expensive? Perhaps because business is often based on relationships, and if there is a good relationship between client and counsel, the legal work may not go into play to find out whether there is a less expensive option available. This is often called "loyalty," the most desired state of affairs for vendor-partners.
"The perfect crime"
Bill padding is the perfect crime, according to William Ross. There are many examples lawyers can point to in their own firms. However, there may be an element that some are overlooking. That is the obligation to "snitch" on one's peers if they suspect the practice is being committed by a colleague.
Obviously, such practices are difficult to detect by clients. The question is whether such practices can be detected by a colleague and then, if suspicion exists, what needs to be done about it. Must the lawyer report the suspected practice to the firm? Must the lawyer report the suspected practice to the client? Must the lawyer report the suspected practice to the State Bar disciplinary board?
Continue Reading...Salaries frozen
Big Law freezes salaries for 2009 ... and bonuses will be reduced for 2008! Clients are demanding that rates remain constant, no rate increase for most, though some will be able to get away with modest increases.
Clients, in general, are becoming more demanding. Lawyers need to "get over it." Lawyers are not entitled to continuous increases and must realize that we are in competition, not with other lawyers so much as with other service providers by way of comparison. And clients will leave if they are not happy with how we relate to them, serve their interests both economically as well as responsiveness.
One example happened to me just this morning. I asked my lawyer a question by email. He called me to respond rather than responding to me with an impersonal email. He asked a simple question or two and provided me with a very simple, yet effective answer that addressed my issue completely. I'll pay at least 1/4 hour (or his minimum if higher), but my issue of the moment was addressed completely. That's effective, efficient service.
Panic attack
The economic crises has finally hit home. People I know are talking about October and November as being months when the world stopped! ... and they couldn't get off. No one seems to know what is going to happen next.
I met yesterday with managing partners of several major law firms in my Managing Partners Roundtable.
Continue Reading...So you thought you are a lawyer?
Do you want to be a banker or lawyer? See LawBiz Tips current edition for one perspective.
The Risk of a Blank Check
I have warned about the dangers of law firms paying staff salaries and even partnership draws by using their bank lines of credit. In a credit line arrangement, the firm borrows and repays at will up to the amount of the credit line, which the bank regularly reviews and extends, increases or terminates as circumstances warrant.
Continue Reading...Time sheet records = Revenue billed
Complete your time sheets daily, every day.
The best practice is to keep a running log of time (software-based or otherwise) of everything you do as you do it. If you’re a scrap-of-paper person, then you need to aggregate and compile the list for your billing program before leaving the office that day. Even if your memory rivals that of the elephant, you will miss things if you don’t do this every single day.
One missed 10th of an hour each day translates to 23 lost hours a year. And failure to keep current, proper time records will usually result in more than just 1/10th of an hour lost ... DAILY ... and MANY thousands of dollars in lost billable revenue!
Cash sources are drying up
Not all that long ago, I learned about a "new" source of cash. I hadn't heard of this before.
Life insurance policies on older people can be sold --- the buyer pays for the policy and "cashes in" when the insured dies. The price paid to the owner of the policy usually exceeds all the insurance premiums paid to date, and then some. This lump sum payment can be significant. And a new insurance policy, premiums paid annually, is a small fraction of the lump sum payment received on the old insurance policy.
This is similar to another creative product ... reverse mortgages on residential real estate.
With the financial crises upon us, this $12 billion (2007) life settlement business has been hit hard ... and older folks attempt to use "life settlements" to carry them through retirement when their other capital resources are dwindling is faltering. The buyers of these policies are finding that their sources of cash (banks and other investors) are having cash flow problems as well. Thus, the funds are drying up, and the number of buyers/investors in this type of asset is shrinking.
Our creativity in creating financial instruments in the last 20 years without adequate substantive backing has caused us problems. Perhaps our creativity will also get us out of the current dilemma. Postponing retirement may not suffice to keep us in our life style; it certainly will be a damper for those who have dreamed of traveling and just relaxing once they reached a certain age. With "that age" being pushed further out, there is likely to be great resenting and disappointment ... this can cause illness ... and this can exacerbate the aging problems and family cash strains.
Lawyers are finally listening to me when I say that their law practice has value and can be sold ... this is one way to raise cash that will assist aging lawyers (Baby Boomers and others) to smooth out the wrinkles in their financial plans caused by recent economic events.
Client trust accounts update
Lawyers who have client trust (IOLTA) accounts were exposed to personal liability for a bank’s failure. The argument went something like this: The lawyer selects the bank into which the funds of a client are deposited. The funds could come from advanced fee payments, settlement amounts or trial victories. If the amounts for the benefit of a client, coupled with the funds of a client in the same bank, exceed $100,000, the balance above that amount is not FDIC protected. If not protected and lost because the bank fails, the lawyer as the principal in selecting the bank is strictly and personally liable to the client for the loss.
Continue Reading...Do you still have your 401(k)?
Many companies are going bankrupt. This is a growing practice area of the law. What will be the impact on the pension plans through bankruptcy? A number of large law firms are closing their doors ... what will be the impact on their 401(k) plans? Have they become 101(k)’s, or gone away altogether?
Chapter 7's usually terminates the 401(k) enabling the participant to roll it over into another appropriate plan. Chapter 11 may or may not impact the fund.
Staff should review the plans where there funds are placed . Unfunded employer contributions are at risk. There may be a full vesting if the firm discontinues contributions ... but unfunded is still unfunded!
While I claim no specific expertise in this area, there has been an entire generation of employees/staff/associates, et al., who have counted on the growth of their pension plans for retirement, early or otherwise. Now, for the first time in years, there is a feeling among many that they may not be able to retire at all ... or at least many years later than anticipated.
In the recent past, we talked about multiple generations working together in the same firm, with all of the consequent challenges of communication. While many thought the Baby Boomers (400,000 of them) would retire in the next 10 years, it is conceivable that they may not be able to leave because of the decreased value of their pensions and other savings.
What will happen?
Our financial fiasco and legal fees
Listen to Patrick Lamb, a prominent attorney and leader in the discussion of value billing and alternative fees. In our podcast, I asked Patrick to discuss the impact of today's crises on both legal fees and attorney compensation.
Time sheet records = Revenue billed
Complete your daily timesheets by day’s end. The best practice is to keep a running log of time (software-based or otherwise) of everything you do as you do it. Or, certainly before leaving the office that day. Even if your memory rivals that of the elephant, you will miss things if you don’t do this every single day.
One missed 10th of an hour each day translates to 23 lost hours a year. At $100 per hour, computing this time, without doing more work at all, will result in $2,300 additional revenue. That isn't much, but it's more than a good dinner. Increase these numbers by your actual billable rate ... and the time you actually don't bill, you will increase revenue by a very significant number!
Schadenfreude
Schadenfreude …
"Schadenfreude is the delight one finds in the misfortune of others. (Yes, from a German word, and pronounced: SHA-den-froy-duh.) But don't let this emotion linger. Focusing too long on another's failure -- or even their success -- means you've lost sight of your own business." (From Carolyn Elefant)
Never heard this word, and now in the same day, I’ve seen it twice … must be evidence of the depth of our economic depression …
Even law firms feel the strain of today's economy
Law firms are not immune from the economic woes and financial crises being experienced by the rest of the economy. Other than a few law firms that have dissolved, though, the pain being felt by law firms as institutions is just not that bad. Laying off a few associates, or delaying the start date of recently hired graduates, may be novel for law firms, but is not huge in the grand scope of law firm economics.
Individual partners in Big Law may be feeling some pain, that is if you call "pain" taking home a few dollars less. A 20% decline in equity partners' compensation when already earning $1,000,000 just doesn't get much sympathy from many.
The real "hurt" is being felt by lawyers other than "Big Law," the small firms and sole practitioners. These lawyers can ill-afford a large reduction in compensation. They're not at the top of the pack to begin with ... and they generally represent clients in "personal," not "corporate," matters. Personal injury, family disputes, criminal defense and personal debtor claims, among others, tend to pay less to begin with. Couple this with reduction in number of clients and number of matters and slower payments, then you can begin to feel the real pain being felt in the profession.
While few can predict with any real accuracy the change in the economic winds, the demise of law firms is caused more, in my opinion, by poor business judgment of lawyers rather than the change in the winds. Expanding without a safety net, relying on only a few big clients while making capital expenditures relying on the continuity of that revenue, and failing to address assertively a declining realization rate are real reasons, among others, for law firm troubles.
It's just too easy in our world to blame someone or something else! As Pogo said, "We have met the enemy and he is us." The reasons for law firm problems are generally as a result of poor business practices, plain and simple. Yes, there may be extenuating circumstances, but not such as to tear the firm apart or cause its demise. There is no entitlement ... and there is only ourselves to blame. Given these premises, we can move forward to greater success.
