Articles
Today’s economic numbers are scary. Nearly 10% of our employment is in the retail sector; and 25% of jobs lost since November 2007 are from this sector. Looks like a bleak holiday season is approaching. Years ago, 5% unemployment was thought to be the right amount for fluidity in the economy. For a long time, now, that number has been substantially lower, giving rise to some inflationary pressures. Today, however, we’re looking at a current 6.5%, likely to increase to 8 to 10%!
Years ago, I visited China. I saw many people employed as manual laborers. I was told they were being kept busy to allow them to have their dignity and self-respect in contributing to the well – being of the society. They could have mechanized much of what they did, but that would have meant even greater unemployment. I remember thinking that the amount of their unemployment was equal to the entire population of our country!
Today, China is investing heavily in its infra-structure by building highways and public buildings to aid its economy and, as a result, the world economies. This same tactic was used by Pres. Eisenhower in the 1950s and is being discussed today as part of our economic alternative solutions. This also was a favorite tactic of FDR in the 1930s. It has worked. And we do need infra-structure repairs as evidenced by falling bridges and highway potholes.
While the numbers are scary, now that the election is behind us, perhaps we can come together to focus on what unites us and will allow us to achieve improvements. Perhaps we can put our differences (political party, gender, special interests, etc.) aside for awhile. I keep returning to Rodney King’s "Can’t we all just get along?" Only by doing so will be come out of the depths of economic depression.
As lawyers, our challenge will be to serve a society with a shrinking economic base. But, where there is change, there is generally opportunity. We just need to stay alert to see the opportunities in front of us. Lawyers will benefit in either event. If we can’t get along, our litigators will be beneficiaries. For example, litigation has already begun over the issues relating to California’s Proposition 8 (same sex marriage ban). If we can tolerate differences, at least for awhile, our transaction lawyers will be the beneficiaries when they negotiate and draft agreements, write new legislation, etc.
To survive in this environment, lawyers will need to be flexible, seize new opportunities, and serve and bond with their clients as never before.
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I received a call from a client today. He was talking about billing out $150,000 last month, but collecting only $90,000. This is a realization rate of 60%. In any business, if you collect 60 cents on the dollar, you are going to face disaster in short order. The same is true in the legal profession.
If you earn only 60%, in order to survive, you will need to treat the 60% as 100%. In other words, all your financial decisions will need to be based on the money actually collected, not on the billings sent out. If you can run your business on the 60%, that would be fine, but few lawyers can …
Lawyers must vigilantly focus their energy on collecting what they bill. Failure to do so will cause economic failure. Unlike good wine, accounts receivable do not get better with age. For help, see my book, Collecting Your Fee: Getting Paid from Intake to Invoice, published by the ABA.
Lawyers seeking growth have two ways: Increase revenue with new clients (or more work from existing clients) and increasing their realization rate. As noted in a previous post, focusing on reducing expenses can address only a small portion of the equation, P=R-E. Increasing your realization rate, however, enables you to take full advantage of the effort you’ve already expended.
The call caused me concern, but there is a bright side … It was the wake-up call to run the law practice well.
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In discussing the value of his law practice, my client mentioned the figure given to him by his financial planner, a number designed to assure his standard of living. This was the number he wants for the purchase price of his practice. I suggested that the two numbers were unrelated … and that the value of the practice may be more or less than the number his financial planner wanted for his style of life.
This caused us to return to the reason he wants to sell his practice and the time frame for achieving a sale. The more urgent is the desire to sell, the lower will be the price; the less urgency, the greater will be the price. Neither number has much to do with what it will take to reach and maintain your desired standard of living. Such a number may impact your decision to complete a transaction, but really has nothing to do with an objective valuation of the practice.
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The American Lawyer brought us the "AmLaw 100," and more. Some blame Steven Brill, creator, for lawyers focusing on the business side of the practice. That would be an interesting discussion.
But, whatever one thinks about Brill, The American Lawyer has done it again. This time, on the negative side of the practice of law, layoffs.
Listing of firms and articles concerning layoffs is the first time I’ve seen this all in one place. Scary to think that there is so much of this going on that it merits concentrated press coverage.
