Reprinted from LawPracticeTODAY

Every business needs to adopt and follow a business model to be successful – law firms are no different.

In a recent New York Times story about the diminished prospects of a once-mighty Wall Street law firm (an ominously titled study of “Why Major Law Firms Are Shrinking), a senior partner at another megafirm refused to comment on his competitor’s plight, saying in a quote that drew comment among blawgers: “I’m not really interested in the business of law.” What was truly intriguing was the professed reason for his disinterest. This lawyer felt that, when members of a law firm worry too much about market forces and profitability, “the emotional and professional commitment that goes along with being an adviser and a solver of problems begins to diminish.”

Disdain about “The Business of Law®” (a phrase I registered well over a decade ago because so few firms cared about it) may have been dealt a fatal blow by the current legal recession, as lawyers have learned hard truths about over-expansion of offices, over-reliance on a limited number of clients, and over-compensation of partners and associates. But what about the other side of the argument – does worrying about getting these business issues right distract lawyers from their real purpose in life, serving clients? In my opinion the answer is a resounding “No!”

Running a law firm in a businesslike way improves the professionalism of the practice of law. The purpose is not simply to get more money for the lawyer; it also benefits the client. The businesslike lawyer understands the operation of the firm as a business, how each attorney determines firm profitability, and the importance of clients and their own businesses. To the extent that such understanding makes the firm more profitable, a profitable law practice is much more likely to avoid such ethical problems as dipping into client trust accounts, bill-padding and other abuses of the billable hour. Moreover, a law firm run as a business will also approach client service more efficiently, avoiding the service lapses that often bring malpractice charges.

The dos and don’ts for businesslike law firm conduct are mirror images of each other. Here are ten of the most important ones.

1) Don’t put the firm first. Do put the client first.

Law firms today are so preoccupied with their own survival that not enough of them are asking their clients, "H ow am I doing?” As a result, many lawyers, unfortunately, never figure out that their client is unhappy. If they don’t hear from a client after completing a matter, they just think that the client has no additional legal work. They don't realize that the client was so unhappy that, though they didn't complain, they just didn't return. Admittedly this may open a dialogue that is hard, but it should be part of any lawyer’s skill set. Lawyers are skilled at persuasion with judges, juries, partners and peers. Try consciously persuading your clients and you’ll have a better chance of retaining them.

2) Don’t just take whatever clients are available. Do target your clients.

For too many lawyers the idea of marketing is daunting because there are so many potential clients, so little time to reach them and so many options for pursuing them. Marketing can only be approached practically with a narrow focus that creates a profile of your ideal client and develops a strategy for communicating your services and capabilities to this target, not everyone. It requires defining the location, demographics, occupation, financials and other characteristics of clients who will give you the work you want. A business that tries to grow without a clear idea of where it wants to grow will soon find itself floundering.

3) Don’t sell time. Do provide service and value.

Lawyers who bill by the hour are like hourly laborers, producing bills that simply say, “This is what I did, this is the time I worked and this is what you owe me.” If we use a different method of accounting, such as value billing or fixed fees and do not help the client understand why, they will continue to fail to understand what we do, why we do it, and how we helped them. For this purpose, te method of billing is irrelevant. The client must understand what he/she received. It is essential to show clients the worth as well as the cost of the legal services they receive, and bill them accordingly. Value is ultimately determined by the client, not the attorney. But, it’s the attorney who must educate the client about “value” by showing how the services delivered to the client coincide with what the client wants and needs to have.

4) Don’t try to keep your options open. Do have a budget.

Lawyers tend to dismiss the importance or even the practicality of preparing a budget for a matter. They may believe that providing their services depends on too many unanticipated variables, or they don't want their quality of services to be constrained by budget limitations, or they think the client will use the budget to seek a discount. These are myths. Budgets define successful business planning and any business (whether it sells widgets or legal services) can and should operate according to a budget. Involve the client in the budgeting process, get formal approval of the completed budget, and communicate constantly about how expenses are tracking.

5) Don’t assume clients know what you do. Do constantly communicate and inform.