Realization rate is the basis for survival
I received a call from a client today. He was talking about billing out $150,000 last month, but collecting only $90,000. This is a realization rate of 60%. In any business, if you collect 60 cents on the dollar, you are going to face disaster in short order. The same is true in the legal profession.
If you earn only 60%, in order to survive, you will need to treat the 60% as 100%. In other words, all your financial decisions will need to be based on the money actually collected, not on the billings sent out. If you can run your business on the 60%, that would be fine, but few lawyers can ...
Lawyers must vigilantly focus their energy on collecting what they bill. Failure to do so will cause economic failure. Unlike good wine, accounts receivable do not get better with age. For help, see my book, Collecting Your Fee: Getting Paid from Intake to Invoice, published by the ABA.
Lawyers seeking growth have two ways: Increase revenue with new clients (or more work from existing clients) and increasing their realization rate. As noted in a previous post, focusing on reducing expenses can address only a small portion of the equation, P=R-E. Increasing your realization rate, however, enables you to take full advantage of the effort you've already expended.
The call caused me concern, but there is a bright side ... It was the wake-up call to run the law practice well.
Selling your law practice
On Friday, I coached a client about selling his practice. Our conversation was far-ranging. I started with several questions of my client that, in my opinion, set the stage for all further deliberations. How do these questions resonate with you? What additional questions might you ask yourself?
- Why do you want to leave your practice?
- What do you want to do in the "second season of your life?"
- Do you want to retire, or start a new adventure?
- Can you achieve the same objective without selling your practice?
Law firm overhead - Can we cut?
During our program at the recently concluded ALM Law Firm Leaders conference, today, Running Your Firm as a Business - A Closer Look at the Middle Office, I had an ah-ha moment! The moderator of our panel, Ron Friedmann, Senior Vice President Marketing of Integreon, talked about Australia’s law firm, Mallesons. The firm received an award for innovation from the College of Law Practice Management. Their project created a whole new office environment – ostensibly this was to reduce expenses, but actually had a dramatic impact on revenue by enhancing their service for the benefit of clients; they increased the number of client contacts..
Continue Reading...Pricing and Profits
Today's Wall Street Journal has news about 3 major companies' profits being higher than anticipated. Coincidentally, they all raised the prices of their products.
Despite "high" hourly pricing in the legal community, one wonders whether there isn't room to raise prices further. If this is something you may want to consider for your strategic plan, see my article that suggests how and when to adjust fees.
Law firm economics during crisis
During times of economic crisis, law firms need to be even more careful with the economics of their practice, according to writer Shannon Nelson of Law360.
Continue Reading...Collections in time of financial crisis
I was talking to Patrick Lamb today, asking his opinion about the impact of today's financial crisis on law firm fees. His response brought me up short, though it shouldn't have. He said that restricted credit lines have impacted everyone. After all, even banks won't loan to other banks overnight funds as was normal before the crisis for fear of the 2nd bank's failure. If banks won't loan to one another, how can we expect banks to loan funds to law firms? Thus, collection policies of law firms must be carefully monitored and honored. Collection of billings, high realization rates, is essential to the survival of law firms in today's environment.
Lawyer Retirement May Be Only a Dream
Will lawyers actually see their “second season,” their “red zone” of life? Will the 400,000 lawyers projected to retire within the next 10 years have to work or will they be able to retire? Will lawyers be just like others in our country today who are seeing their “nest eggs” dwindle by at least 50% in just the last few weeks?
Continue Reading...Law Firm Revenue Projections
A recent study by a major bank suggests that the revenue of large law firms have been flat or decreased 10%; the next tier of law firms experienced 5 to 15% declines.
But, 2009 should see better results according to this study. Firms have absorbed the increased compensaton for associates. Firms have moderated the growth in their head count, both of new associates and lateral movement that doesn't return immediate results.
There will be more segmentation of work by corporate law departments. This will provide work for smaller law firms from General Counsel who will be more cost conscious. This will especially be true if the current "value" emphasis by members of ACC (Association of Corporate Counsel) comes to pass. There will still be work that will not be price-sensitive.
Retirement may be merely a vision now
One pundit commented today that our 401 K's have now become 101 K's!
With close to 400,000 lawyers (Baby Boomers) slated to retire in the next 10 years, the legal profession will be rocked! How, however, no one is yet commenting.
With the current financial collapse, and investment values plummeting by 50% in many cases, we may not see so many retirees, after all. Even lawyers may have to work longer years than they anticipated. We may have one more generation than contemplated in the work place. Will we see even more challenges in an effort to understand why each generation reacts differently to the same stimuli? How will we reconcile the differing values between, and now among, generations? As Rodney King once said, "Can we all get along?"
An oxymoron
With the recent financial crises still in the news, it is helpful to find a little levity. While coaching a client of mine today, we were talking about Bank of America buying all the other banks at bargain rates.
His comment: Bank of America is an oxymoron, it should just be called The Bank!
Client trust accounts and bank stability
The State Bar of California recent answered several questions about the FDIC and clients' trust accounts. While their comments relate to California lawyers, their comments are instructive for all lawyers with clients' trust accounts. Caveat: Check your jurisdiction's rules and regulations, including those of both the bar and the banking associations.
Continue Reading...Rules of Professional and Beautiful Lawyers
The September 15th edition of Massachusetts Lawyers Weekly has two articles, one on top of the other, each with the photograph of a rather attractive woman. No sexism intended here, but this is the oldest tactic in the business to sell newspapers!
The first article discusses a proposed change in a Massachusetts rule of professional conduct that would require a successor contingency fee lawyer to be responsible for the predecessor counsel’s fee, unless there is an agreement to the contrary in effect. Obviously, this rule has prompted controversy. Lawyers in Massachusetts should be quite wary of this proposed rule and make their voices heard.
The second article features a well-endowed lawyer who will be the cover photograph for the 2009 Beautiful Lawyers Calendar, featuring 12 lawyers “who reportedly embody ‘the style and spirit’ of the Massachusetts bar.” If other states do not follow suit, there may be a heavy influx of male lawyers to Massachusetts. And if other states do follow suit, we may see the beginning of the demise of either Sports Illustrated bathing suit issue or Playboy!
Note to my readers: After my previous post about our economic and political systems collapsing around us, I had to attempt some levity, even if not PC ... In advance, I ask for forgiveness, hoping you will see the humor in this as I do. Perhaps, though, you need to read the newspaper to get the full impact of my reaction. <g>
Three Lenses for Law Firm Recession Survival
The days of multi-million dollar profits per partner and rapidly rising triple-digit associate salaries were never real for most law firms, especially when considered in light of the demographic of law - more than 70% are in small law firms. But, now firms big and small, conservative and highly leveraged, all feel the business pressure from the economic downturn.
Big Law and the "Value Revolution"
On September 26th, ACC is planning a live webcast seminar to introduce its "value revolution," designed to teach about lowering large law firm fees to corporate clients.
Continue Reading...Lawyers' responsibility for clients' trust funds
Managing and accounting for client funds held in trust is a personal responsibility of the lawyer. Although there are a number of good computer software programs to assist with trust accounting, including QuickBooks by Intuit, the lawyer who receives clients’ trust funds bears all the responsibility of accounting for every penny. In an accounting sense, these funds are a liability of the law practice to the client, must be kept in an entirely separate account, and cannot be commingled with any other law firm funds. Recent challenges to the country’s banking system raise the specter of bank failures, with wide impact on the American public. Lawyers, for example are the subject of recent inquiries because of their IOLTA trust accounts.
Continue Reading...Paralegal compensation
- Compensation increases averaged between 3 and 5%
- The highest paid paralegals are litigation support/technology managers who earned a median annual base compensation of $115,000
- The average billing rate for paralegals was more than $150 per hour, with rates for most positions exceeding $175
- Paralegal case managers in law firms averaged 1,642 billable hours, followed by senior paralegals at 1,530 hours
Like every other profession and trade and business, the practice of law is a business ... That means we're governed by the same formula: P=R - E. Profit (take home pay) equals revenue collected less expenses.
Remember the ABA study that opined that lawyers who billed 1,500 hours per year would earn a substantial income? Apparently, the standard today is between 1800 and 2200 hours of billable time. That doesn't leave much time to eat, brush your teeth or say hello to your kids. And, of course, this does not include the hours spent on visioning the future of and operating your practice today as a business, which it is.
We need to spend many hours tilling the soil if we want to advance, both professionally and economically. "The grass is NOT greener on the other side." It's just a different set of challenges.
High Compensation for Poor Performance
The U.S. corporate figures are similar, only bigger.
