LawBizBlog

Client trust accounts update

edpoll@lawbiz.com (Ed) — Sat, 29 Nov 2008 00:51:13 -0500

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.

Then, Congress altered the cap for protection. The amount was raised to $250,000. Within the last seven days, the FDIC gave lawyers, and their clients, even more protection. All amounts in a clients IOLTA trust account are protected, regardless of the amount. The account must be identified as an IOLTA account and the lawyer must maintain his/her clients trust account in accordance with generally accepted accounting principles and the trust rules of the jurisdiction for such accounts, including identification of the amounts held for each client.

Phew! At first, it appeared that lawyers would be required to inspect the financial solvency of their banks and vouch for their stability. With so many failures, that would have been a huge task. Lawyers can now go back to doing what they’re licensed to do ... practice law! And the bar associations with IOLTA bank treaties can continue to distribute funds to legal aid organizations.

Do you still have your 401(k)?

edpoll@lawbiz.com (Ed) — Sat, 29 Nov 2008 00:36:01 -0500

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

edpoll@lawbiz.com (Ed) — Tue, 25 Nov 2008 19:05:47 -0500

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.

Patrick Lamb talks about pressures on legal fees resulting from the financial crisis

edpoll@lawbiz.com (Ed) — Tue, 25 Nov 2008 18:35:00 -0500

Patrick Lamb, partner in the Valorem Law Group of Chicago, IL, is a leader in the national discussion concerning value billing. In today's conversation, Patrick talks about short-term and long-term pressures on legal fees resulting from the financial crisis facing our country. Patrick and Ed also discuss the impact that those pressures will have on lawyers' compensation.

20 minutes, 32 seconds
4.8MB

Click here to listen

Trust Accounting in Times of Financial Crisis: Trust Accounts for Lawyers

edpoll@lawbiz.com (Ed) — Mon, 24 Nov 2008 02:40:38 -0500

When: November 25, 2008 (11:00 a.m. - 12:00 p.m. PT)

Where: Teleseminar

Sponsoring Organization: Texas Continuing Legal Education

When handling money or things for clients, a clients' trust account is required. What must you do to set up such an account? Hos is this account managed? What is the difference between this account and an attorney's general account? How might a lawyer run afould of the Rules of Professional Conduct? What is the liabiltiy of the laweyr for staff mistakes and bank failures?

Poll to teach at Solo Practice University

edpoll@lawbiz.com (Ed) — Sun, 23 Nov 2008 10:57:59 -0500

I will teach at a new school, an on line school that will teach law school members and lawyers ...

There is no organization so focused on the sole practitioner as is the Solo Practice University. I am thrilled to participate with Susan Cartier Liebel in implementing her concept and offer guidance to those who represent more than 70% of private practitioners in the legal profession.

Law schools do not teach law students to be sole practitioners; they will get the sense of the arena in which most lawyers operate today and will increasingly practice in the future. As larger firms begin to refine their needs, and to release more attorneys than in past years, more lawyers will move toward solo practice. They will need the skills that Solo Practice University will offer. My hope is that our law practice management offerings will advance both the economics and the satisfaction with the practice that these lawyers will experience.

Not only will we talk about the principles of successful law practice, we will offer coaching service to address specific challenges facing individual enrollees. Check it out and come join us.

Time sheet records = Revenue billed

edpoll@lawbiz.com (Ed) — Thu, 13 Nov 2008 20:12:13 -0500

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

edpoll@lawbiz.com (Ed) — Wed, 12 Nov 2008 13:35:21 -0500

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

edpoll@lawbiz.com (Ed) — Wed, 12 Nov 2008 07:53:15 -0500

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.

Economic statistics

edpoll@lawbiz.com (Ed) — Tue, 11 Nov 2008 12:04:09 -0500

Today's economic numbers are scary. Nearly 10% of our employment is in the retail sector; and 25% of jobs lost since November 2007 are from this sector. Looks like a bleak holiday season is approaching. Years ago, 5% unemployment was thought to be the right amount for fluidity in the economy. For a long time, now, that number has been substantially lower, giving rise to some inflationary pressures. Today, however, we're looking at a current 6.5%, likely to increase to 8 to 10%!

Years ago, I visited China. I saw many people employed as manual laborers. I was told they were being kept busy to allow them to have their dignity and self-respect in contributing to the well - being of the society. They could have mechanized much of what they did, but that would have meant even greater unemployment. I remember thinking that the amount of their unemployment was equal to the entire population of our country!

Today, China is investing heavily in its infra-structure by building highways and public buildings to aid its economy and, as a result, the world economies. This same tactic was used by Pres. Eisenhower in the 1950s and is being discussed today as part of our economic alternative solutions. This also was a favorite tactic of FDR in the 1930s. It has worked. And we do need infra-structure repairs as evidenced by falling bridges and highway potholes.

