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!
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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
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Volume discounts for legal matters
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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).
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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®) 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.
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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...Don't get phished
Internet
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...