Now look at AmLaw 100. Are the numbers different? Not by much ... When partners are earning in excess of $1,000,000, some in excess of $5,000,000, how can you complain about associates seeking $160,000? Because the firm will feel compelled to raise its rates to clients? Because some clients will resist? And the C-Executives complaining are earning how much? How many millions?
Sorry, but in this circle, there is little sympathy for the corporate client with those numbers who complains ... This corporate client has options: Why not engage regional law firms with equal skills and lower rates? Is it necessary for large firm partners to earn such large sums in order to be at the table with CEOs as a colleague, not as a vendor, or can their expertise be sufficient to earn them the seat at the table?
Interesting difference, though, between law firms and corporate clients. The corporation pays a high severance package while the law firm does not. Another difference is that the corporate executive is able to negotiate the very attractive severance package before entering his/her employment and the lawyer generally is not.
One day, I'll create a listing of the differences between the C-executive and the lawyer. I think this would be very enlightening for us. But, that's for another day.
Intake Session Critical to Collecting Legal Fees
See Collecting Your Fee: Getting Paid From Intake to Invoice for more information about the intake process.
Interestingly, Wall Street Journal wrote an article about Countrywide and the source of its problems. The headline mentions the underwriting process being inadequate with many clues being overlooked and ignored. Hence, the credit crisis.
IRS changes mileage rates
This is the first time in my memory that the IRS is reasonably current with today's economic realities! <g> If you have to go 10 miles to the grocery store, the IRS believes it will cost you $5.85 for the trip! All the more reason to ride a bike or shop more locally ... How has your life been impacted by "Big Oil"?
If all else fails, sue!
Likewise, in our law practice. Clients get angry with us, they have financial reverses, they didn't get the result they expected or, for some unknown reason, they just don't pay their bill. Can we do something to avoid this situation? More so than with weather, the answer is "yes." We can be more proactive in both our intake session --- setting reasonable expectations --- and we can be more vigilant monitoring our clients' behavior after our billings are mailed, making sure we get paid for work we do or we stop working before the client will be prejudiced by our cessation.
I discuss some of these scenarios in my book, Collecting Your Fee: Getting Paid from Intake to Invoice, which is mentioned in today's LawBiz® Tips alongside my article, "If All Else Fails, Sue."
Double billing - A new twist
There is a new twist raised in these cases. Under the "double billing" phenomenon, a lawyer cannot bill two clients for the same minute of time. When using the hourly billing system, you can bill only one client for each segment of time to be billed. In other words, when waiting in court for a matter to be called, and billing client A for that time, the lawyer cannot bill client B for that same waiting time though he/she is doing other work for client B pending the call of the court. Or, while charging client A for travel time, the lawyer cannot charge client B for working on his matter on the plane.
The new twist is that lawyers in two law firms were listed as employees of the New York State's pension funds. This gave them retirement credits from the funds even though they either did no work at all for the funds or were gainfully employed and paid by the law firms, not the funds. This takes "double billing" to entirely new level!
What should I consider when raising my fees?
Budgeting for Success
Tax man cometh
And California is seriously considering imposing a tax on professional services, even on lawyers! Would this violate the rules of confidentiality by requiring the disclosure of the client's name when creating a report to the State? What other rules of professional conduct might be violated by such a provision? Stay tuned as the legislature continues its deliberations --- and then almost certainly litigation to prevent its implementation.
Law is subject to economics - duh!
Secret to increasing legal fees
Cash reigns supreme
What a novel concept! In the posting of another blogger, the suggestion was made that only accrual accounting tells an accurate picture of a law firm's financial position. Yet, one can find many businesses that have good accrual financial statements but fail because they lack cash flow to sustain their business. The reverse is true. Businesses can show losses in the accrual system but have great cash flow -- they collect their sales and receivables very quickly -- and survive for quite a long time.
Possibly the first national law firm grew to its prominent position many years ago because of the almost fanatical focus on collecting accounts receivable. Their realization rate was very high. It is essential for lawyers today to focus on this metric to be successful.
Profits are essential, but cash is and has always been the key ingredientt for successful businesses and law practices. It is still true today ... and, as the article suggests, cash reserves will enable the business to continue even through a down economy.
Legal fees - Value is in the eyes of the beholder
Price and value are clearly not the same when it comes to legal fees. While both are time sensitive (as of any given moment in time), the former generally is set by the seller/lawyer and the latter is generally perceived by the buyer/client. Price can be value, in my opinion, when the client is involved in the setting of the legal fee and price is determined by the value perceived by the client. Some folks call this "value billing."
Billable h ours on the way out?
Does any or all of these new approaches increase the cost of doing business? Possibly. Do they increase satisfaction of your clients. Definitely. Do they increase your revenue? Quite probably.
These approaches are worth considering and perhaps adopting for your practice.
Cash flow of lawyers is impacted by insurance proposal
Still, the question I asked earlier in this series has yet to be answered by the Board of Governors! Why is it that shareholders of law professional corporations do not have to disclose that they do not have malpractice insurance? Or, at least meaningful malpractice insurance? All they need to do is sign a piece of paper saying that they will be responsible for the first $50,000 of a malpractice judgment. There is no financial statement required, no verification of financial ability and no insurance policy required under the current rules; nor is there any such requirement under the new proposed rule!
And why is this fair in the minds of the Governors supporting this proposal?
Is the billable hour a trap? A contrarian perspective.
Because of his comments, I began to think about this subject in a way different than I have ever done in the past. I want to share some of my revelations as, perhaps, a catalyst for your further consideration on what clearly is a very important issue.
Continue Reading...
Solo lawyers and malpractice insurance debate
Law Firm Fees & Compensation
Learn why legal fees and compensation are integral components of the same dynamic!
Fraud by lawyers
The theory is that knowledge by clients will prevent fraud. I've never known knowledge of such settlements preventing thievery. But, then, I've also never known clients who walk away just because a lawyer has one sentence in a fee agreement that they have no malpractice insurance.
First, there is a very small percentage of "bad apples" in the legal profession. Second, remedies such as the "disclosure" requirement are band-aids on a scab. They are not truly remedial of the cause of the problems. While the rubric is "client protection," the real protection will come from better education of lawyers, including practice management education, providing affordable malpractice insurance, and then requiring every lawyer to have malpractice insurance -- real insurance, not self-insurance!
Collecting Your Fee -- Sue As Last Resort
However, where there is delayed payment, be sure it is not because of a legitimate complaint against you or the service provided. Given that, if the client has the ability but not the commitment to pay, you may want to consider filing suit against the former client.
You should review certain considerations before doing so: Continue Reading...
Getting Paid to Complete the Cycle
David Leffler, in GPSolo Magazine (Oct/Nov 2007) suggests that there are five stages to paying a lawyer’s bill:
1. Denial – Client says this couldn’t be my bill, the charges are too high.
2. Anger – Client says lawyers are way too expensive for what they achieve.
3. Bargaining – Client seeks to negotiate a reduced fee with the lawyer.
4. Depression – Client doesn’t contact you and is unavailble for your calls.
5. Acceptance – When Client sends you a check that clears the bank.
David talks about the importance of the beginning of the lawyer-client relationship. I agree. The intake process is what essentially sets the tone of the relationship. In my opinion, your success in the intake process at the beginning will determine your success in collecting your fee at the end.
For more about suggestions about lawyers' collections efforts, see my book.
E-billing: Blessing or Burden
Pro
• Find errors and charges that aren’t in keeping with the client’s billing standards
• Compares costs among various outside law firms
• Saves 15 - 18% of its outside legal costs in some instances
• Reduces workload in reviewing and approval process
• Increase payment by 30 days to the law firm
• Faster pay increases profit for the law firm
Con
• Increased cost connected with e-billing
• Usually have to hire a dedicated person/staff to deal with the e-billing detail
• Places small firms at a competitive disadvantage because they generally can’t afford the cost of the software, the learning curve and the additional staff required to handle the process
• On-going software maintenance fees
• Additional fee for each additional custom billing template needed for a new client
• Added accounting requirements
• Steep learning curve for attorneys to learn different billing codes for each client
• Increased possibility/likelihood of billing errors because of lack of uniformity in codes
• Rejection of total billing invoice when there is a human error on one element – invoice is returned for correction
• Notification of error is seldom complete and law firm is expected to know what the error is; if this is not the case, the process becomes process, return, fix, return, reject, etc., until it is finally determined what the error is and it’s fixed.
The article concludes that, at the moment, e-billing today is not likely to benefit law firms, though it may in the future; but it clearly is an added cost of doing business.
Thus, whether it's a blessing or a burden depends on which side of the table this discussion finds you.
