I repeatedly encounter key partners of midsized law firms contemplating retirement. On the one hand they want to turn the business over to others, but at the same time, they want the business they developed (or improved) during their tenure to foot part of the bill for their retirement.  Their question is how to retire (or begin a phased withdrawal) and still receive income from the law firm.

 

I decided to turn to someone who deals with retirement plans for some expert advice: Melissa J. Petruzzi-Miller, a CPA with Kinol Sharie Leyh & Associates in Allison Park, Pa.  Kinol Sharie & Leyh has a long track record of working with midsized law firms, including many that use Juris business systems. 

 

As you might expect, Petruzzi-Miller started by reminding all of us that we should begin saving when we first start to earn income. The most advantageous way to save for retirement is through a qualified retirement plan. These plans allow tax deferred growth on the plan’s investment earnings, and with a 401(k) plan, individual and law firm contributions to the plan are deductible as law firm expenses while not taxed as income to the individual at the time the contributions are made. As a result of the tax deferral, retirement funds accumulate faster. Installing a qualified retirement plan in the law firm will simplify the problem of retiring partners for both exiting partners and the next generation of partners.  So act now.  Put a qualified retirement plan in place.

 

While it is more beneficial for individuals to begin saving for retirement at a young age, what about those fifty- to sixty-year-old partners who did not begin saving early?  Petruzzi-Miller advised that “they should adopt some type of retirement plan as soon as possible.  The benefits provided by a qualified plan may not fund an individual’s entire retirement, but it will act as a supplement to other retirement funding vehicles that are available.”

 

She went on to explain that “the problem faced by maturing senior partners is similar to the problem faced by the owners of every closely held small business. For them, business succession planning is an essential component of retirement planning. A succession plan is a comprehensive plan for transitioning a business from its current ownership and management structure to one in which the owner is no longer involved. A sound plan will not only deal with payments to the exiting owner, it must identify successors and assure the success of the law firm once control is transferred.  Developing a strategic plan for the business’s success after the transition and choosing a management successor who is able to maintain the financial strength of the law firm will be a key to preserving the law firm’s ability to continue to make any planned payments to the retiring partner.”

 

Of course, with partners involved, developing a fair plan that provides for compensation to the exiting partner for the value of their share of the law firm business without breaking the backs of those remaining is not an easy task.  Just because it isn’t easy doesn’t mean it isn’t absolutely necessary. Another related resource for retirement planning is the article titled Retiring Unfunded Obligations written by Ward Bower.

 

If you would like more information about implementing a qualified retirement plan in your business, you can contact Petruzzi-Miller.

 

Melissa J. Petruzzi-Miller, CPA

Kinol Sharie Leyh & Associates

3740 Mount Royal Boulevard

Allison Park, PA 15101

Direct Dial: (412) 753-1052

Direct Fax: (412) 753-1053

Email: mmiller@kslassociates.com

 

Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

 

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States are constantly on the hunt for more sources of tax revenues. With our increasing service economy, their lustful eyes often fall on services fees.

 

Hawaii has just made the move to subject legal fees to sales taxes and you can bet they will not be the last. Of course, they couldn’t make it simple, so the tax varies from island to island.

 

I picked up the new Hawaii sales tax law when one of the Juris client service team members sent out an e-mail about Jay Fidell, partner in the Hawaii firm Bendet, Fidell, Sakai & Lee.  The law firm is a long-time Juris client.  Mr. Fidell had been interviewed by TV station KITV in Hawaii about the impact of the new tax laws.  Juris got a nice plug from the partner, who remarked, “This tax increase will cost businesses thousands of dollars to reprogram their accounting software; our firm was fortunate—we use an accounting package by Juris.”  Juris® already handles sales taxes, including multiple jurisdictions.

 

The moral of the story is that it is just a matter of time before sales taxes come to all U.S. law firms.  So when and if you start considering a change in your business systems, be sure that sales tax capabilities are on your list of requirements.

 

Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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I reported on the results of health care survey questions a few days ago. The same survey asks about practice classes.

The top five practice areas were litigation, insurance defense, corporate non-litigation, real estate, and trust & estates. Collectively, the top five practice areas constitute approximately 64 percent of fees for survey participants. The top two, litigation and insurance defense, accounted for 38 percent of fees.

