I’ve met many bar members who have helped me understand what works and what does not work in a law practice when it comes to being smart about money, staying organized and controlling stress. I want to share this received wisdom with you here.
Be Smart About Money
Ensure there is enough money to sustain your practice by obtaining sufficient funds at the outset of the matter in an advance fee deposit or a flat fee. Sufficient depends on the size of the matter. Insufficient means needing to accept any new matter in order to obtain an advanced fee deposit to complete the work that you already have. This spiral leads to being overwhelmed—the most serious situation to face short of discipline because you will risk paralysis of action.
Consider a benchmark for gross fees of $150,000 if you have average organizational skills and technology skills. This assumes 1,000 collected hours of time at $150 per hour. To collect 1,000 hours, you likely need to work 1,200 or 1,300 hours. Of the $150,000, about 70 percent, or $105,000, is your compensation. The remaining $45,000 pays for the overhead of the practice.
Falling below $150,000 can be a result of not asking for an advance (or sufficient) advance fee deposit or failing to ask for additional funds before the advance fee is depleted. Billing and timekeeping also can be critical factors. Failure to keep good time records, to bill for all time worked and to do so in a timely fashion can be problematic, as can a failure to charge for consultations, and not charging for small services, such as a letter to a landlord or auto dealer. Other common issues include:
- Not insisting on payment before further work is performed
- Not following up on amounts owed
- Not accepting credit cards (repudiated charges are uncommon)
- Too often extending credit to complete strangers
For first-time clients, always use a written agreement that describes the parties, scope of representation, fees, costs, billing practices, no guarantee of a particular result, obligations of the client to the matter, and signature blocks. Be cautious when estimating total fees. The client will hear the lower number in any range of fees that you quote—not the higher number.
Being smart about money also means having a budget for your practice. An easy way to construct a budget is to use last year’s tax return numbers for this year. Still, budget or no budget, gross fees drive the success of the law firm. Let's look closely at what drives gross fees, net income and everything in between.
Flat or fixed fee. It's your money up front; you earned it with the caveat that, if you are unable to do the work, ethics and good client relations require that you refund part or all of the fee.
Advanced fees deposit. These are monies paid to you that are not yet yours. Always insist on this payment—it tests clients’ resolve. Cash in the bank beats an account receivable any day of the week.
Timekeeping. Capture as much effort as possible in your automated or manual system. Time not recorded is time not billed. Use of the telephone is often under-recorded. Devise better ways to record the time spent for your incoming and outgoing calls such as using the timer and journal-entry features in Microsoft Outlook.
Capturing soft costs. Bill for reimbursement of copies, faxes and telephone long distance. Washington allows a flat nominal percentage of fees for this purpose that avoids the labor of "keeping track" of actual usage by client.
Billing . Billing is a way of extending credit. If you extend credit, know whether the client has sufficient funds to pay the bills and whether the client is willing to pay. Be sure to assess your overall client service and communication. Good service helps persuade the client to write the check.
Reduce overhead costs. Look closely at where your money goes for supporting the practice. How large a Yellow Pages ad do you really need? Is there a way to pass on part of the health plan cost to employees? Can you sublet an extra vacant office?
Organization means three things: (1) managing your time effectively; (2) keeping things in their proper place; and (3) following a protocol for everything that occurs in the law office.
Manage time better. Effective prioritization is the key to effective time management. Do the most important tasks first. Take regular breaks long enough to refresh and short enough not to cause anxiety over what you could be accomplishing. Relax between projects and limit procrastination.
Keep things in their proper place. Limit or eliminate the number and size of piles. Files go into file cabinets or onto shelves. Current projects are staged on a table. Filing is organized to facilitate getting documents into the proper client files. Your most-often used office supplies should be kept near at hand. If your printer is too far away, move it as close to your desk as is feasible to cut down footsteps.
Set protocols. Create and follow a protocol for every process that occurs in your office by documenting the responsive steps needed to deal with items like processing mail, e-mail, deliveries, physical files and electronic files. Protocols reduce error, cut back on lost time due to training new employees, and alleviate a great deal of worry.
Learn to say no. It is often not easy to say no because we want to serve people in need or because we feel we need the income. So when I meet a newer admittee, I always mention two important rites of passage. The first passage is declining new work that you otherwise could take and the second passage is firing an unruly client. Setting a boundary when it is necessary builds your confidence that you are in control. And feeling in control means lower stress.
Manage stress effectively. Many of us thrive under a modest level of stress because it can motivate us to accomplishment. But the higher level of stress that I call the Beast is best kept in a locked cage. Paralysis, error, harmed clients, substance abuse or other addictions ensue and can lead inevitably to discipline.
Keep the Beast’s cage locked by minimizing monthly practice overhead expenses. Maintain a moderate lifestyle. Manage the intake of your matters so that you can attend to them adequately. Most solo practitioners can handle 25 to 40 open matters at a time.
I try to remind our members that it is a privilege to practice law and to practice law on your own terms by following these keys to success and knowing that it is also healthy to have fun!