Malpractice Insurance Disclosure Sent to Committee
That amended proposal, then, was defeated; a subsequent sense of the Board was to send this issue to its own committee (Regulations, Admissions & Discipline Committee, not the original task force that was submitting the proposal) for further study. Two issues were uppermost in the Board’s mind. One was whether the amended proposal could be adopted by the Board without further public comment and, second, whether the full ramifications of the original proposal were completely understood by the Board.
It is hoped that the RAD committee will be successful in addressing the issues that face all of the stakeholders involved, the public and members of the Bar, without the perception of self-interest or financial gain for the Bar ... and with the interest of all lawyers in mind (including the 30,000 not currently insured). Continue Reading...
Collecting Your Fee mentioned
“… a client who genuinely respects you and the work you did will pay your bill in a timely manner.” ED Poll (2003)
In meeting Ed a few years ago and having the opportunity to speak with him on several occasions, I can’t help but say that those few words embody AR collections. Not just law firm collections, but all collections. When we communicate with our clients, we need to keep in mind that every communication either gets us closer to payment or further from a payment. Our motivation, if you haven’t already seen it, should be closer to receiving payment!
Legal Fee Guidelines
The focus of the opinion is whether it is reasonable to charge for email and other communications among the staff and lawyers about a client's matter.
Continue Reading...
Save money by knowing the earth is flat!
It took Thomas Friedman to teach us that "the world is flat" by going from the West to the East!
Friedman teaches, among other things, about "outsourcing." Many lawyers are using this principle (sometimes also called "delegation") to lower their cost of operation and thus increase their profit. Even sole practitioners and small firm lawyers can effectively use this principle.
I encourage you to read Friedman's book.
Malpractice insurance disclosure
The tidal wave has not yet struck! That means there is still time to save ourselves.
The California State Bar Board of Governors voted today on the proposal to require disclosure to prospective clients that they do not have malpractice insurance (if they don't). Other lawyers who are either exempt under the rule or who do have E & O coverage do not have to discuss malpractice insurance or disclose anything about the subject in their engagement agreement.
Continue Reading...Law firm virtual banking
It is a remarkable instrument that further reduces the bank float from your clients and gives you almost immediate access to "good funds." No more waiting for the "check to clear" or other excuse for delaying your use of funds. Continue Reading...
Lawyers Need Work
It is also consistent with my assertion that law is a business, or framed in the context of my registered trademark, The Business of Law® is governed by the principles of economics. Yes, law is a profession, but as Tower Snow, once managing partner of the former Brobeck, Phleger & Harrison law firm in San Francisco said, “Law is subject to the same laws of economics as any other business...” Continue Reading...
Associate lawyer compensation: Have we yet hit the vomit point?
Thus, today's article in The American Lawyer by David Brown may shock those of us who are over the age of 30!
He talks about the “paycheck report,” a survey of “mid-level” associate compensation. Associates’ paychecks exceed $200,000 per year and, in some instances, reach $350,000!
Continue Reading...
Legal fees rising to vomit point
According to NALP, 14% of law school graduates earn $135,000 (now $160,000) starting compensation. 42% earn $55,000 or less.This is consistent with statistics that show experienced lawyers earning less than the public believes lawyers earn: 50% at less than $100,000 and 25% at less than $50,000!
Thus, lawyers are "between a rock and a hard place!" The public believes that figures reported in the Wall Street Journal of August 22nd to the effect that lawyers are now charging $1,000 per hour is the norm or standard. Yet, only a few lawyers are commanding that fee level, and then only in the "bet the company" kind of cases. Commoditized work cannot command that rate. Even in extraordinary matters, that rate approaches what one New York law firm partner said is clients' "vomit point."
Continue Reading...
Law firms impacted by current credit crunch
I was asked if the current credit crunch/crisis is affecting law firms.
My response was that the credit crunch, I think, is somewhat artificial … and folks that are being hurt are ones that extended themselves too far in the first place without a safety net …. Or ones whose business just evaporated without warning (although there usually is some kind of warning if observant).
Financial planning for law firms
Reid Trautz mentioned his observations from our panel:
"From a terrific panel of firm financial managers moderated by Ed Poll, comes these interesting ideas:
- Firms are taking advantage of the new check scanners offered by some banks to more quickly and securely deposit client checks.
- More firms are closing their billing on the 25th day of each month to get their bills into the "first of the month" billing cycle of clients--both businesses and individuals.
- Law firms are putting more pressure on partners to collect bills sooner (nothing new there!), but they are using automated e-mail and other added technology features now available in many time & billing programs to keep the pressure on, well, automatically!
- Larger firms are doing more to ensure that each new client matter has a signed representation letter or agreement before starting any work. This is a smart practice, and is just one area where large firms tend to lag behind smaller firms."
Getting paid for your legal work
Getting paid - CA Supreme Court weighs in
Increase your legal fees in one easy step!
Collecting Your Fees: Ethically Getting Paid from Intake to Invoice will be offered by the ABA on June 21st at 10 a.m. PT.
Law firm goes public
In Australia, a class action law firm has filed an IPO. This is the first for a law firm following new legislation in Australia that allows firms to raise funds on the public markets and allows non-lawyers to invest. A similar bill is under consideration in the United Kingdom.
While safeguards must be in place to prevent non-lawyers from practicing law, why shouldn't they be allowed to invest in law firms just as they do in other professional service or manufacturing entities? As the proverb suggests, "these are interesting times."
How Should Law Firms Track Finances?
There are two basic methods for keeping track of law firm financial performance: accrual and cash accounting. Accrual records income irrespective of whether cash has been collected, and reflects billings, work in progress (completed but not yet billed) and accounts receivable (work billed but not yet collected). Cash accounting, on the other hand, reflects only collections, never billings or work in progress.
Financial planning for law firms - Metrics for success
Unless there is a specific goal, one usually expressed in a number, there can be no goal. It’s been said that unless something can be measured, it has no value. Yet, when talking about creating a financial plan or a budget or, sometimes, even a strategic plan, there frequently comes a glaze over lawyers’ eyes. “That’s something for someone else to do, not me.” Yet, it’s this financial component that let’s us know whether we’re successful. How else could we tell? By the amount of money in our bank account? Yes, but how do we know whether that amount shouldn’t or couldn’t have been more? What is our benchmark?
This program will answer these questions.
Fixed fees gain acceptance
Some General Counsel, responsible for their company’s legal expenses, are interested in fixing the fees in order to be able to budget for their department’s expenses. Cisco, for example, has more than 70% of its annual $125 million legal budget under fixed fee arrangements.
Continue Reading...
Law firm billing opportunities
Filing tax returns "late" -- If only we knew!
If only we knew that we could file late and not get penalized! We could have kept our money in the bank longer ... or not sold the securities needed to raise the cash to pay the taxes.
IRS noted that Taxpayers, Tax Professionals with TurboTax problems have until midnight April 19 to e-file (IR-2007-91, April 18, 2007)
This has not been a good few days for technology: TurboTax and Blackberry both went down! This would have made for a good bet. But, perhaps with so many technological devices at hand, it should not be a surprise when crashes occur.
New postal regulations effective next month
Fraudulent cashier's checks
Corporate Counsel Seek New Ways to Price Legal Work
BUSINESS FINDS LEGAL SALARIES HARDER TO STOMACH
To Contain Costs, Corporate Counsel Seek New Ways to Price Legal Work
By Bobbi Murray
Daily Journal Staff Writer
LOS ANGELES - A fresh raise for law firm associates this year has renewed discussions among corporate counsels about how to trim legal costs.
In-house lawyers say they aren't unwilling to foot an outsized bill for bet-the-company cases. But they are increasingly looking askance at bills larded up with high associate salaries working on routine matters. Continue Reading...
Flat fees is an art
Profits can be stated in a mathematical formula: P = R - E. But, the "E" has a limitation. You can reduce expenses only so much before you start cutting out the "meat" of the law firm. "R," on the other hand, has no limit. You can increase revenue without limitation. Focused practice development efforts will attract new work; and once you get the work, you can develop the appropriate infrastructure to handle the increases.
Congratulations to Dave Ambrose and his crew of outstanding folks.
Law firm associates want more than money
Law firm management governed by economics
Lawyer greed or law firm competitiveness?
Continue Reading...
Law firm finances is not a joke
Law firm ownership interests adjusted!
Continue Reading...
Law firm contingent fees can create problems
Cash flow becomes tighter with associate salary increases
Will clients change their purchasing habits. If history is a teacher, the answer will be "not significantly."
Ultimately, who pays for these increases? Us. Consumers. That's why they call it inflation.
Law firm finances - Banking
Continue Reading...
Law firm associate salaries increase
One large law firm after another is falling prey to the new, higher level of associate salaries, $160,000! My, oh my! Where will this madness stop?
Larry Bodine has an interesting take on this phenomenon, saying that the marketing opportunities for the smaller, regional firm are now greater than ever.