What I found interesting was the segmenting of practice types by firm size and then partner income. The most profitable firms, the top quartile, had a heavy weighting to litigation at 33 percent of billings, while the least profitable firms were most heavily weighted to insurance defense at 26 percent of billings.

Before you conclude that insurance defense is not profitable, the top performing quartile of firms indicated insurance defense as their second most significant practice area at 11 percent of fees.

What I conclude from this data (along with other survey data) is that insurance defense is still lucrative and growing, but rates are constrained by both competition and pressure from clients. In addition to requiring lower rates, insurance firms are generally slow to pay and frequently adjust bills unilaterally and/or reject line items or entire bills.

Insurance defense can be profitable. A number of insurance defense firms are doing exceptionally well. But matching the profits of other practice areas requires a greater management discipline. Insurance defense firms must focus on leverage. They must eliminate mistakes and delays in billings that are fodder for client adjustments that bring down realization. To that end, some of the higher end business systems, like Juris, now offer software that will audit time and expense entries in real time against insurance client billing rules and instantly notify the fee earner when an entry as proposed would run afoul of their clients’ engagement rules. Bill rejects are eliminated and adjustments are reduced.

The complete survey concerning practice class as well as financial metrics for 2005 can be found in the Juris Law Firm Economic Survey of midsized U. S. law firms. The 55-page survey publication includes results as well as analysis and recommendations for improving law firm performance and increasing per-partner income. The annual Juris survey is provided to survey participants without charge. Others can purchase the survey for $375

 

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
 

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Fellow blogger Ed Poll has teamed up with Juris, Inc. to conduct a series of managing partner roundtables around the country. Ed posted the announcement on his LawBiz blog over the holiday weekend.

The Juris® Managing Partner Roundtables are an extension of the company’s successful annual Managing Partner Forum. According to Stephen Collins, president and CEO of Juris, Inc., “The roundtables will extend the Juris Managing Partner Forum benefits by conducting focused monthly meetings in key cities throughout the United States.”

The idea behind the round tables is to provide a forum where managing partners can share best practices and discuss management issues with their peers from non-competing firms. Ed Poll, under the banner LawBiz®, has been successfully conducting similar roundtables in Los Angeles for a number of years. Rather than reinvent the wheel, Juris, Inc. formed an alliance with Ed’s LawBiz Management Company to jointly organize and conduct the roundtable sessions.

The schedule for the remainder of this year and for 2007 has not been finalized. When it is, I will post the schedule, or you can find it on Juris.com. If you are a managing partner, CFO, COO, CEO or equivalent and are interested in participating in a roundtable near you, e-mail me at morepartnerincome@juris.com for additional information.

As the leading provider of business systems and services to midsized law firms, Juris, Inc.’s business mission is to improve law firm financial performance and partner earnings. The company’s Managing Partner Forum and Roundtables are another way for the Juris team to contribute to the financial success of law firms.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
 

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In the January 3, 2006, edition of Law.com’s LegalTechnology, Michael Kraft and Robert Enholm ask the question "How long will it be before all lawyers undertake e-billing?” Michael stopped by the Juris booth at New York LegalTech yesterday and we talked a little more about the subject.

Just about every mid-sized law firm doing defense work has at least one client who requires e-billing. Most law firms consider that requirement to be a burden. That is understandable. Any exception to the normal and customary procedures followed by a business is disruptive and expensive.

What if e-billing was the norm and mailed paper copies were the exception? You might be surprised to learn that your present billing software has automatic electronic billing built in. I know that this is true for Juris software, and I would expect to see that capability in most full-feature law office business systems.

In the Juris system, law firms have the option at the client and matter level to indicate that the bill, after editing and approval, is to be automatically e-mailed to the law firm’s client in the format preferred by the client—PDF, html, rich text, etc. Copies of the electronic bills are retained in the Juris system so that the need for paper file copies of bills is eliminated, and the people-intensive process of printing, folding, envelope inserting and filing is eliminated. Postage and paper costs go away. The delay between when the bills are printed and the mailman delivers the bill is eliminated. It is faster, cleaner and cheaper, and the firm gets paid quicker.

For those firms who aren’t ready to make the plunge, consider using the built-in multiple copy features to automatically e-mail an information copy to the case or matter contact while sending a paper bill copy directly to the client’s accounts payable department for processing

E-billing is another tool for increasing per-partner income. Why not experiment by giving your new engagements the option to choose between e-mail and paper? In addition, discuss with that new client procedures to help your client process the firm’s bill for prompt payment. Explain that payment doesn’t eliminate their right to dispute charges. If the client is a business or organization, ask if you can send the payment copy of the bill directly to an accounting contact for immediate processing while providing an information copy for the legal contact’s review.
 

