Tag Archive: Cash Flow – Finances

Three Lenses for Law Firm Recession Survival

The days of multi-million dollar profits per partner and rapidly rising triple-digit associate salaries were never real for most law firms, especially when considered in light of the demographic of law – more than 70% are in small law firms. But, now firms big and small, conservative and highly leveraged, all feel the business pressure from the economic downturn.


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Lawyers’ responsibility for clients’ trust funds

Managing and accounting for client funds held in trust is a personal responsibility of the lawyer.  Although there are a number of good computer software programs to assist with trust accounting, including QuickBooks by Intuit, the lawyer who receives clients’ trust funds bears all the responsibility of accounting for every penny.  In an accounting sense, these funds are a liability of the law practice to the client, must be kept in an entirely separate account, and cannot be commingled with any other law firm funds. Recent challenges to the country’s banking system raise the specter of bank failures, with wide impact on the American public.  Lawyers, for example are the subject of recent inquiries because of their IOLTA trust accounts. 


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Paralegal compensation

A recent ALM Research annual compensation survey for Paralegals/Legal Assistants and Managers, suggested some interesting statistics. 

  • Compensation increases averaged between 3 and 5%
  • The highest paid paralegals are litigation support/technology managers who earned a median annual base compensation of $115,000
  • The average billing rate for paralegals was more than $150 per hour, with rates for most positions exceeding $175
  • Paralegal case managers in law firms averaged 1,642 billable hours, followed by senior paralegals at 1,530 hours

Many lawyers are still charging less than $200 per hour. Though faced with competition from other lawyers (and now paralegals), lawyers must fight to find ways to increase their fees, whether by the hour or otherwise. If they don’t, their economic well-being will be endangered.  In fact, recent statistics I saw in a California study says that 50% of California lawyers earn less than $100,000 and 50% of those earn less than $50,000. The scene is echoed in New York and elsewhere.

Like every other profession and trade and business, the practice of law is a business … That means we’re governed by the same formula:  P=R – E.  Profit (take home pay) equals revenue collected less expenses.
Remember the ABA study that opined that lawyers who billed 1,500 hours per year would earn a substantial income? Apparently, the standard today is between 1800 and 2200 hours of billable time. That doesn’t leave much time to eat, brush your teeth or say hello to your kids. And, of course, this does not include the hours spent on visioning the future of and operating your practice today as a business, which it is. 

We need to spend many hours tilling the soil if we want to advance, both professionally and economically.  "The grass is NOT greener on the other side." It’s just a different set of challenges.

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High Compensation for Poor Performance

British CEO pay rose 287% in the last decade; private sector workers’ pay rose only 47% in the same period.  Workers’ contributions are measured; CEO contributions often are questionable and substantial severance packages are given even when corporate stock prices and earnings have decreased.  Under these circumstances, It’s hard to ask ordinary workers (who generally live paycheck to paycheck) to take cuts in compensation. (See June 30 article in USA Today.)

The U.S. corporate figures are similar, only bigger.

Now look at AmLaw 100. Are the numbers different? Not by much … When partners are earning in excess of $1,000,000, some in excess of $5,000,000, how can you complain about associates seeking $160,000? Because the firm will feel compelled to raise its rates to clients? Because some clients will resist? And the C-Executives complaining are earning how much? How many millions?

Sorry, but in this circle, there is little sympathy for the corporate client with those numbers who complains … This corporate client has options:  Why not engage regional law firms with equal skills and lower rates?  Is it necessary for large firm partners to earn such large sums in order to be at the table with CEOs as a colleague, not as a vendor, or can their expertise be sufficient to earn them the seat at the table?

Interesting difference, though, between law firms and corporate clients.  The corporation pays a high severance package while the law firm does not. Another difference is that the corporate executive is able to negotiate the very attractive severance package before entering his/her employment and the lawyer generally is not.

One day, I’ll create a listing of the differences between the C-executive and the lawyer. I think this would be very enlightening for us. But, that’s for another day.

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Intake Session Critical to Collecting Legal Fees

The intake process of the first session between attorney and client is critical for collection purposes. One could prognosticate collection success by understanding the effectiveness and completeness of the lawyer’s intake session with the client.

See Collecting Your Fee: Getting Paid From Intake to Invoice for more information about the intake process.

Interestingly, Wall Street Journal wrote an article about Countrywide and the source of its problems. The headline mentions the underwriting process being inadequate with many clues being overlooked and ignored. Hence, the credit crisis.

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IRS changes mileage rates

Thanks to Michelle Gallagher for the following information:

Purpose            Rates 1/1 – 6/30           Rates 7/1-12/31
Business                         50.5                               58.5
Medical/Moving                 19                                  27
Charitable                        14                                  14

This is the first time in my memory that the IRS is reasonably current with today’s economic realities!  <g>   If you have to go 10 miles to the grocery store, the IRS believes it will cost you $5.85 for the trip! All the more reason to ride a bike or shop more locally …  How has your life been impacted by "Big Oil"?

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If all else fails, sue!

It’s very hot where I am today — over 100 degrees. Many parts of our country are facing one natural disaster or another. Sweltering heat, overrun rivers, fires, etc. You name it, and Nature seems to be telling us that she is in control, not us.  Can we do something to address Nature’s wrath? In many cases, the answer is yes … be sure we have enough power for air conditioning, build the levees well enough to withstand the "500 year storm," etc. You get the idea.  There must be the political will to do this.

Likewise, in our law practice. Clients get angry with us, they have financial reverses, they didn’t get the result they expected or, for some unknown reason, they just don’t pay their bill. Can we do something to avoid this situation? More so than with weather, the answer is "yes." We can be more proactive in both our intake session — setting reasonable expectations — and we can be more vigilant monitoring our clients’ behavior after our billings are mailed, making sure we get paid for work we do or we stop working before the client will be prejudiced by our cessation.

I discuss some of these scenarios in my book, Collecting Your Fee: Getting Paid from Intake to Invoice, which is mentioned in today’s LawBiz® Tips alongside my article, "If All Else Fails, Sue."

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Double billing – A new twist

New York’s Attorney General announced a settlement with two law firms who will pay $500,000, plus, to avoid prosecution.

There is a new twist raised in these cases.  Under the "double billing" phenomenon, a lawyer cannot bill two clients for the same minute of time. When using the hourly billing system, you can bill only one client for each segment of time to be billed.  In other words, when waiting in court for a matter to be called, and billing client A for that time, the lawyer cannot bill client B for that same waiting time though he/she is doing other work for client B pending the call of the court.  Or, while charging client A for travel time, the lawyer cannot charge client B for working on his matter on the plane.

The new twist is that lawyers in two law firms were listed as employees of the New York State’s pension funds. This gave them retirement credits from the funds even though they either did no work at all for the funds or were gainfully employed and paid by the law firms, not the funds. This takes "double billing" to entirely new level!

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