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

in this issue

Law Firm Capital - How Much Do We Need

Law Firm Buyout Arrangements in a Contingency Fee Practice

Solo/Small Firm Question of the Month - Law Firm Estate Planning Practice - Increasing Summer Demand

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.

  • Law Firm Capital - How Much Do We Need
  • There are two categories of capital - short-term or working capital which is used to fund daily operations and long term capital which is used to pay for capital assets such as furniture and fixtures, computers and other office equipment. I guess I am old school but I believe that short term working capital should be funded as much as possible with partner capital and long term capital funded with bank borrowing or leases. I have more and more clients that are funding working capital with partner capital and have no bank debt at all. I have other clients that finance all working capital with their bank line of credit - these firms could find themselves in dire straits if bank credit should tighten in the future.

    The amount of working capital needed by a firm depends upon your practice, billing and collection cycles, whether you do contingency fee work, and whether the firm is growing and adding attorneys and staff. As a rule of thumb I suggest that a firm have three times one month's expenses excluding draws in working capital. This would need to be increased if the firm has lengthy billing and collection cycles, does contingency fee work, and is in a growth mode.

    Partner capital contributions are usually made proportionately based on partner earnings or ownership percentages.

  • Law Firm Buyout Arrangements in a Contingency Fee Practice
  • The real value component is the value of your unsettled cases and it will be difficult - if not impossible - to determine the value of these cases until they are concluded in the future. Some firms payout the capital account and the value of the hard assets upon departure or over a relatively short payout period and they have a future payout formula for the cases in progress as the cases are concluded.

  • Solo/Small Firm Question of the Month - Law Firm Estate Planning Practice - Increasing Summer Demand
  • QuestionOur firm is an estate planning firm located in the Chicago suburbs. We have three attorneys, four paralegals, and three staff support members. We have observed over the past three years a trend where our new matters and associated fee revenues starts a dramatic decline in April and continues to do so until August. In the past we have just remained in a state of denial and relied on hope and prayer. This year we would like to be more proactive. I would appreciate your thoughts.

    Answer:You could try investing in some additional advertising designed to stimulate early demand for such services. However, short of a new tax or other regulation occurring this summer or a dramatic price reduction - i.e. get your will done and get your spouse's will for free - I doubt that such advertising will do much to create a reason to act now as opposed to the fall or end of the year. Then you would have the additional cost of the advertising and lower revenue as a result of the discount or special offer. I believe you might be better off focusing on cost reduction and cutting back on attorney and staff hours until demand picks up again in the fall.

  • 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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