Bruce MacEwen has a different perspective, suggesting that we're asking the wrong question and looking at the wrong issue when we focus on the first year's associates' salary increase.
Continue Reading...Lawyer management consulting re banking
Citing a CitiBank report, culture of a law firm is an important consideration in granting credit. This is consitent with one of the 4 C's cited in our latest Special Report, The Successful Lawyer-Banker Relationship.
Tom also discusses the reason for partner defection. He suggests that it is not over money, but rather over the lack of law firm planning and business direction. An interesting thought.
The market says rates can go higher
Continue Reading...
Use of credit cards to pay legal fees and costs
The California Standing Committee on Professional Responsibility and Conduct has submitted for public comment its interim opinion No. 05-0009 concerning the use of credit cards for payment of earned legal fees, payment of unearned legal fees and costs and expenses.
My response to the proffered opinion follows:
Silence can be very loud
Their response was fascinating to me.
Continue Reading...
Open letter to California Bar President
180 Howard Street
San Francisco, CA 94105-1639
December 20, 2006
Letter to the Editor
Letter to the President of the State Bar of California
In the current issue of the California Bar Journal, Sheldon Sloan, President, State Bar of California, starts his President’s column, stating: “As members of the State Bar Board of Governors, our most important duty - second only to public protection - is keeping watch over the hard-earned dollars you (lawyers of California) send us each year both in mandatory and voluntary donations.” Continue Reading...
Some interesting numbers
Is Benchmarking the master or the servant?
My response didn’t satisfy him; he went to another consultant and was told the average was 12%. In a recent survey conducted by Juris, Inc., the percentage for occupancy cost was 9%.
Continue Reading...
It's that time of year again when billing rates increase
Continue Reading...
Never Negotiate Against Your Own Self-Interest
Continue Reading...
Delinquent Taxpayers - Beware
The Board of Equalization, the tax collecting authority for California, will make available as a matter of public record, each quarter, a list of the 250 largest sales and use tax delinquencies in excess of $100,000. There is an exception to the publication if there is a dispute connected with the tax assessment.
Sex offenders must publicly register; their whereabouts, therefore, are known to the general public. Forget about the concept that they've paid the price to society by serving time in jail; they forever more will be marked and tracked. Interesting that sales tax offenders may be treated in similar fashion.
Should we expand this idea to include income tax evaders? Will this encourage timely payment?
Too bad we can't do this with our delinquent clients who fail to pay our bills. It's unfortunate that the rule of confidentiality prevents us from publicizing laggard clients. Clever lawyers should be able to develop an alternative approach. See my book for several ideas to help you collect your fees without difficulty in the future.
Outsourcing - Offshoring
Planners Make More Money
And an equally shocking result: 95% of the companies don't tell their employees what that strategy is! This latter statistic is confirmed by a Stephen Covey commentary. Continue Reading...
Bank insured accounts
Fee schedules are legal!
Continue Reading...
Getting What You Paid For
The first is Unscrewed: The Consumer’s Guide to Getting What You Paid For. The astounding conclusion of the author flies in the face of everything I’ve been taught. Ron Burley says that the reason we get such lousy service today is because it’s cheaper to get new customers than it is to keep current customers! His statistic cited to back him up: The average call to the customer service department of cell phone companies is $20; the marketing cost to attract a new customer if $4! Then, Burley moves on to discuss techniques to make companies pay attention to you and to make good on the quality promises they make.
The next book reviewed is The Speed of Trust: The One Thing That Changes Everything. Here, Stephen M. R. Covey, son of Stephen R. Covey, author of The 7 Habits of Highly Effective People. Covey says “Trust means confidence ...” and confidence is the glue that makes everything else possible. Covey continues identifying behaviors that engender this trust:
1. Talk straight
2. Demonstrate respect
3. Create transparency
4. Right wrongs
5. Show loyalty
6. Deliver results
7. Practice accountability
8. Keep commitments
These are characteristics that make an interaction profitable as well as enjoyable.
Growth and Profitability Are Keys to Success
A: Businesses grow and become successful based on the growth of their customers. If you’re blessed with good fortune, you attract clients who grow, need more of your services as well as refer others to you. Continue Reading...
Corporate counsel checking legal billings
Continue Reading...
Volume discounts for legal matters
Continue Reading...
How much you bill or How fast you collect?
Flat fee billing increasing in popularity
The challenge with any alternative fee approach is that lawyers, generally, don't know their costs of operation. Thus, the fee figure chosen often is a "by guess, by golly" fee, not one based on a cost benefit analysis. Continue Reading...
Lawyers "leave money on the table"
October 16, 2006
FOR IMMEDIATE RELEASE
The Successful Lawyer-Banker Relationship: A LawBiz Special Report
Edward Poll, principal of LawBiz Management Co., announces the release of The Successful Lawyer-Banker Relationship: A LawBiz Special Report. This is the second publication in a series of Special Reports on topics of practical and major importance to the effective and profitable management of The Business of Law®, has just been released. The purchase price is $29.00, the price of all LawBiz’ Special Reports.
Howard Putnam, former CEO of Southwest Airlines and author of Winds of Turbulence, introduces the Special Report, by declaring: “Banks are looking for profitable new niches and law firms and banks are natural allies in this new competitive world. Ed Poll’s Special Report provides attorneys with straightforward information to understand the in’s and out’s of how to build a mutually beneficial relationship with one of the most important players in any business equation, Your Banker.”
The Successful Lawyer-Banker Relationship offers guidelines on how lawyers with sole practices, small firms or mid-size firms can build mutually beneficial and effective banking relationships that are critical in helping any law firm become a more successful business. Topics covered include choosing a bank and banker, establishing creditworthiness, securing a loan, managing cash and trust accounts, and using merchant banking and other bank services efficiently.
“With our first Special Report on Business Competency for Lawyers, LawBiz began a new kind of book,” Poll states. “It’s intentionally condensed to 60 pages, an easy thirty-minute read for any busy lawyer on the go. The content is practical yet sophisticated, and provides basics for managing and running a successful law business without getting into too many nitty-gritty details, numbers, and long examples.”
Poll adds that future Special Reports will address other areas of practical and significant importance to the effective and profitable management of The Business of Law®, including work-life balance, disaster preparation and recovery, and setting legal fees.
Ed Poll is a leading authority in the field of law practice management and the Principal of LawBiz Management Co., a firm that consults with and coaches lawyers and law firms throughout the United States, Mexico, Australia and England. Poll is a Board Approved (SAC®) Coach to the Legal Profession. For more information, contact Ed Poll at edpoll@lawbiz.com or call (800) 837-5880; also, please see http://www.lawbiz.com and http://www.lawbizblog.com. He is the author of several best-selling books on the topics of law practice management, including his new book, Selling Your Law Practice, released in September 2005. (http://lawbiz.com).
######
Lawyering & Marketing for More Work: Should lawyers do anything else?
Cash Is Still "King!"
And, in the same issue, see the article about collecting your fees ... just in case you are not collecting 100% of your billed fees.
Benchmarking financial performance of law firms - What does this mean for us?
Kudos to those involved.
Benchmarking, according to the presenters, can be used for several purposes:
a. Explore operating deficiencies in the law firm
b. Understand where you are currently relative to your goals
c. Fact-based information to gain consensus among your colleagues
Is this a new fad? Or a new management tool? Industry has used this technique for many years. Several studies in the legal community have given us measurements in the past ... but, there never has been the concerted effort there is today.
As the contrarian that I am, I will assert that this information is helpful ... Helpful, but should not be controlling. The only thing that matters, in my opinion, is what your goals and strategies are ... not what someone else's may be. Yes, we live in a competitive world. And, to some extent, their performance may impact us. However, we must act in accord with what fits with our firm's culture, with the capabilities of our personnel, and with the aspirations we have, not those of our competitors. Fortunately, there are enough clients in the world that there is room for us to live nicely. The benchmarking should be used as a guide to suggest areas where we might improve ... but not as a mandate for change that is inconsistent with our firm's culture.
Continue Reading...
Phishing, not Fishing!
Phishing attacks are "spoofed" e-mails and fraudulent websites designed to fool recipients into divulging personal fianancial data such as credit card numbers, account usernames and passwords, social security numbers, etc. By "hijacking" the trusted brsands of well-known banks, online retailesr and credit card companies, phishers are able to convince up to 5% of recipients to respond to them.
I've been tempted on a number of occasions and, having been burned a couple of times with credit card fraud, have learned to think twice about who is seeking this information. Even now, if in doubt, I forward the information to my web master or my accountant to ask their advice. Most recently, this occured with an e-mail from the Internal Revenue Service -- NOT -- and my accountant told me to delete the e-mail. Continue Reading...
