Law Practice Today

Despite the fact that most economic experts have predicted a recessive economy in 2008, many economists believe that next year, the economy should begin to recover. “ The consensus of economists surveyed by the Blue Chip Economic Indicators newsletter sees the U.S. economy expanding 2.4% in 2008. That's down from a 2.6% projection made last month and a 2.8% gain forecast for August. ….Still, next year's performance looks set to be somewhat stronger than this year's. The panel of 52 economists projected growth of just 2% this year, a forecast that has held steady for three consecutive months.”

Most business sectors, especially housing have been slow. So, if your firm focuses on real estate property and refinance closings, you may be hurting a bit. And, while you hurt, your colleagues that practice foreclosure law, bankruptcy and even marital law may be so busy their heads are spinning. And, any economic downturn in your firm may, trickle downward from your office to your vendors, to cut backs in employment, etc. However, know two things that you can almost bank on, (1) the sun will rise tomorrow, and (2) the economy will improve, and then get worse, and then get better. One of the basics of economics is that the economy is cyclical. There are growth periods, recovery and prosperity and there are two slow-down periods, contraction and recession. How long each period lasts is what economists are primarily paid to predict. Most economists have stated that currently, in mid-2008, the U.S. economy is in a recessive period, albeit the level and the severity of the recession is a continuing debate among the experts. Having recognized this, don’t despair; now is a good time to prepare for the next period: recovery.

For the legal profession, preparing for recovery and prosperity is a never ending task. Our profession is fortunate. Although there are hundreds of legal disciplines, as a whole, our industry survives in all economic cycles. In growth periods, more people plan their growing estates, businesses merge and acquire other businesses, new venture capitalists need lawyers to help them decide where to invest their growing bank accounts, etc. In recessive economies, there is possibly more crime, more divorce, more car accidents, etc. Here are ten things that we can do now to prepare for the upcoming growth cycles of the economy from both a business and technology perspective.

#10 – Manage your firm with accounting software made for a law firm. The benefit of doing so is three fold. First, accounting software made for a law firm focuses on the unique status of our firms as service oriented businesses. Secondly, these packages (examples include LexisNexis-PCLaw, TABS3, Amicus Accounting, Orion, and ProLaw among many others) are designed to save you enormous amounts of productivity time as they make entering billable time and client expenses advanced easy. Third, they all produce easy to read and understandable productivity and financial reports. We must review productivity of our staff to ensure (a) that they are accurately keeping up with billable events and (b) they are doing so in an efficient manner. Simply knowing how much money is in your operating account is one small piece of the puzzle, but analyzing current Work in Progress (unbilled time), the average amount of client advances made with firm cash, collection of client expenses advanced, and timekeeper time usage are even more important to prepare for the future. Dollars come in and dollars go out of the operating account; it is not there for savings. Rather, it is the tool used to operate your firm. Understanding income is as important as understanding expenditures. Using accounting software made for law firms provides tools to analyze where your practice is financially and where it is going. Finally, analyzing reports protects your investment in your firm.

#9 – Continue to manage the business you have vs. constantly focusing on bringing in new business to survive. While bringing in new business is vital to the growth of your firm, so is servicing the clients you have. Continue to keep in touch with existing clients and see how they are. Are they happy with you and the firm? Is there anything else you can do for them? Even if your client base typically hires you once, it is still a good idea to keep in touch. Use your case management software to send periodic e-mails, produce labels to mail annual birthday cards, and generally recognize your clients. The former client may not have a new case for you herself, but she may be the person who refers you the case of your career.

#8 – Follow up to # 9 – Team up with firms or attorneys that provide complementary legal work for your clients. As we endure a recessive period and get ready for expansion, consider building a referral network among lawyers in your area that practice different legal disciplines. If your business is focused on mergers and acquisitions, trusts and estates or general corporate work and you find times are slow, consider building a network of lawyers who practice other legal disciplines to whom you can refer business for a referral fee (provided the state bar approves, of course). Most accounting software can track referral fees easily. Consider offering an office to a practitioner looking to “go out on his/her own” to whom you can refer business and bring in some rental income, or both.

#7 – Reach out and touch. Expose your firm to charitable organizations and community service and market those efforts. Even if times are tough and you are beginning to feel the economic pinch, stay busy. Remember the economy will change. Make the most of your down time by providing pro-bono work - invest some of your legal time in charities and community service. Sponsor a neighborhood little league team and have your firm’s name or logo placed on the team uniforms. At the same time that you give back to your community, you can also secondarily reap the benefit of marketing. Consider “e-newsletters” (Constant Contact.com, e-NewslettersOnLine.com, among others). Many e-newsletters can be developed by novice users of the internet with on-line templates and easy tools to build a professional looking newsletter marketing your firm and your charitable activities. The benefit is two-fold, your community will benefit from your charitable work, and your firm will benefit through greater exposure of your name to the community as a whole. You may not see results immediately, but eventually you will. And, you will keep your name in front of your client base, your prospects, and your community.

