It Wasn’t About AFA’s

By on May 6, 2012

I recently hosted a, standing-room only client discussion at Aderant’s Momentum on AFA’s. The funny thing was that the discussion turned out to be not about AFA’s (Alternative Fee Arrangements) but about Project Management and Profitability Modeling. Sure, most of the firms in attendance were already providing their clients with AFA’s, one large UK firm even indicated that about 50% of their litigation was now fixed-fee work.

What firms wanted to hear about was how they could better manage projects and use matter planning tools to predict profitability. Many of the firms that contributed to the discussion were already rolling out matter planning tools, almost like “job costing” tools to their attorneys. One can note that some industries like construction have used job costing tools for years to bid on and then manage ever-more complex projects. Law firms can learn from these experiences while using similar tools.

Here are the key takeaways from this session:

  1. AFA’s are just a pricing model for services
  2. AFA’s require a commitment to project management, most importantly resource management
  3. Matter planning tools allow the firm to use past matters to help predict both the process and staffing levels for future projects.
  4. Managing attorney resources most often involves moving work down to the lowest practical levels within the team.
  5. Partners on the team who are doing associate level work will cause problems.
  6. Project Management will allow the team, and possibly the client to see actual dollars worked vs. budgeted. However, the key
    component normally difficult to determine is, estimate to complete.
  7. An AFA fixed fee should also mean “fixed scope” of work.
  8. Most participants indicated that in litigation, Most AFA fixed fee work was all done pre-trial. Once the case went to court, firms
    operated on a traditional hourly basis.
  9. AFA’s can be used as either loss-leaders, or marginally profitable, as a way of getting more profitable trial work.

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Categories: AFA - alternative fee arrangement, Best Practices, Financial Management, Law firm billing, Productivity

Tax Time & Law Firm Temptations

By on April 8, 2012

Next week taxes are due for all law firms, since most firms are partnerships, these taxes are individually owed by the partners in the firm based on their share of the firm’s net income from 2011. With a soft economy there might be a big temptation to get creative in firm accounting to help boost 2011 net income.

Here are some considerations:

  1. Most law firms operate on a modified cash basis for accounting and there are almost no standards for “how modified” from a pure
    cash accounting method this accounting becomes. One key element, especially in larger firms that requires the use modified cash accounting is the payment in advance for litigation expenses on behalf of a client, these are deemed to be a loan to the clients because they are assumed to be recoverable, regardless of the outcome of the case.
  2. Taxes are calculated on a share of net income, not necessarily cash distributed. Therefore one consideration for partners is the
    payment of income tax without corresponding cash distributions. Therefore, partner paid in capital for the year is subject to tax, however there is no cash, in effect to cover it. Many partnerships do not distribute 100% of net income and instead reserve cash for partner capital accounts to help fund on-going investments and future pension needs.
  3. Most firms have bank lines of credit, this always a tricky situation as year-end approaches. The issue becomes, how muchof the cash from the line will be used to help fund year end distributions. A risky situation is when firms substantially draw into their bank lines to fund partner distributions. If firms choose to take this route how far into the following year does it take to zero out the line?
  4. Some firms will look to “capitalize” expenses instead of outright expensing them in the tax year. For example, fees for lateral hire recruiting expenses. By capitalizing these over say 3 years the firm takes a much lower expenses on the Income Statement and the net income looks much better. Keep in mind that this can come back to bit a firm in that there is no cash for this “improved income” since the bill for the recruiting fee is obviously paid.
  5. Firms may be tempted to do “extraordinary” things in December to prop-up net income. For example, delay paying expenses that are normally due or “early booking” client advance retainer payments prior to work being done. Again, since there are few standards for law firm accounting these might appear to be attractive options.
  6. Many law firms have outside auditors that more help protect the partners against liability claims than really perform audits.
    These auditors may actually just do reviews and not audits. The issue again is, to what standards will the auditors compare the firms practices.
  7. Some firms are more concerned with the annual reporting of Profits Per Equity Partner, than the actual cash health of the firm. This can be a risky ego trip when the PPEP look attractive but the firm has no cash.

 

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Categories: Best Practices, Financial Management, Law firm billing, Management

Memo to Partners …. Is Your Firm on “Speed”!

