♫ Must I forever be a beggar
Whose golden dreams would not come true
Or will I go from rags to riches
My fate is up to you.. ♫
Words and music by R. Adler & J. Ross, recorded by Elvis Presley.
History teaches us that men and nations behave wisely once they have exhausted all other alternatives, according to Abba Eban. By reviewing the alternatives that others have exhausted before us, the hope is that we can then learn from their wise advice. Here then, are further tips in the history of legal financial management:
- Establish an adequate credit policy
Always, always take trust deposits (advance fee retainers) and never work once your advance fee retainer is exhausted. Have a client engagement letter that clearly sets forth that a client’s trust balance must be in the black at all times or a firm will cease work, will seek to be removed as counsel of record and will return files back to clients (always check on the ethics of withdrawal in your jurisdiction in any particular circumstance for non-payment of your fee). Do not make exceptions. Have your practice management system set up to warn you well in advance of the exhaustion of retainers so that you can write to the client and tell them of what must be done and by when on their part in order that you continue with the file on your part.
- Become comfortable discussing fees with clients
Quick question: What should always be found at a birthday party and never on a legal file? Answer: A surprise. Clients do not like surprises, especially if they relate to the size of an account. This can be avoided by telling the client at the first meeting what you charge, how you charge and when you charge and what you expect from the client. Do not be afraid of scaring off the client – a client who is unwilling to face the cost of a legal procedure at the outset is not likely to change their mind at the end of the file. Better to put your time into marketing and attracting the type and class of client that will pay your accounts than putting that time into a file on which you are not going to get paid.
- Track your time
The first step in determining whether you were profitable on a sale of a service is being able to determine the costs of services delivered. To do that, you need accurate costing mechanisms that can include both direct and allocated (or fixed) costs. Direct costs are your time, and any direct disbursements incurred for the file (court reporter fees, filing fees etc). Allocated costs are the file’s share of the office overhead – staff salaries, rent, insurance fees, electricity rates etc. Since the biggest direct cost is the time that you put into the file, you cannot determine what a file cost you to produce unless you can track the time you put into the file – billable, non-billable, written-off etc. Why is this important? When it comes time to distribute funds among partners, not knowing the true costs of the files worked on can lead to gross inequities. For example, let us look at two files, each of which generated $100,000 in revenue (after disbursements). File A took three years and involved 400 hours of legal time (at $250/hr = $100,000) + hundreds of hours of staff time. File B took six months and 100 hours of legal time (at $250/hr = $25,000) and the same amount of staff time. Which file was more profitable? Not only was B more profitable, you could argue that File A resulted in a net loss to the firm since the total of legal and staff costs exceeded revenues. Yet, in most eat-what-you-kill systems, each file would be treated equally when it comes to determining partner compensation! Financial cost analysis can help you determine which files and practice areas yield the greatest return to the firm and which are black holes
- Use current and former clients as marketing tools
It is well understood that the best source of repeat and referral business is from existing satisfied clients. What is needed is a communication method to make past clients still feel like they are part of the firm and inform them of the services that can be rendered by every member of the firm. A newsletter – hardcopy or electronic, that provides updates on the firm and topical news on areas of law that are of interest to the readers – is a very good way to continue to foster the relationship. The readers will then have you and your services somewhere near the top of their minds and will be able to provide a quick recommendation when the need arises. There are of course, many other ways of marketing your services to your past and current clients. A good source of information and tips are: the Legal Marketing Canada Blog by Doug Jasinski, the Law Firm Web Strategy Blog by Steve Matthews and The Lawyer Coach Blog by Allison Wolf, who is the past-Chair of the Legal Marketing Association, Vancouver Chapter (*and of course, the LMA itself!).
- Establish your own financial nest egg
There are ways to ensure your financial future – today. Set up at least one financial institution to automatically pull and invest money from your checking account every month. It will take perhaps a few hours in total to establish and then you’ll be investing, in good times and bad, without doing any work at all. You can set up instructions on how those funds are to be invested – in stocks, mutual funds, term deposits – but the important fact is to start planning for your retirement – now. Once the account is established – take an interest in it and check it daily – to find out how you are doing. Measure your return against stated goals – determine if you are being well served by your financial advisor. Remember that you may lose in the short term – but over the long haul you will be adding to your financial stability and resilience.
- Don’t use the Lottery as a partnership retirement plan
One of the major issues facing smaller firms is dealing with the introduction of new partners and the funding of the buyout of existing but aging partners. Not having a succession plan in place that compensates the aging partner over time by establishing a retirement fund leads to the firm being unable to attract new partners – as any interested new partners who are on the upswing are most likely unwilling to contribute their billings to fund the exit of a diminishing partner. Furthermore, the lack of any retirement planning results in partners staying on in practice simply to maintain a cash flow and not for any compelling business reasons.
- Don’t forget how to Smile!
How do you greet your clients? Recall that attitudes are contagious – does your reflect that you are busy, happy and looking for more? Clients desire lawyers that are successful – and look for lawyers that act that way. Being glum about the stock market or your finances and the state of the economy etc may reflect the way you feel, but it may not be the best client development and retention tool. It also may not be a great way to approach your finances and your financial planning. Being cautiously optimistic allows you to keep your cynical side on alert while also exuding an air of confidence and competence to those around you. It may also be beneficial to reflect that notwithstanding the downturn out there, our predecessors have faced worse (the ’29 crash was much more personally devastating and longer lasting).
Ambrose Bierce, never known as an optimist, said that history was: “An account, mostly false, of events, mostly unimportant, which are brought about by rulers, mostly knaves, and soldiers, mostly fools.” However, Johan Huizinga said that: “History is the interpretation of the significance that the past has for us.” Whether we are an optimist or a pessimist, our fate, whether rags or riches, lies in our hands.
(this post is based on a column originally published in PracticeTalk in the Canadian Bar Association – BC Branch’s newsletter BarTalk)
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on Monday, February 18th, 2008 at 11:19 pm and is filed under Budgeting, Business Development, Change Management, Issues facing Law Firms, Law Firm Strategy.
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