#6 –Bill effectively and consistently, no charge where you can; accurately capture your time. When you are engaged by a new client, ensure that your client understands when and how you bill as well as your payment expectations. Your engagement letter should outline this clearly. Spell out your staff categories and let the client know, in writing what the billing rate is for each. Advise the client when you will advance costs and when they must repay same, and keep track with your accounting software. Explain when trust retainers should be paid and replenished. And, most importantly, set forth in writing, when you expect payment and the consequences for client failure to pay your bills. If you work on a contingency fee basis, spell out at what stage of the case you will collect differing percentages. Have your staff capture their 7 or 8 hour day accurately (and easily) using case management software (Amicus Attorney, LexisNexis-Time Matters, STI’s Practice Master, etc). Consider taking a few items and marking them “no-charge”. Your client gets a break and you send a subliminal message of goodwill. Require that your staff (even in a contingency fee firm) keep track of EVERYTHING they do not only for productivity analysis but also to keep accurate records of everything that is happening matter by matter. What you “no charge” is up to you as the business owner. Your client will certainly appreciate it and you will be credited for giving the client a break.

#5 – Value Bill. Shift the risk for your client base by providing some or all services on a flat rate basis. Value billing is the concept of billing for a set of tasks at a flat rate. By doing so, even though you and your staff should still track your entire day (both billable and non-billable), you shift a considerable amount of risk from the client to your firm. With appropriate technology in place, you will ultimately reap the financial benefit. My good friend Barron Henley, Esq. (of HMU Consulting, Inc.- bhenley@hmuconsulting.com) often analogizes retaining an attorney who bills hourly to buying an airline ticket where you pay as you go. Imagine if the airlines created a policy where you purchase a ticket at the ticket counter and board your flight. As the flight progresses, flight attendants come down the aisle and collect your money (maybe that’s not too farfetched with the airline industry these days). No more money, no more flight for you. You must leave the plane now (would you like to purchase a parachute or just jump?). When prospective clients sit with us at the conference table and we begin to explain our billing and collection policies, the client hears this: “You must give me a retainer. I will bill off that retainer. As I use up the retainer, you must replenish the retainer. I don’t know how long this case will take and I don’t know how many hours I will bill. If you don’t continue to pay, we will withdraw from your representation no matter the stage of the case.” But, if you value bill, instead, set forth in your engagement letter the anticipated stages of the case, and at what point the client must replenish the retainer for a flat fee, etc. Your client will truly appreciate a clear cut budget up front so that he/she can understand and appreciate his/her financial responsibility to you. You will appreciate getting your money at steady intervals without having to fight, etc. By laying out a phased billing plan, you can internally budget anticipated income. And, if you properly invest in technology, like Document Assembly software you can ensure that you can quickly create required documents for the tasks at hand accurately and in less time than you would if you were to cut and paste from an old document. Talk about a truly effective productivity dollar!

#4 – Work with clients who are hurting vs. suing to collect a debt. Acknowledge that the economy hurts everyone. “What can you reasonably pay?” A client who is not paying your bill is not necessarily dissatisfied with legal services but rather is simply unable to pay. It is important to communicate with a delinquent client quickly. Assure the client that as long as they make an effort to pay, you will continue to work with them, but ignoring your bills and calls will most likely cause you to withdraw from the matter at hand. A client that experiences your compassion in hard economic times will be more likely to develop allegiance and pay as quickly as possible. To protect your business interest and to ensure that your bill is among those being paid by the client in a timely way, you MUST charge interest. Firms that refuse to do so because they feel it is unprofessional or because they’re not sure how to do so within their billing system) shoot themselves in the foot financially. What incentive does your client have to pay you in a timely manner? Spell out your interest rate policy in your engagement letter and on each and every invoice you send. Lastly, use interest as a bargaining chip to get paid sooner rather than later: “if you can pay me this week, I’ll waive the interest,” rather than writing down a bill further.

#3 – Review your financials, consistently and thoroughly every single month. Understand the accounting/billing software and REVIEW financial and productivity reports. Evaluate your financials at least once per month to ensure that you continue to turn a profit, you are prepared for the next month, your staff is being productive and receivables are not getting out of hand. Based upon what you learn from your evaluation, take action. It’s one thing to review the reports, it’s another (and more important) to take appropriate action to correct problems you discover based on the reports.

#2 - Continue to invest in your firm’s technology infrastructure. A sluggish economy will not last forever. Prepare now for the upcoming upswing in the economy. As mentioned previously, the economy will cycle back to prosperity. You should use this “downtime” to not only heed the advice previously mentioned, but invest in the future and technology should be a top three item. But, if you finance your technology investment, be responsible with debt. If you are having income issues, don’t go into serious debt. Balance is the key. Keep computers updated; software updated; learn (with quality training) and implement software to improve productivity to streamline tasks and improve efficiency.

#1 – Relax – Economics is cyclical – have faith that it will get better. Now is the time to prepare for the next economic cycle. Remember, if you believe the economy is in a recession, prepare now for the next: EXPANSION.