By on March 25, 2012

Everything we put our hands on today is built for speed, our iPhones, iPads, PC’s, notebooks, cars, TV’s … you name it. You can transfer money on-line, make purchases, look up an address on your GPS and so forth at the speed of light. Today’s technology provides speed, yesterday’s technology did not. The industrial revolution transformed society at the time due to speed, the ability to get things done faster and better. This post is about speed, not the drug, but the future of how law firms will internally function.

HOWEVER, when it comes to the internal processes with a law firm, we have anything but speed! Most internal processes are booth rooted back in the dark ages and designed by a committee. Why? Well, in most firms speed doesn’t seem to be very important. For example, try and quickly open a new file, most firms are still proud of their new matter memo that was designed of course by committee. Nothing speedy about it, enter the information into a Word document and email it to someone on the list. They’ll re-key it into a system. Conflict searching has incredible speed, the search engine is being referenced here, not the overall process which is highly inefficient.

Need to process a check request, get a day off work, get a new employee started, find a pleadings file folder, the next motion date, do or look for almost anything, it is REALLY SLOW. Why is everything else in our lives “on speed” except our firm?

Law firms need to completely rethink their processes, talk to your trusty vendors, ask them about speed. How can we speed up everything we do? Most vendors will be able to give you examples of other firms that are “on speed”, they have found much faster ways to do almost everything.

Why is speed important? It’s a basic business principle; especially known to law firms … time is money. Doing everything faster will get more done and make or save money. That’s what technology has done within our society. The next generation of software being introduced into your firm must help the firm get “on speed”.

 

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Categories: Best Practices, Financial Management, Management, Practice Management, Productivity, Technology

It Far Easier to Keep than Lose Good People

By on March 17, 2012

In my last posting I identified how to hire the right people and who you might want to be aware of. In this post we’ll discuss keeping good people. Some law firms just seem to suffer from continual turnover of the staff, others appear to be training grounds for other firms or corporate legal departments.

One fact of business …. it is immensely cheaper to keep good people than to find good or better replacements. First we’ll take a look at the top 5 reasons why people might leave in the first place.

Top 5 reasons why employees leave.

 1. Higher Pay. Surveys consistently show that the overall #1 reasons employees leave is compensation. It is interesting to note that many times this is a result of “pay compression”. This compression exists when there appears to be very little difference in pay between top, mid and bottom performers. You know the scenario, everyone gets an automatic 4% raise and there are little in terms of substantive evaluation. The job only appears to be worth a tight salary range. Add all sorts of benefits into this discussion of total compensation.
2. Below Market. This is very similar to the one above but looks a little different to the employee. In this case the employee has access to surveys that show they are paid well below market rates. Many times you don’t need a survey, just find out what newly hired employees in the same firm are being paid for the same job. Not surprisingly, the employee finds out that their 7 years of loyalty and excellent appraisals pays much less than risky new hires.
3. Over or Under Managed. In this case it’s either they are being micro-managed and there is little room for growth, or they have little communication and directing from a manager. It’s no mystery that employees actually like to be properly managed and crave for leadership.
4. Overall Communication. Communication or the lack of, is one of the key reasons employees feel dissatisfied with their job. How well am I doing? I have no idea because no one tells me. All employees from top to bottom like to know both how they are performing and how the overall business is doing. Why, it’s matter of safety to them. It builds trust when these things are communicated.
5. The Environment. What is the workplace like, is the employee comfortable, is it professional? Is there too much drama, employee in-fighting and low moral? If so I can guarantee you’ll lose good people quickly.