While the numbers are scary, now that the election is behind us, perhaps we can come together to focus on what unites us and will allow us to achieve improvements. Perhaps we can put our differences (political party, gender, special interests, etc.) aside for awhile. I keep returning to Rodney King's "Can't we all just get along?" Only by doing so will be come out of the depths of economic depression.

As lawyers, our challenge will be to serve a society with a shrinking economic base. But, where there is change, there is generally opportunity. We just need to stay alert to see the opportunities in front of us. Lawyers will benefit in either event. If we can't get along, our litigators will be beneficiaries. For example, litigation has already begun over the issues relating to California's Proposition 8 (same sex marriage ban). If we can tolerate differences, at least for awhile, our transaction lawyers will be the beneficiaries when they negotiate and draft agreements, write new legislation, etc.

To survive in this environment, lawyers will need to be flexible, seize new opportunities, and serve and bond with their clients as never before.

Realization rate is the basis for survival

edpoll@lawbiz.com (Ed) — Tue, 11 Nov 2008 01:24:13 -0500

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.

Purchase price for sale of law practice

edpoll@lawbiz.com (Ed) — Tue, 04 Nov 2008 11:20:16 -0500

In discussing the value of his law practice, my client mentioned the figure given to him by his financial planner, a number designed to assure his standard of living. This was the number he wants for the purchase price of his practice. I suggested that the two numbers were unrelated ... and that the value of the practice may be more or less than the number his financial planner wanted for his style of life.

This caused us to return to the reason he wants to sell his practice and the time frame for achieving a sale. The more urgent is the desire to sell, the lower will be the price; the less urgency, the greater will be the price. Neither number has much to do with what it will take to reach and maintain your desired standard of living. Such a number may impact your decision to complete a transaction, but really has nothing to do with an objective valuation of the practice.

Layoffs abound at law firms

edpoll@lawbiz.com (Ed) — Tue, 04 Nov 2008 11:20:05 -0500

The American Lawyer brought us the "AmLaw 100," and more. Some blame Steven Brill, creator, for lawyers focusing on the business side of the practice. That would be an interesting discussion.

But, whatever one thinks about Brill, The American Lawyer has done it again. This time, on the negative side of the practice of law, layoffs.

Listing of firms and articles concerning layoffs is the first time I've seen this all in one place. Scary to think that there is so much of this going on that it merits concentrated press coverage.

Buying, Selling or Merging Your Law Practice ...

edpoll@lawbiz.com (Ed) — Tue, 04 Nov 2008 10:41:52 -0500

Many surveys that I've received in the past had a one dollar bill in the envelope as an inducement to respond. I can't do that here, yet I'm still asking for your assistance.

The idea for our new adventure to help those who want to buy or sell or merge a practice is expanded at my website. A simple yes or no check mark is all I'm asking for at this time. If you want to make further suggestions, please email me.

Again, thanks for your guidance.

I need your help ...

edpoll@lawbiz.com (Ed) — Mon, 03 Nov 2008 18:47:47 -0500

You may have heard me talk about the 400,000 lawyers who will be retiring from the practice of law in the next 10 years. When the financial crisis first hit, I began to doubt that we will face so many retirements. But, my phone continues to ring with people wanting to know how to sell their practice, how to value it (a requirement before selling) and then how to transition into the "second season" of their life. Thus, there must still be a market ...

I still battle lawyers who are surprised to learn that they have anything of value to sell. But, yes Joe, "there is goodwill in them thar hills."

So, one night when I couldn't sleep, I came up with an idea ... and I need your help to test out the idea, to know whether to go forward. The following is the outline of the concept. Much is yet to be added to it if we go forward. But, I want your ideas and your expression of interest to confirm my belief that this is a viable concept.

Idea: My web site, devoted exclusively to a community of lawyers interested in buying, selling or merging their law practice. Each lawyer would be entitled to create and post a listing describing the nature of his / her practice that is available for sale, or the nature of the practice desired to purchase or with which to merge.

There would also be a discussion "board" that I would monitor and participate in ... giving suggestions and commentary as I think appropriate. And I would post articles and other resources, including portions of my books and audio materials, for the further education and assistance of the members of this community.

In effect, this would be a multiple listing service ... better than a listing like Craig's List because of the substantive content and focus by and for lawyers ... The monthly fee would be modest and would continue automatically on a credit card only so long as you wanted to continue to participate. Termination is at your discretion.

I would be available to help on an individual basis such as reviewing the description of the practice, etc. ... My services in this field such as valuation and consulting to sell a practice would be available but not to be considered as part of the low monthly rate offered to the community ... They would be negotiated separately, though at a reduced fee to any member of the community.