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You may have heard me talk about the 400,000 lawyers who will be retiring from the practice of law in the next 10 years. When the financial crisis first hit, I began to doubt that we will face so many retirements. But, my phone continues to ring with people wanting to know how to sell their practice, how to value it (a requirement before selling) and then how to transition into the "second season" of their life. Thus, there must still be a market …
I still battle lawyers who are surprised to learn that they have anything of value to sell. But, yes Joe, "there is goodwill in them thar hills."
So, one night when I couldn’t sleep, I came up with an idea … and I need your help to test out the idea, to know whether to go forward. The following is the outline of the concept. Much is yet to be added to it if we go forward. But, I want your ideas and your expression of interest to confirm my belief that this is a viable concept.
Idea: My web site, devoted exclusively to a community of lawyers interested in buying, selling or merging their law practice. Each lawyer would be entitled to create and post a listing describing the nature of his / her practice that is available for sale, or the nature of the practice desired to purchase or with which to merge.
There would also be a discussion "board" that I would monitor and participate in … giving suggestions and commentary as I think appropriate. And I would post articles and other resources, including portions of my books and audio materials, for the further education and assistance of the members of this community.
In effect, this would be a multiple listing service … better than a listing like Craig’s List because of the substantive content and focus by and for lawyers … The monthly fee would be modest and would continue automatically on a credit card only so long as you wanted to continue to participate. Termination is at your discretion.
I would be available to help on an individual basis such as reviewing the description of the practice, etc. … My services in this field such as valuation and consulting to sell a practice would be available but not to be considered as part of the low monthly rate offered to the community … They would be negotiated separately, though at a reduced fee to any member of the community.
Please respond by email (edpoll@lawbiz.com) with your thoughts on this … Thank you for your help and guidance.
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On Friday, I coached a client about selling his practice. Our conversation was far-ranging. I started with several questions of my client that, in my opinion, set the stage for all further deliberations. How do these questions resonate with you? What additional questions might you ask yourself?
- Why do you want to leave your practice?
- What do you want to do in the "second season of your life?"
- Do you want to retire, or start a new adventure?
- Can you achieve the same objective without selling your practice?
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During our program at the recently concluded ALM Law Firm Leaders conference, today, Running Your Firm as a Business – A Closer Look at the Middle Office, I had an ah-ha moment! The moderator of our panel, Ron Friedmann, Senior Vice President Marketing of Integreon, talked about Australia’s law firm, Mallesons. The firm received an award for innovation from the College of Law Practice Management. Their project created a whole new office environment – ostensibly this was to reduce expenses, but actually had a dramatic impact on revenue by enhancing their service for the benefit of clients; they increased the number of client contacts..
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Today’s Wall Street Journal has news about 3 major companies’ profits being higher than anticipated. Coincidentally, they all raised the prices of their products.
Despite "high" hourly pricing in the legal community, one wonders whether there isn’t room to raise prices further. If this is something you may want to consider for your strategic plan, see my article that suggests how and when to adjust fees.
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LawBiz® facilitated a webinar about social networking and the benefits of this new technology for lawyers. David Nour, an expert on Relationship Economics, joined me in what the audience described as an outstanding learning experience. As the saying goes, it was like "drinking from a fire hose."
Substantially more than 100 people signed up and others contacted me with calendar conflicts. By popular demand, we will do our program again; we also will produce a DVD of this week’s program; and my teleseminar with West LegalEdcenter on December 9th at 11 a.m. PT will bring David and me together again for another edition of social networking.
Stay tuned. Subcribe to LawBiz® Tips for current information as it is posted.
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Aric Press, editor in chief of The American Lawyer, wrote in this month’s edition that “Next year’s Global 100 is apt to be a less pleasant experience (than this year’s law firm’s financial results). The best that law firms can hope for is that 2008 will mark the bottom, a dip in the otherwise inexorable rise of firm revenues and profits. A brief pause: Those are the optimists talking…. the work is down, collections are slower, hiring is off, and law firm leaders spend less of their time plotting global conquests and more trying to decide if anyone will notice that the quality of the paper in the Xerox machine has been taken down a grade…”
Alan Greenspan said recently that this crisis will not go away in the near future; it’s a longer term challenge. I’m old enough to have experienced a prior economic crisis (no John, not the Great Depression!), and it took a full generation to overcome. My fear is that it will take a full generation, or more, to overcome today’s crisis. Although the participants of the recently concluded ALM Law Firm Leaders conference seem to be more optimistic. I’m hoping they’re going to be proven correct.
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