Ways to keep good people

 1. Actually it’s quite easy, just deal with the top 5 reasons why they might leave.
2. Let’s tackle Higher Pay. Although employees might say this is the number one reason for leaving, it may not have started them looking in first place. Communicate to employee upfront and on a continual basis what the firm’s overall compensation plan is for the position being discussed. Can the firm provide a growth path for excellent performers?
3. Many employees will sacrifice pay for other items they feel are valuable to them. For example, the security of a long term job, with a company that “treats them well”. This tends to be the case for small or mid-size firms who just can’t match the compensation for big city, big firms. There are many non-compensation factors that keep good people on-board.
4. Give employees “real jobs”, those that have responsibilities, the ability to be recognized publically for a job well done. Provide the best management you can, don’t knowingly let a poor manager cost you people.
5. Have fun, employees want jobs that are fun. I know it sounds corny and you run a professional law firm that is just too prestigious to allow “fun”. You are wrong. Every firm can find ways to allow their employees to become engaged in fun activities and functions. Conduct a contest, had out simple goofy awards, those types of things. Kool-aid at lunch contests. Just ask some of your more outgoing employees what might be fun and let them run with it.
6. Never top communicating. It’s just amazing that all business people believe they are good communicators, that communication is essential and that employees what consistent communications. Then they just don’t do it, they are just too busy to consistently communicate. How constant firm meetings, allow both attorneys and staff to talk about accomplishments. Invite staff to annual meetings dedicated to them. Constantly tell them what is going on, good news and bad news. They are much better off hearing the good and bad from you than others who will get the details a little wrong.

Do you have some suggestions on how to keep good people, pass them aong and I’ll post them.

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Categories: Best Practices, Management, Productivity

How to Hire the Right People and People to Beware of!

By on March 4, 2012

All but the very largest law firms are like any other mid-size businesses; they can become very people-dependent
therefore small changes in staffing can have much larger effects on the business.

Here are some helpful tips on hiring the right people.

  1. Start with a comprehensive job description for the position. Also determine the career path and level of training you are willing to provide.
  2. Almost completely disregard a person’s references and resume, other than to put them in the generally qualified category for further evaluation. References provided by the applicant are going to give you nothing but the very best qualities and resumes are well known to puff a person’s real accomplishments.
  3. Before taking a lot of time with candidates, have them tested for various competencies, including analytical skills. Can the candidate solve problems, are they extroverts and you are looking for someone with communication skills?  Testing will quickly find personality traits that match your needs.
  4. Only hire the smartest people, assuming they have the basic skills to do the job. Make sure they have problem solving skills and can adapt to constant change.
  5. Provide the new hire with early hands-on training and a well-defined on-boarding process, this helps make sure you have the right candidate.

Beware of these People.

  1. Beware of people that have been doing the same exact job for a very long time. Why. Because it may have taken them a very long time to learn simple, basic tasks. Secondly, they may be unwilling or unable to accept constant changes. We all admire employee loyalty, just make sure this loyal candidate also passed through the 5 steps above.
  2. Beware of hiring “victims”, these are people who never take any responsibility for their own actions. Everything that ever happens in their department, office or business was someone else’s fault. They couldn’t do their job because of others, constantly. If in doubt,
    read the book called The Oz Principle.
  3. Beware of people who have inappropriate or strange postings on their Facebook, or LinkedIn site. I would use anything here to hire a candidate, but I would surely use it as a reason to disqualify a candidate.

If you follow these guidelines you might even find and keep a valuable employee. Next we’ll talk about how to keep valuable employees.

 

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Categories: Best Practices, Management, Productivity

How Matter Planning Actually Works – Part 2

By on February 26, 2012

In my blog posting on Matter Planning – Part 1 we examined how using Matter Planning software can leverage existing information in their time and billing software to build easily a “roadmap” for revenue, hours, rates, costs and expected profit for a new matter. In this posting we’ll look at how to manage the matters and track budgeted vs. actual performance statistics to then better forecast future matters.

There are key components to managing a matter once the plan is in place, they include:

  1. The ability to report on actual to budgeted revenue, hours, costs and profit at any moment or at defined thresholds. For example, we have hit 50% of the hours budgeted for a matter, however we are only completed 30% of the work. An immediate red flag goes up.
  2.  The ability to do “what if” scenarios by, for example, swapping a lower rate attorney for a high rate attorney in the plan and quickly seeing the influence of the change.
  3. The ability to set-up workflow and alerts that notify various people when for example, a new matter intake is processed for approval and requires a matter plan, or a variation in the actual to budget has transpired.
  4. The ability to run a P&L for a matter comparing actual vs. budgeted revenue, internal costs and profitability at any point in time.
  5. The ability to run reports showing larger selections of matters, clients or other criteria to get a higher level view of multiple projects.
  6. The ability to apply a prior, similar matter plan to a new matter with few keystrokes.