Click fraud -- Who pays?
This is a major challenge for Google Ads and Yahoo ads, but, of course, they are financially benefitted.
State Bar targets solos and minorities
The problem: The 30,000 lawyers in this category (who don’t have malpractice insurance) are primarily sole practitioners and attorneys of color.
The following is the Statement of Opposition filed on September 14th with the committee: Continue Reading...
Cash always is the key element in running a business
Cash is also important in the production cycle. Paying staff - they can't wait, they have families to feed; vendors, however, can be encouraged to wait a bit.
And, of course, in the finance segment, getting paid is what it's all about!
Then, we start over with a new cycle.
Getting Paid: A New Look at Fee Collection
How to avoid embezzlement
"As a CPA that worked with businesses of all types before founding Juris, Inc., I can say that I have never encountered a single case of embezzlement outside of the legal community and found it relatively commonplace among law firms. There are several factors making law firms more susceptible to misappropriation of funds—part-time executive management, absent or weak financial management, inadequate internal controls, high volume of pass through disbursements, decentralized approval and signing authority plus a tradition of deadline or crises driven transactions.
Continue Reading...Benchmarking financial performance of law firms
A recent Juris, Inc. survey of midsized law firms disclosed that partners in the top performing 25 percent of these law firms earned twice the income of the next twenty five percent and more than 7 times the per partner income of the bottom twenty five percent.
Continue Reading...
One step closer to value billing
"What would be the result if a law firm asked its lawyers to charge their time not at a single hourly rate (say, $400 per hour) but at three levels. At the lowest level, where the service was simple or inefficient or travel, perhaps the rate would be 20 percent less ($320 an hour). The typical rate, for work in the comfortable sweet spot of the lawyer, would be at the standard rate. For work over the weekend, rushed, or demanding special teamwork research or creativity, the rate would be 20 percent above ($480)."
Another voice on mandatory insurance disclosure
The unusual "How To" theme of this month's column addresses a vital issue for all California lawyers. The State Bar of California has sought public comment on a proposed rule of professional conduct and rule of court that would require all attorneys to make disclosure to their clients when they do not have professional liability (malpractice) insurance. Continue Reading...
Don't fire your clients - You need them!
The suggestion that law firms “cull” 10% of their clients each year ... or that they “fire” their small clients ... rattles my very bones when I hear this. So long as the work being done for clients is profitable or can effectively be used as a training ground for new lawyers, there is reason to continue to retain this business.
Continue Reading...
Interest rates on student loans increase
According to USA Today, some students will take their entire professional careers to repay the loans. The rates will increase from 4.75% to as high as 7.14%. Some will refinance their loans; others will pay them off (if they can); and the others will be saddled with almost twice the interest cost!
Without the loans, the students would not complete their education. And we wouldn't have their talent.
Yet, listening to some of them talk, it seems as though they feel entitled to a reduction or elimination of the obligation, an obligation they voluntarily took on for themselves.
Not all of these students get employed with top firms with large salaries. What will happen to the others? How and when will they deal with this debt, a debt that might be as large as $500,000 for some who go on to graduate school?
We have not had experience with this before. How our country will deal with this issue may impact the way legal services are delivered ... and who delivers them.
Sole practitioner fee cannot be "blended"
The 2nd Circuit panel of Judges Guido Calabresi, Jose A. Cabranes and Richard C. Wesley, in McDonald v. Pension Plan, cv-05-1435, 1630, 1749, 4140, 4288, vacated a lower court's attorney fee award on the grounds that the lower court inappropriately applied a blended rate to a sole practitioner's fee application.
Continue Reading...ROI on blogging
ROI, return on investment, is an important issue in measuring both the value and merit of any business task. When it comes to blogging, it is a much more difficult task for many reasons. But, the discussion is beginning.
And Debbie Weil has written books on the subject ... Check it out.
Another money saving tip:
411 Information Charges:
Phone companies are charging us $1.00 or more for 411 / information calls when there is little justification, other than their desire to make more moeny. Remember when there was no charge?
When you want to use the 411 / information option, without cost to you, simply dial 1-800-FREE-411 or 1 800 373-3411!
Pre-Publication Offer
Howard Putnam, former CEO of Southwest Airlines and author of Winds of Turbulence, introduces our newest publication: The Lawyer Banker Relationship: A LawBiz Management Special Report. He says ...
Personal security - Don't be a victim!
For years, I have refused to sign the back of my credit card. The exemplar would give a thief my signature which could then be copied on other documents.
Today, I received a listing of tips from my bank about personal security ... AND they agree with me. Don't sign the back of your credit card. Instead, write "Photo ID Required."
Other tips:
1. When you check out of a hotel that uses cards for room keys, do not return the "keys"! Take them with you and destroy them. Those key cards contain all of the information you gave the hotel, including address, credit card numbers and expiration dates! Someone with a card reader, or an employee of the hotel, can access all that informatin with no problem whatsoever!
2. When writing a check to pay for your credit card account, write only the last 4 digits on your check, not the complete account number.
3. Never put your social security number on a check. If anything, only the last 4 digits.
4. Make a copy of all documents and cards that are in your wallet; keep the copies in a safe place. Should you lose your wallet, you will know exactly what was lost and who to contact.
5. If credit cards or checks are stolen, do the following:
a. Cancel your cards or checks immediately;
b. File a police report in the jurisdiction where lost/stolen;
c. Call the 3 national credit reporting agencies to place "fraud alerts" on your name and social security number:
Equifax: (800) 525-6285
Experian: (888) 397-3742
TransUnion: (800) 680-7289
SS Admin
(fraud line) (800) 269-0271
The Pinstripes seem to be getting healthier
In an article entitled, "There's still gold in them there pinstripes," USA Today reports on a recent American Lawyer survey.
The average profit per partner at the nation's 100 largest law firms passed the $1 million mark for the first time last year, with the top 10 firms booking profit per partner of $2 million or more.
Continue Reading...LawBiz Increases Revenues & Profits for South Carolina Lawyers
April 18, 2006
Venice, CA
FOR IMMEDIATE RELEASE
Andrea Goldman said, "I walked away from Ed's seminar (last year) with numerous new ... ideas. I was energized and eager to start implementing his suggestions."
Ed Poll is a leading authority in the field of law practice management and the Principal of LawBiz Management Co., a firm that consults with and coaches lawyers and law firms throughout the United States, Mexico, and England. Poll is a Board Approved (SAC¬Ć) Coach to the Legal Profession.
For more information, contact The South Carolina Bar Continuing Legal Education Division in Columbia, SC at www.scbar.org/clecalendar or call (803) 771-0333 or (800) 768-7787; Ed Poll at edpoll@lawbiz.com or call (800) 837-5880; also, please see http://www.lawbiz.com and http://www.lawbizblog.com. He is the author of several best-selling books on the topics of law practice management, including, Selling Your Law Practice (http://lawbiz.com) and the most recently released Business Competency for Lawyers: A LawBiz Management Special Report.
######
Collecting Your Fee
Amazon.com just sent me an email to say that they have only one copy left of Collecting Your Fee: Getting Paid from Intake to Invoice, a very popular publication of the ABA.
Though they also say in fine print that there are more copies en route, I think this is a very clever way of marketing. Create scarcity and people will want more, so the theory goes.
Continue Reading...Management reports
What management reports do sole and small firm practitioners look at to determine how well they're doing?
Your question is a very good one. There is much data out there ... and most good systems can and do produce far more information / data than an attorney can use .. or assimilate intelligently.
Continue Reading...Internet taxes
An interesting issue arises when a travel company such as Expedia buys wholesale and sells retail. What is the amount of tax that is owed to the City, the taxing agency?
Continue Reading...Student loans -- Congress again changing the rules!
Student loans often reach near $200,000 in today's world. This is a far cry from only two decades ago (or when I graduated law school even earlier!). The consequences of this factoid are significant.
Continue Reading...Internet tax -- is it coming soon?
The "Streamlined Sales Tax Project" is moving its way through Congress. The objective is to charge the prevailing sales tax rate of the cusotmer's home-state jurisdiction and pass the tax money along to the appropriate statehouse.
There is much opposition, especially from e-Bay users. The issue is: Should internet buyers/sellers be treated differently from brick & mortar sellers? And there is much pressure from the states wanting more revenue.
Before getting to the mechanics of the process, it seems this basic question must be answered first.
The $.39 reminder
Thank you, Matt, for the reminder that a SASE (self-addressed, stamped envelope) may go a long way to get your bills paid more quickly.
New survey shows lawyers working less
Lawyers may be working less, but are they happier? Are they making a standard of living that can support their families?