It's essential that the client knows what the lawyer is doing, and that the client approves of the tactics to be taken to achieve the client's strategy/goal . The lawyer can only provide services successfully by understanding the intent and desires and wants of the client. Lawyers must communicate with clients at their level of understanding, and do so frequently. If clients don’t recognize the benefits of what has been done, they will become dissatisfied and no amount of marketing effort will retain them. Lawyers have a consistent tendency to focus on the task at hand, without having communicated what they have accomplished to the client. Counsel may well have done a great job with documents, the court, or the opposing party, but no matter how successful the end result, the client needs to understand what was accomplished. Show your clients how highly you value them by how much you tell them about what you’re doing.

6) Don’t view technology as a cost threat. Do use it as a way to give clients more value

Technology is making the practice of law more efficient, with resulting downward pressure on both costs and fees. Technology has made information about the practice of law – court cases, professional journal articles – widely available on the Internet. Clients are thus becoming more sophisticated and demanding, and less accepting of lawyers who tell clients what they must do rather than consult with clients on what they want to do. Law firms should partner with their clients and show them how they use technology to reduce their legal costs by reducing the amount of necessary labor – without needing to reduce the lawyers’ per unit fees because technology efficiencies increase the volume of work that can be done.

7) Don’t confuse expensive offices with quality service. Do tailor offices to client needs.

Wood paneling and oriental rugs do not a law firm make. A firm reviewing office space needs should consider what it can afford, which features are most critical to operations, and what clients expect. Is your current physical location one that you, your clients and prospects are comfortable with? Also, what is the norm for a practice such as yours, what is the stage of your career (new or experienced), and how many more years of practice do you anticipate? You spend most of your conscious time here; it’s o.k. to treat yourself and want to be comfortable. But, are you willing and able to pay for new facilities to enhance your personal comfort and/or convenience? Honest answers can save everyone a lot of money.

8) Don’t be a bank for your clients. Do emphasize collections.

In today’s economy, more than ever, law firms should not be banks that carry their client’s expenses. Stipulating payment rates and terms in the engagement agreement and then enforcing them is the best way to get paid. If the client hasn’t paid the fee while your firm continues to work on and bill for their matter, you are extending a no-cost loan to the client. Do not do this with a vague hope of being paid as expenses pile up. The engagement letter should clearly state the consequences to the client for failure to honor the agreed-upon payment terms. Keep track of when clients are behind on their payments, and be firm in requesting payment in accord with the client’s agreement.

9) Don’t pursue false tax economies. Do maintain a cash cushion.

The New York Times article mentioned earlier made a telling point about our profession: “Remarkably like such ventures as the Mafia or the ice-cream vendor, many large [law] firms operate on a cash-in-hand basis, with insufficient reserves to weather a slump.” This problem is often created by accountants’ tax advice to clear out the firm’s cash before December 31 of each year. The problem for many firms is that this leaves them little or no reserve to meet unexpected expenses, or an unexpected downturn in revenues. Law firms should find a way to accumulate capital, with minimal tax consequences, in order to fund their needs in a down economy. Otherwise, firms have to borrow from banks (which may not always make money available) and “knock on wood” to hope receivables come in like they have before.

10) Don’t be paralyzed by fear of termination. Do prove your value to the firm.

De-equitization, downsizing, layoffs – call them what you will, they have caused real trauma for many lawyers. Most devastating of all can be the loss of professional identity. These lawyers have likely worked with many clients and earned good money during their time with the firm, but suddenly their egos must handle the psychological impact of being told they are unwanted. It is unfair – but it is also reality. There is no room for feelings of entitlement. Lawyers cannot remain with their firm unless it is financially feasible for the firm to keep them. The answer can be expressed as a simple equation showing an individual’s net profit value to the firm: Billings - [Lawyer’s Total Compensation + Direct and Indirect Expenses] = Net Profit. This is a legitimate assessment to make. Why should law firms, now playing in the big leagues with revenues in the billions of dollars, be exempt from the same decisions that face their large corporate clients? Law firms are for-profit institutions, and tenure is not an option. Professionalism and collegiality are still important – but, in today’s world, they do not outweigh “The Business of Law®.



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