The bottom line for firms is that Matter Planning software automates an otherwise almost impossible task of planning and managing a matter to a detailed budget to provide the firm with more predictable results and improved profitability.

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Categories: AFA - alternative fee arrangement, Best Practices, Financial Management, Law firm billing, Management

How Matter Planning Actually Works – Part 1

By on February 19, 2012

Firms are increasingly being put under pressure to deliver alternate engagement models, such as fixed fee arrangements or discounted rates, to win new business. In addition to this clients are demanding more transparency in the on-going handling of their matters so they can see for themselves the progress being made and the justification for work undertake.

Before we start to describe the Matter Planning process let examine some benefits firms should experience by using Matter Planning software.

  1. Improve forecasting accurately by leverage historic data on like matters or tasks.
  2. Reduce the risk of taking on matters that will result in lower margins than expected.
  3. Introduce a repeatable process that provides control and discipline in the business development process.
  4.  Reduce the costs and time to respond to prepare an RFP or Alternative Fee Arrangement (AFA).
  5. Drive more new business at a known level of profit.

 Firms can attempt to do matter planning with crude tools such as a spreadsheet or Microsoft Project. This sort of planning can handle the scheduling component of any plan but completely misses the financial analysis requirements. A spreadsheet could be used along with normal time and billing software that offers matter level budgets, however this becomes the start-from-scratch method and it may take years to develop a profitability model that can be manually maneuvered to do a forecast.

 Matter Planning software provides the ability to go back in time and search for similar matters that can then link to provide an immediate historic prospective for a future matter. Convenient links include such items as:

  • Phase and Tasks
  • Specific attorneys and attorney levels
  • Matter rates and actual internal costs
  • Hours recorder and actually billed
  • Disbursements

 After using the Matter Planning software tools the firm can easily develop a “roadmap” of revenue, hours, rates, costs and expected profit for a potential new matter. The firm can now present the client with a comprehensive financial matter plan.

 This however is just the beginning, in How Matter Planning Actually Works – Part 2, we’ll look at how to manage the matters and track budgeted vs. actual performance statistics to then better forecast future matters.

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Categories: AFA - alternative fee arrangement, Best Practices, Financial Management, Law firm billing, Management, Productivity

10 Best Practices for Split-Party Billing – Paper and e-Bills

By on February 12, 2012

Quite often insurance carriers require law firms to split a bill among two or more parties, this is normally referred to as Split-party Billing. Many times there are complexities that make a seemingly simple task, much more complex.

 We’ll examine “best practices” to both meet client requirements and provide the firm with solid accounting transactions for proper reporting and profitability analysis.

  1.  Split-party Billing usually calls for a master file to be set-up where all fees and costs are posted to that file. Additional “bill parties” are then added with a designation as to what % of the fees and costs will be billed to each of the parties.
  2. The system should check to be sure that 100% of the fees and costs are being allocated at all times.
  3. The use of effective dates for each party is very important, it’s not unusual that there are “in’s and out’s” of bill parties throughout the life of a case. The ‘bill parties” don’t necessarily have to be clients and matters in the system, they can just be an entity called “bill party”. Many times this is much easier to just designate a person or company that will pay a portion of a bill without setting up all the official client/matter information. You just need a name and address to send the bill to.
  4. Normally, in the case of Split-party Billing, a single rate is used to value each time entry. If different rates are used for each party it is difficult to determine a % of each bill to be split, from a dollar point of view. If each party must have a different rate, then the actual time entries are first split, and then valued separately for each party. If different rates are used each party receives a completely separate bill without calculations showing the % split.
  5. Since most Split-party bills are going to one or more insurance carriers it is convenient to get agreement ahead of time on a common phase and task code set to be used.
  6. At the time of billing the system looks to actually generate, in effect a single bill, with each bill party seeing their share of the total bill. So for example, if bill party #1 is paying 50% of the total and the bill is for $10,000 the bill would show all the detailed fees and costs, a “total bill amount” and then a line in the bill showing bill party #1 owes 50% or $5,000. If bill party #2 is paying 25%, they would get the same bill sent to their attention showing on one line that they owed $2,500.
  7. There are a lot of iterations of this general idea of a “single bill”, including different bill formats, including past billing and payment history and outstanding AR or Retainers being applied for each of the bill parties on only their copy of the bill.
  8. In Split-party Billing the “bill parties’ act as “sub-matters” to the master file or master matter. Therefore in many systems, Accounts Receivable can roll-up to the master matter, with the ability to drill-down to a bill party’s portion of the AR.   
  9. Split-party bills can also be separately e-billed to multiple “bill parties”, i.e. insurance carriers.  In the case of e-billing it is not unusual that the e-bill party want all the “pre-split” transactions, the e-bill party already knows what % they have agreed to pay and the LEDES format will handle all of this.
  10. The system should save all detailed transactions so that normal accounting adjustments can be made such as, reversing a bill, transferring a payment, charging interest for one or more of the bill parties, etc.