Here are some draft conclusions from a recent survey:
Continue Reading...26% of Your Profitability Is In Your Hands
Is your firm as profitable as it could be? How does it measure up vis-a-vis its peer group? And what defines that "peer group," precisely? Do you ever wonder what you could do to improve its margins? Structurally or strategically, precisely what would that entail?
A very interesting article. Worth the time to read ... and study the underlining information.
Creating your personal income statement
Money is a good topic for the beginnging of 2006! And, particularly, it's important to know if/how much you personally contribute to the health of your law firm. See my latest article in the December 2005 edition of the ABA's Law Practice Management Magazine. Can your firm afford to keep you?
This edition is an outstanding resource that addresses various aspects of running a law practice successfully.
D.C. Court says lawyers are not covered
D.C. Circuit Uses Scalia Analogy: Lawyers Not Covered under FTC Privacy Disclosure Rule
(The ABA Journal, in an article written by Terry Carter, tells us about the new ruling in favor of the BAR.
The Federal Trade Commission engaged in "attempted turf expansion" beyond its authority when it sought to regulate lawyers through a statute requiring financial institutions to send privacy disclosure notices to customers, the U.S. Court of Appeals for the D.C. Circuit said Tuesday.
Continue Reading...Lawyers personal guarantees for leases
Question: When I started, I had to give a personal guarantee. Now that I'm established, can my personal guarantee be withdrawn?
Continue Reading...Double Dipping - Billings
Are lawyers more or less ethical than taxi companies?
The rules of professional conduct in most States require that only one client be billed at one time. In other words, if your agreement with client A says that you will bill them for the time spent on their matter, and you have a similar agreement with client B, then you can bill only one client for each minute of time.
Continue Reading...Fees - To Trust or To General Account? Part II
When discussing flat or fixed fees, it seems to me that the number of hours to be devoted to the matter is irrelevant. If you compute the flat fee based on the number of hours you anticipate and, further, you include that in your discussion with the client (suggesting that the fee will increase if the anticipated number of hours exceeds the estimate), the picture begins to look like hourly billing. Traditionally, hourly billing fees require deposit of retainers into the trust account first, then withdrawal and deposit into the general account once the fee has been earned.
The real issue, I believe, is when the fee is earned. Whenever earned, however you describe it, it's yours and MUST be withdrawn from the client's trust account. Otherwise, it's commingling which violates the RPCs.
Continue Reading...When can you put flat fees into a general account?
Question: When can a flat fee or a retainer be placed into a general account or withdrawn from a client's trust account?
The answer generally is not found in the Rules of Professional Conduct, though some ethics opinions of local bar associations come close to helping us. The answer generally is found in your engagement agreement.
What do you provide in your agreement? Almost anything (except unconscionable or unreasonable fees) can be negotiated and approved, even with 20/20 hindsight judicial review.
Thus, if you charge a flat fee and agree that it is earned on receipt, it will probably be accepted. I think the better practice, however, would be to deposit the flat fee into a clients' trust account and then withdraw it on the happening of an event such as a date certain, the filing of a complaint, the signing of a settlement or merger agreement or some other event specific.
Even retainer fees can be deposited into a general account if the agreement says that the retainer is not for work to be done in the future but for the lawyer being engaged (and therefore not available to another party, either an adversary or a third party unrelated to the current situation -- because of the attorney's lack of time ...). In other words, there is a valid charge for engagement and therefore not being available to others. Opinions I've seen on the subject suggest that the retainer for this purpose must be "reasonable" .... If you were Edward Bennett Williams, famous Washington, D.C. lawyer who could get things done in the Halls of Congress with one phone call, the amount could be higher than if you were Edward Poll ... Again, however, this is a matter of negotiation and detailing in the engagement agreement.
If you were to receive a retainer for future work, the better practice would seem to be to put this into your client's trust account. However, I would suggest that the engagement agreement provides for transfer of funds to the general account on the happening of a specific event, such as the filing of a complaint, or 10 days subsequent to the date of a monthly billing statement or other event or date certain.
As with many things concerning fees, the answers are not clear. There is i) common sense; ii) open and clear negotiation with the client; and then iii) after-the-fact review. Hopefully, you don't reach the third stage!
Credit card surcharges -- Part III
Check out the contract you signed with your credit card company and your merchant account organization.
Continue Reading...Credit card surcharges -- Part II
Yesterday, I suggested very practical reasons why lawyers should not impose a surcharge for the use of credit cards by clients. Today, Linda N. Wisotsky, an experienced family law practitioner, suggests the legal reason why we should not impose surcharges on the use of credit cards by clients.
Continue Reading...Should lawyers charge credit card processing fees?
I think lawyers ask for trouble if they charge clients for credit card processing fees.
Continue Reading...Looking for value in investing
The Motley Fool is a great resource for understanding today's financial world.
A current article explains the P/E ratio for investing. This is an important tool to use for valuing any business, including a law practice. I particularly like the part where this article's author talks using "free cash flow" as an indicator of value.
Worth your reading ... and taking the time to understand.
Large firm lawyers say they don't want to go solo
See the post on August 17th by Dennis Kennedy discussing an article about large firm lawyers converting to sole practitioners. The article, to Dennis' surprise, suggests that 93% of large firm lawyers wouldn't go solo, even if they were guaranteed the capital to do so.
I'm not sure what "guaranteed capital" means. To me, it means you've got enough to start; it doesn't mean you've got enough to live the life style you want for 12 months or 36 months (or whatever) even if you're not a great rainmaker. The uncertainty of bringing in new business may be more scary to today's youth than we think. And, if you're a great rainmaker, the AmLaw 200 numbers recently released seem to suggest that you will earn more in a large firm context than in your own firm.
Thee are exceptions to every rule, and this is no exception. (Pun not intended, but I like it anyway.)
Asked why I became a lawyer instead of a doctor, my response was because that was in the nature of my personality. I think the same is true for the question as to why you stay in a large firm rather than go solo. It's the nature of our personality that governs what environment we choose in which to practice law...coupled with circumstances (such as being taken off the partnership track, etc.)
I'm not sure the result is so surprising as Dennis suggests, other than that this number varies from the statistic published in an earlier survey.
Bankers want to lend money when you don't need it
The common addage is that you shouldn't go to a banker when you need money. That's the time when they won't lend you money. Sort of perverse, but that's the reality.
When you have lots of money and don't need them except as a depository for safe keeping, that's when many bankers will be on your doorstep asking to be your supplier of choice to borrow money.
Mark Twain probably said it best when he said:
Continue Reading...Clients' files: To charge or not to charge the client?
Some lawyers charge their clients for
What is your "Credit Score"?
Credit score is an important, but seldom discussed, criterium by which banks and other creditors make decisions about whether to do business with you on credit. See the recent TechnoLawyer article for more information.
Need cash quickly?
Revenue from new clients paid within 60-90 days at a law firm is nearly impossible, as the average billing cycle once you do new work is 120 days.
If you really need revenue in 60-90 days, you should look to collecting existing accounts receivable as the first threshold, then focus on doing work for existing clients who pay their bills promptly. To be more effective, you must manage accounts receivable and focus attorneys' attention on doing work for "paying clients."
Continue Reading...Credit and Banks
The Fair Credit Reporting Act amendment, effective December 1, 2004, allows banks to report information about your accounts to credit bureaus. This is new. It is an option, which makes good banking relations even more important!
Profits
Many law firms are experiencing increased revenues and profits.
Profits-per-partner, which has become a benchmark of firm performance in recent years, could eclipse $1 million in 2004 at six firms either headquartered or originally started in Los Angeles. In 2000, not one L.A. firm reached that level.
Continue Reading...Bankers abhor surprises!
See The Best Surprise by Kevin Salwen on Travel who said that those of a certain age will certainly remember the Holiday Inn ad campaign "The best surprise is no surprise." But lately, I've been surprised many a time in my hotel stays -- and almost always to the upside.
-- In New York, at the Dream Hotel (a New Age-style place with Deepak Chopra themes -- I'm not kidding), the Gideon's Bible has been replaced by The Teaching of Buddha. For the first time in years, I actually started reading.
-- In Santa Monica, at the Loew's Hotel, there's a remarkable computer-screen jukebox in the lobby with 3,000 songs that allows guests to "program music for the entire hotel." I tossed on a Sheryl Crow tune.
-- In San Francisco, at the Adagio, a great basket of Aveda products adorned the bathroom. Mint and rosemary shampoo, anyone?
Hotels are scrambling to be more distinctive -- and I should quickly note that these are mostly mid-priced places. Some openly tout 300-thread-count sheets, others in-room high-speed wireless, still others plasma TVs. Is there another industry that is working as hard to out-unique the other guy?
