April 2006

1. How Are You Doing?
2. Here's How to Find Out!
3. But It's My Practice - Isn't It?

Articles

1. How Are You Doing?

   What management reports do sole and small firm practitioners look at to determine how well they're doing? It's a very good question. There is much data out there ... and most good financial information systems can and do produce far more information / data than an attorney can use or assimilate intelligently. I believe the only practical approach is to decide what it is that is important to you ... to help you reach your goals ... and then look at that information.

   First, and foremost, in my mind, is the development of a cash flow statement. Prepare a forward-looking budget of cash receipts and payments for the next 12 months. Keep that statement on a rolling 12-month cycle such that as you conclude the current month, you look at the 12th month and add it into your budget, adjusting all the other months if needed based on new information.

   Next, keep your aged accounts receivable listing always at your elbow to make sure that your clients are paying you in accordance with their agreement. If they don't, "fire" them and move on to the next client. Don't let them waste your time or build up the amounts they owe you.

   If you do these two things, you will be far ahead of the curve.

   You can look at other areas of measurement as well, such as realization rate (the amount of time you have worked and billed, and the amount of that billed time that has been paid). Look at your bank balances, obviously. Look at how quickly your clients pay ... what is your accounts receivable turnover?

   All these, and other metrics are important. But, above all else, spend your time focused on marketing for new work, doing the work brought to you, and collecting that which you billed. The rest will fall into place.

   For a lawyer, good business ultimately is simply about mastering the three-part cycle that drives any business:

   • Win the business (the sales and marketing function)
   • Do the work as effectively and efficiently as possible (the production function)
   • Get paid (the collections function, which is inseparable from basic finance).

   These three elements are the essence of what I call "business competency." It doesn't involve mastering all the management jargon out there, or looking at things though the eyes of an M.B.A. or C.P.A. The lawyer who has business competency understands the operation of the firm as a business (budget, marketing, collections, profit), the firm's billing structure, how firm profitability is determined, and the importance of clients. These are the basics, and I felt it was time to cut through the clutter to convey them. That's why....

2. Here's How to Find Out!

   ...I've written a new kind of book, a Special Report on Business Competency for Lawyers. It's intentionally condensed to 60 pages, an easy thirty-minute read for any busy lawyer on the go. But read it and you'll learn my A-to-Z basics for managing and running a successful law business without getting into too many nitty-gritty details, numbers, and long examples.

   From managing your cash flow and collections process to weighing the ROI of your technology purchases, this Special Report will give you the essentials on how to make more profitable decisions concerning every part of your law business. You'll also see the hidden costs hurting your bottom line (for example, the real cost to your firm of lawyer turnover, or a new capital investment in computer software). Case studies bring the valuable information in this book to life, making it a fun, fast read that will change your business overnight. You'll learn how to:

   • Follow the 5 Steps of Law Business Planning
   • Rate the profitability and performance of your practice
   • Manage your cash flow more effectively
   • Shorten your billing cycle
   • Get clients to pay more - and on time
   • Change your billing method so that clients don't get sticker shock when they read their bill
   • Raise fees without any clients complaining
   • Understand the impact each client has on your business
   • Effectively balance your client portfolio so you never get stuck for cash when a heavy hitter leaves

   As I've said many times in many different forums, you can't truly be a professional organization until you understand The Business of Law®. Many lawyers, whose undergraduate and law school training had little practical business focus, shy away from this truth because they think either they can't or shouldn't be business-minded.

   For example, the importance of collecting the money you are owed could not be more obvious, for the largest law firms and for solo practitioners alike. And yet, this lesson is hard for many lawyers to grasp because they think financial success means ever rising billable hours. The truth is that a lawyer's inventory is not billable hours - it's the cash those hours represent. Most lawyers realize that they are in trouble only after the money ceases to come in the door. However, cash flow cessation is usually the last symptom of a downward spiral that started long before.

   Business Competency for Lawyers can save you from such traps. Reading it may be the most important half-hour you spend this year. Ordering a copy is easy and affordable. For details go to http://store.lawbiz.com/books.php#business_competency.

3. But It's My Practice - Isn't It?

   Last month I wrote about another new LawBiz^® book, Selling Your Law Practice: The Profitable Exit Strategy. The decision to sell or close a practice is a very personal one. But, one thing the book emphasizes is that, unless you're in one of the few states that prohibit a sale altogether, the State Bar and its regulations play a big role in what you can and can't do. The following example summarizes the situation in California, my home state, but the book describes many similar strictures and requirements in states from Oregon and Arizona, to Michigan, to Virginia.

   The State Bar of California holds that the decision to close your practice implies that you are quitting the practice of law and that you will either resign from or adopt inactive status with the State Bar. Whatever your decision, you must notify the State Bar of your intent. Choosing to remain an active member continues your obligations to pay dues, comply with mandatory continuing education requirements and remain subject to the bar's other requirements. Also, the State Bar doesn't consider you retired if you remain attorney of record in any matter.

   The State Code provides the basic requirements for notification of closing your practice. It says that you must inform clients, opposing counsel, courts and agencies where you have pending matters, your errors and omissions insurer, and the Office of the Chief Trial Counsel of the State Bar. If the reason for closing the practice is the death or incapacity of the attorney, application must be made by a personal representative, guardian or conservator. If there are cases or other matters not completely closed, the State Bar can intervene, assume responsibility for action - and seek both reimbursement and compensation from the lawyer, his or her heirs or estate.

   The rules governing your fiduciary obligation to keep client property safe, or return it as appropriate, vary by state. These are the key provisions for California:

   • Clients have 90 days to pick up wills after notification to do so.
   • Files belong to the client, but the State Bar has not expressed an opinion on how long files must be maintained. Some local bar associations hold that files should be kept for five years from resolution in civil matters, and for the life of the client in criminal matters. If you are closing your practice, you must inform clients by certified mail, return receipt requested, to pick up their files within 90 days. If this cannot be accomplished, it is necessary to completely destroy (not just discard) the files.
   • Attorney trust account records must be kept for a minimum of five years, to allow for State Bar auditing if necessary.

   You may not practice in California, but your State Bar likely has similar restrictions. Selling Your Law Practice: The Profitable Exit Strategy summarizes them state-by-state. It's well worth reading before you start the planning process.

   Share these ideas with others at work and in your personal life. Being a mentor and helping others is one of the most rewarding things you will ever do. They may get their own subscription by sending an email to edpoll@lawbiz.com.