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Categories: Best Practices, Financial Management, Law firm billing

The Top 10 Technological Trends of 2012

By on February 5, 2012

A la David Letterman, here is my own Top 10 2012 Technology Trends and a few concerns:

10. Collaboration: Firms have jumped on the collaboration bandwagon using tools such as Microsoft SharePoint to collaborate both on a firm and client-facing basis. This collaboration enables firms to stay on top of things such as productivity, etc. In the 2010 ILTA Purchasing Survey, 49% of respondents utilize SharePoint internally for collaboration, while 24% use it as a collaboration tool for client and other external communications.
Concerns: Not a lot; perhaps just a continued slow roll-out time and the challenge of keeping the information up to date.

9. Social Networking Increased: With the increased use of social networking, decision making has become easier both for firms and clients.  Almost all companies are socially networking one way or another and it gives firms more exposure overall.
Concerns: This increase has made people and companies more vulnerable. Larger firms want to make sure to control their message; social networking can do just the opposite. We just aren’t sure if attorneys twittering all day are really productive.

8. Technology Creating Technology: Smart technologies are spurring on a new slew of technology that tie in to existing technology to speed up processes. Many organizations are making the creative process to develop this technology more scientific by recording the process.
Concerns: Technology was developed to make lives easier. Sometimes the learning curve and implementation can create more work with a higher degree of complexity.

 7. 360 Degree Security (Accountability): With all of the information flying in and out of organizations, firms are becoming increasingly cognizant of the integrity of their information and how it is being protected, especially within the cloud. A 360-degree security plan is granular in nature and includes doing a lot of small things to ensure the maximum security.
Concerns: None.

 6. Workflow to Save Clients Money:  Workflow applications are a sure bet to improve internal efficiencies and productivity. Firms are looking for ways to reduce their internal costs that then allows them to potentially pass these savings along to clients. This may not mean rate reductions, but possibly lower increases.  
Concerns: Nothing really. Process improvement is smart business.

 5. Green: Going green is in and it will stay in for good reason. Technological advances such as paperless billing and workflow routing are saving countless resources.
Concerns: Going Green is getting a little tired, it’s a process, not a single event..

4. Video Conferencing: This has become a must-have in every larger, multi- office firm. It enables people to engage and communicate on a higher level. Video conferencing encourages collaboration as both firm associates and clients can increasingly meet face-to-face while saving on cost and going green.
Concerns: Video conferencing can be somewhat easier to implement than it was just a few years ago. Firms with VOIP phone systems may be more prone to also implement video conferencing.

 3. Blackberry out iPhone are in: The use of Blackberry’s in law firms is rapidly dropping as attorneys are quickly moving to iPhone and Android devices.
Concerns: IT must support these devices whether they like to or not.

2. Cloudiness: Firms further embraced cloud computing and saved on maintenance and expense both in hardware and in time. The law firms have not embraced cloud computing, in general at the “enterprise” level such as time and billing. However, all other applications have started the move to the cloud.
Concerns: Can I really get my data back if I switch vendors, in what format? These are becoming major issues as firms move from cloud to cloud.

 1. Mobile Apps: Savvy firms are already rolling out mobile apps for iPads, and Android tablets (in some cases). These apps allow attorneys to enter time, inquire on contacts, documents and overall client information.
Concerns: IT needs to quickly get on board with how to handle mobile apps, provide security and support users. This is only going to expand exponentially over the next few years.

 

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Categories: Productivity, Sharepoint, Technology
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