Law Practice Management News
Ideas for Lawyers and Managers That Dare To Be Different June 2013

in this issue

Mitigating Law Firm Case Portfolio Risk With a Firm Contingency Fee Case Selection System

Law Firm Mergers: The Importance of a Timeline and Project Plan

Solo/Small Firm Question of the Month - Law Firm Margin/Profitability Ratio: Net Income to Gross

Download Our Profitability Checklist

Looking to Sell or Merge Your Practice - Let Us Know

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John W. Olmstead


Welcome to Olmstead & Associates Law Practice News, a law practice management resource for practicing attorneys, managing partners, administrators, and others that must keep updated on all aspects of law firm management.

Our Law Practice Management E-Newsletter is distributed on the first Wednesday of each month. Look for it and send us your emails with your ideas for topics that you would like covered. I wish to thank those who take the time to email me with their thoughts and comments. I encourage our readers to do so.

We represent a law firm in Central Kentucy that is interested in selling its tax preparation practice to a accounting or law firm. Practice generates $300,000+ a year in fee revenue. Interested parties should contact John Olmstead via e-mail at jolmstead@olmsteadassoc.com.

  • Mitigating Law Firm Case Portfolio Risk With a Firm Contingency Fee Case Selection System
  • A balanced case portfolio is critical for contingency fee firms. You must carefully select your cases. Here are some ideas for an effective case selection system:

    1. Develop an evaluation/case rating tool to be used to determine risk and feasibility of taking on contingency fee cases. The tool could be a form with an brief write-up and synopsis of the case, potential fee (high and low), probability of success or failure expressed as a probability percentage, specific risks, how long case might be in progress, hours that it may take to staff the case, client cost investments, and other resources that may be required.
    2. Determine criteria that must be met to accept or reject a case.
    3. Require more than one head or set of eyes on a case before committing to accept a new case. You might want to require all contingency fee cases to be reviewed and discussed at a weekly team meeting before a case can be accepted by anyone - including. This will help keep any one attorney from getting too emotional and close to a case and base acceptance upon business and economic considerations rather than emotional considerations. This is routinely done in lot of my PI firms to help access and mitigate case risk.
    4. Write-up and document the case selection system.

  • Law Firm Mergers: The Importance of a Timeline and Project Plan
  • Mistakes can run the gambit - from choosing the wrong marriage partner - to getting into a deal that does not make business sense. A common problem that I have seen is the lack of a timeline and project plan resulting in project drift and lost time. I just got involved with a small firm that had been working with the managing partner and a small team from a much larger firm. After a few months of financial and other document exchange, informal gatherings, etc., these individuals advised the partners in the small firm that they believed all looked good and led the partners in the small firm to believe that a deal with eminent. However, after one year had passed the small team in the larger firm presented the matter to the full partnership for a vote on the merger and the partnership voted against the merger.

    Lessons Learned

    1. Don't assume that the managing partner or a small merger committee or team in a larger firm speaks for the firm or has the authority to approve a merger. Merger with another firm or extending partnership are usually decisions restricted to partnership vote in most firms.
    2. The partnership dynamics in larger firms will always be a variable and in larger firms a great deal of time is often required for this to play out.
    3. It is critical that you establish your timeline (goal date) and let it be known to the other firms that you are speaking with. Let them know that you are talking with other firms that will have to have a decision by a date certain.
    4. Outline a step-by-step task or project plan based on the goal date to focus your efforts, keep you on target, and reduce project drift.

    Don't invest a year with only one firm only to find out that they are not interested.

  • Solo/Small Firm Question of the Month - Law Firm Margin/Profitability Ratio: Net Income to Gross
  • QuestionI am the owner of an elder law firm in Boston. I recently closed out the 2012 books for tax preparation, I'm reviewing my annual numbers from what was my 4th year in solo practice and wondering how I'm doing. Is there some kind of benchmark/goal or can you share any advice about an ideal ratio between gross income and overhead costs?

    Answer:I usually say 35-45% margin (net income divided by total fee revenue) which is supported by most of the survey data. (Expenses used in the determination of net income defined as total expenses less owner/partner compensation). However, I have some law firm clients that have 20% margins were the partners/owner are taking home $1,000,000 per year. So margin is sometimes tells only part of the story. Depends upon the area of practice and practice/leverage structure. Solos operating virtually with no staff may have a margin of 80% but only taking home $40,000. ($40,000 net income divided by $50,000 fee revenue - only $10,000 in expenses.)

    Be careful of using the term overhead as this often refers to expenses less all producer compensation. (partners, owners, associates, and paralegals) I assume that by the term overhead you are referring to total expenses less your compensation or draw.

  • Download Our Profitability Checklist
  • Are you looking for a quick and dirty checklist to use to review the profitability of your practice. Click below for a copy of our Law Practice Profitability Checkup.

    Click here to download ...
  • Looking to Sell or Merge Your Practice - Let Us Know
  • We frequently consult and work with law firm clients working on implementing succession strategies that involve the sale of a law practice, merging with another firm, or hiring lateral talent. If you are looking to join up with another firm keep us in mind. We will be posting confidential listings on our website in the near future.

  • FREE Guide to Law Firm Management Best Practices
  • Download a FREE copy of our Guide to Law Firm Management Best Practices.

    To learn more about Olmstead & Associates visit their web site at www.olmsteadassoc.com

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