I agree with Kevin. And certainly the airline industry is one example of negative surprises. My travels continue to emphasize for me the airline industry's total disregard for their customers ... It is not surprising to me that there is only one airline that has made money in the last 30 years! Southwest continues to focus on its core mission and treats its employees as members of the family in a way that encourages them to treat their customers likewise. Read the book, Nuts!
One industry that abhors surprises is the banking industry. When a customer borrows money, the bank expects to be repaid! Funny about that. Tip: When you know in advance that you will have a problem making the loan payment, go to your lending officer and explain the circumstances. Bankers are people, they want to help and will do so if approached in advance of a problem. Suggest alternative ways in which you can handle the challenge and ask for their input and advice.
The worst thing you can do in such situations is ignore the problem and fail to let them know in advance.
Lawyers & Clients Collide
At a Managing Partners Forum currently being held in San Diego, CA, Larry Bodine Regional Diretor of PM Forum, writes that R. Bruce McLean, chairman of Akin Gump in Washington, DC, said that next year will mark the first time a lawyer charges over $1,000 per hour. He said that law firm pricing and client demands for lower rates are on a collision course. (Haven't we heard this before?) "There is a real opportunity to be a market leader in alternative pricing," he said.
You may want to review our earlier discussion about alternative fees becomes even more important. In Law Practice Management Review: The Audio Magazine for Busy Attorneys, we interviewed six major corporate General Counsel and Outside Counsel; they shared their concerns and expectations for future billing relationships. Now may be the time for you to review their conversations again.
Collecting Your Fee -- Or, Take My Wife, Please
A new approach to collecting your fees, that is, those fees that have already been billed but are languishing in the aged accounts receivable file, was suggested by Sean Carter.
His wife wanted to refurbish their house and he thought he had a clever way around agreeing ... Tell her to collect the outstanding bills and she could have anything she wanted! A novel approach, indeed.
Sean highlights, in a humorous way, one of the most significant challenges facing today's law firm: Collecting Your Fee.
Another significant challenge that comes before collecting is billing. Studies have shown that unless the lawyer bills his/her time as she/he proceeds through the day, there is a minimum 10 to 15% loss of revenue. Couple that loss with the further loss by having a realization rate on collecting that is less than 100% and you have a most deplorable situation.
With diligence and a greater focus on self-interest, the lawyer can increase his revenue and earn that to which he/she is legitimately entitled -- and the client agreed to pay!
Risk management - Insurance
Managing the risks of a law firm is essential. One of the best paradigms to work under is:
More on Float - Red Alert!
Under the rubric of Homeland Security, banks now have the authority, as of October 28, 2004, to send you a "substitute check," which is a printed copy of your check after it has been imaged. Thus, clearing of checks (and withdrawal of funds from your account) no long depends on transporting a physical piece of paper from one location to another. The theory is that commerce can continue irrespective of attacks on our country.
From a management perspective, this is a "red flag" alert. While your revenue will come in later than the date billed, your expenses will go out almost immediately upon mailing/delivering your check.
Legal fees - Alternatives to hourly billing
More than 25 years ago, legal fees were based not only on the time spent, but also the nature of the service, the result achieved and the amount at stake. Charging an appropriate legal fee was a matter of professional judgment. (See, e.g., California Rules of Professional Conduct, 4-200).
That changed in the mid-1960s when clients began demanding detailed billing statements and lawyers used time records as a management tool to seek greater efficiencies. Today, most lawyers are paid by the hour - almost as an hourly laborer. When lawyers are paid by the number of hours worked, self-interest can and often does affect a lawyer's judgment as to how much work to do for the client.
And, when investment in technology is required to maintain competency, the cost of operation increases. Yet, the increased technology creates greater efficiency, meaning that the time required (hours worked) to produce the same work product is reduced. This means that the revenue for the lawyer is reduced, unless he/she can get new and additional work assignments, or charge a higher fee per hour.
The ultimate result is that lawyers cannot take advantage of the efficiencies they achieve with a greater cost investment - UNLESS they go to an alternative method of billing.
Recently I had the pleasure of interviewing several General Counsel and Outside Counsel involved in promoting greater use of alternative fees. There are many different forms this movement is taking, but one common element amongst all those talking about and using the new (or not so new) modality of billing is the essential element of frequent and open communication between the lawyer and the client. But then, good communication is required no matter what billing process is used ... Perhaps the lawyer just must put more effort into the process.
For more on this subject, hear the comments of General Counsel and Outside Counsel on Law Practice Management Review: The Audio Magazine for Busy Attorneys.
Fee Sharing
Clarify your fee sharing agreement, preferably in writing.
In California, the State Supreme Court decided a case on whether a referral fee could be collected where the client did not know or agree to a fee split.
In this case, counsel for the plaintiff-attorney (seeking enforcement of an oral agreement for referral fee) argued that quantum meruit should be the minimum award even if the referral fee could not be enforced under the Rules of Professional Conduct. Otherwise, the reneging defendant-attorney is unjustly enriched. (Of course, the attorney also argued that the client was aware of the arrangement but just didn't sign an agreement approving the arrangement.)
The California Supreme Court said there would be an unjust enrichment in either situation, but used the quantum meruit theory to award the referring attorney at least a minimum fee. Thus, both attorneys were punished to a degree, or, said in another way, there was no unjust enrichment on just one side of the issue.
In Michigan, an inactive attorney cannot enforce a referral agreement relating to a personal injury contingent fee matter.
Moral: Be crystal clear on what you're doing with colleagues. Lawyers are no better than others -- when there's money involved, even lawyers can have selective memories!
The Tax Man Cometh
It's that time of year again. And, again, I say don't wait for April 2005 to make your tax plans. Now is the time to visit your accountant and tax preparer. Here is one strategy you may want to use to keep your tax bite in 2005 to a minimum: Accelerate or defer income...
Continue Reading...Cashflow -- Float may be a thing of the past
Check 21, the nickname for a law that, as of October 28, 2004, impacts every bank in the country. As of this date, every bank will be required to accept
Using Credit Cards to Pay Legal Fees
Accepting credit cards for payment is, I believe, important. We need to make it easy for clients to pay for legal services ... and not change the lawyers' profession, i.e., to that of banker.
However, be careful. Be sure you understand the rules of the credit card companies.
Remember, that one of the benefits of paying with credit cards is that there is roughly a six month window in which to raise a dispute and request the credit card company reverse the charge ... at worst, the customer/client has the amount placed in a suspended account ... at best, the credit card company reverses the charge, credits the customer and debits the law firm.
However, you can prevent this from happening when you get the client to agree that no dispute with the law firm will be raised with or adjudicated by the credit card company. In other words, the client agrees that the charge is non-refundable! The credit card company, when shown the client's agreement, will not credit the client nor debit the law firm.
Any dispute between the client and the law firm, then, will be adjudicated in the right forum: the State Bar disciplinary system or the court for a malpractice/negligence action.
Check with your credit card company to be clear as to their policies relating to disputes with your clients/their customers.
Diversify client base for financial security
If you don't want to get "burned" and lose much time and money, you may want to consider one of the most important axioms of business: Keep all of your clients at less than 10% of your total revenue. Thus, if any one client "forgets" to pay you, the "sting" won't be so hard to handle. I have seen too many folks focus on a very few, larger clients and be severly damaged when the fees from that client fail to continue ... irrespective of the cause, whether not liking the last bill(s), changing attorneys or their own economic hardships.
Continue Reading...Getting credit score before applying for loan
Interested in getting a loan?Did you know that you can learn your FICO score before you apply for a bank loan?
FICO is the number bankers use to determine whether they want to lend you money ... like the SAT scores that help determine your eligibility to get into law school. (The FICO score card was created by a credit analysis firm, Fair, Isacc & Co., hence the name.)
Continue Reading...Tax considerations before year's end
It's tax time! Well, not really. But, it is time to start planning for end-of-the-year moves that will impact how much you pay in taxes at the beginning of 2004. Consider some the discussed here before the end of the year is on top of you.
Continue Reading...Tax advantages for buying tech equipment this year
With less than 3 months remaining in 2004, there are tax benefits that may impact your buying decisions.
Law firms can deduct the purchase price of technology equipment acquired for use in 2004.
Amended IRC Section 179 provides for a new limitation of $100,000 instead of the old limitation of $25,000. This provision also applies to off-the-shelf software. The opportunity is limited to 2004, while reverting back to the old limits after this year.
Check with your tax adviser or the Internal Revenue Service for more details.
Billings
Most lawyers' billings are "features" billings. This is what I did and these are the days I worked and this is what you owe me. Billings, in my opinion, get you better results when you prepare a "value" billing. What are the results of your effort for the client.
Sometimes that's not possible, for example, when you bill for a telephone call to set up an appointment. Other times, it's obvious such as when you have a negotiating conference call with opposing counsel -- what did the client get for your effort?
Continue Reading...