Please respond by email (edpoll@lawbiz.com) with your thoughts on this ... Thank you for your help and guidance.

Selling your law practice

edpoll@lawbiz.com (Ed) — Sun, 02 Nov 2008 21:07:47 -0500

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?

edpoll@lawbiz.com (Ed) — Sat, 01 Nov 2008 23:07:35 -0500

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..

The basic equation of running any business, including a law firm, is P=R-E. Profits equals revenue less expenses. Our panel described various methods to decrease overhead expenses. But, after everything is said and done, Jeffrey Grossman, Senior Vice President, National Managing Director, Credit and Advisory Services, Legal Specialty Group of Wachovia, wrote in the current edition of The American Lawyer, “You’re not going to save your way out of the problem...” He continued by saying that “discretionary spending is a minor part of a firm’s budget.” Ralph Baxter, of the Orrick law firm, said that cutting back on expenses can save millions of dollars. While he is correct, his is a large firm; and his savings is still only a small percentage of the revenue.

Rent is fixed. Yes, you can conduct an audit that may show you are being overcharged and get a refund, not a reduction of rent. But the basic amount is fixed. Your staff expenses are fixed. Yes, you can terminate employment but this will be expensive and at some point will result in cutting the meat of the firm, not just the fat.

For large firms, a major savings in this regard is to hire smarter, both new associates and lateral partners. Managing partners with whom I’ve discussed this issue tell me that it cost the firm $250,000 to $500,000 for each lawyer they terminate. Aside from what I consider to be immoral conduct in hiring people you know will be terminated in a year or two or three ... it is poor economics! Saving this money goes directly to the bottom line to increase profits.

Your malpractice insurance premium is set. Yes, your premium is set at the beginning of the premium year and you may be able to add lawyers during that year without an increase ... but the amount is set.

These are the top three expenses of all law firms. Other than these expenses, there is not a lot to cut that has a dramatic impact. Years ago, as an associate, I asked the managing partner if I could spend some money for practice development. He told me that I could never spend enough to worry him; that a new client will produce far greater benefit and impact the bottom line far more than any expenditure.

The conclusion is that focusing your energy on producing revenue will produce greater benefits than focusing your energy on reducing overhead. And the truth is that we have to do both ... but it is misplaced energy to be obsessive about cost reduction at the expense of client prospecting.

But, while speaking, I suddenly realized that P=R-E is a linear equation. Lawyers generally think in linear format, but the better way is to incorporate Malleson's innovative approach when thinking about expense reduction. The firm took an expense issue, considered it in a holistic fashion and then thought about how their change might impact the firm’s revenue. The change had the effect of increasing the contacts with and responses to clients. In other words, the firm didn’t merely cut an expense, they used a change to reduce expenditures that positively affected their revenue. Thus, looking at this issue with a holistic approach will achieve more! That was my ah-ha moment.

Pricing and Profits

edpoll@lawbiz.com (Ed) — Thu, 30 Oct 2008 13:10:00 -0500

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.

Social networking for lawyers

edpoll@lawbiz.com (Ed) — Thu, 30 Oct 2008 10:38:15 -0500

LawBiz® facilitated a webinar about social networking and the benefits of this new technology for lawyers. David Nour, an expert on Relationship Economics, joined me in what the audience described as an outstanding learning experience. As the saying goes, it was like "drinking from a fire hose."

Substantially more than 100 people signed up and others contacted me with calendar conflicts. By popular demand, we will do our program again; we also will produce a DVD of this week's program; and my teleseminar with West LegalEdcenter on December 9th at 11 a.m. PT will bring David and me together again for another edition of social networking.

Stay tuned. Subcribe to LawBiz® Tips for current information as it is posted.

Will 2008 be a brief dip for law firms?

edpoll@lawbiz.com (Ed) — Wed, 29 Oct 2008 23:00:16 -0500

Aric Press, editor in chief of The American Lawyer, wrote in this month’s edition that “Next year’s Global 100 is apt to be a less pleasant experience (than this year’s law firm’s financial results). The best that law firms can hope for is that 2008 will mark the bottom, a dip in the otherwise inexorable rise of firm revenues and profits. A brief pause: Those are the optimists talking.... the work is down, collections are slower, hiring is off, and law firm leaders spend less of their time plotting global conquests and more trying to decide if anyone will notice that the quality of the paper in the Xerox machine has been taken down a grade...”

Alan Greenspan said recently that this crisis will not go away in the near future; it’s a longer term challenge. I’m old enough to have experienced a prior economic crisis (no John, not the Great Depression!), and it took a full generation to overcome. My fear is that it will take a full generation, or more, to overcome today’s crisis. Although the participants of the recently concluded ALM Law Firm Leaders conference seem to be more optimistic. I’m hoping they’re going to be proven correct.