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It happens in every law firm. The tail has a tendency to wag the dog. It is called Sub-optimization and it cuts into partner income.

 

Sub-optimization is when the interest of certain departments or individuals drives actions and decisions rather than the goals and objectives of the organization as a whole. It is as if the organization chart has been turned upside down.

 

I hesitate to tell you how often I have spoken before groups of law firm accounting or administrative personnel and had someone in the audience remark, “We don’t want our lawyers to know they can do that.” That confession is sometimes followed by a chorus of support from a portion of the audience. Their interest in maintaining their work routine without disruption was in control of their actions. They would withhold information about tools and capabilities already available to you through your existing law office business systems because your use of those tools might disrupt their established routine.

 

Sub-optimization is a naturally occurring tendency in any organization. Sub-optimization is most intense when the organization fails to effectively communicate the goals and objectives of the entire organization. It is lowest when the organization has communicated each area’s role in pursuing those objectives. People need to know where the organization is going and how they are expected to contribute to that journey.

 

The law firm needs to be one team pursuing common goals with a common set of core beliefs.

 

Surveys indicate that less than 16% of all law firms have a written strategic plan. That does not mean that the partners do not have a consensus about the direction and goals of the firm. Partners meet frequently, and while some disagreements may exist, there is considerable unity among partners about where they want the firm to go, how they want the firm’s clients to feel about the law firm, and the efficiency and effectiveness of the law firm as a team.

 

If your firm doesn’t have a formal plan that can be communicated to the firm’s team, work with the other partners to fashion a statement of direction and expectations for how the law firm wants to be perceived by its clients and others. Document and communicate throughout the firm, how each area is expected to contribute to the accomplishment of that road map to the firm’s future. When you do so, you give your administrative team and your associates a good feeling about their job and how their performance contributes to the firm’s goals and mission.
 

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The approach to raising per-partner income should be done with long-range considerations. The first set is to determine how the firm stacks up against benchmarks such as those available from Altman Weil surveys, http://www.altmanweil.com. Concentrate on the areas where you fall short.

 

The list below is a reminder of steps that you can take, among others, to increase realization and improve per-partner income.

 

Steps for Increasing the Firm’s Realization

 

• Implement and enforce client intake standards
• Pursue alternative fee arrangements that let the firm benefit from increased efficiency and technology
• Shorten the billing cycle to speed up collections and reduce bad debts and adjustments
• Pre audit bills against engagement standards (rules) to eliminate bill rejection and reduce adjustments by corporate and financial clients
• Establish controls over unilateral write downs during the billing process—so-called invisible expenses average $31,000 per attorney per year
• Improve training to reduce write-offs
• Centralize follow-up on accounts receivable
• Improve collection tools and procedures
• Set goals and hold people accountable
• Invest in better business systems to speed up billing, track adjustments and write-offs by those responsible, automate engagement rule compliance and manage the collection function.

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One of our professional team members passed along this idea for mining law firm data for dollars. A law firm they were working with wanted to search the narratives of current and previously billed time entries for words that indicated a cross selling or new service opportunity. For example, service needs due to a change in the Limited Liability Company law or related tax regulations would create new service opportunities. A Search for “LLC”, "Limited Liability Company" or “partnership” would identify prospects for new legal services among existing and prior clients.

 

Today that ability to mine your data is available in most modern law office business systems. For example, authorized individuals in Juris® law firms can access their database to mine data or for custom report purposes using the Juris edition of Handshake software or with an array of generic tools like Microsoft® Excel, Access or commercial report writers. Most system vendors, like Juris, will use those tools, on a fee basis, to write mining procedures for you should you prefer an outsourcing approach.

 

If searching time narratives would be a useful marketing tool in your firm, contact your time and billing software provider for instructions or assistance in taking advantage of this opportunity for more partner income.

 

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I was reviewing some materials from Redwood Analytics, Inc. when I ran across the term "Actionable Information". It is what has been missing from most law firm business systems. I call it situational awareness. It is performance information that is instantly digestible and in time for managing and supervising attorneys to change the outcome.

There is an excellent article on the subject by John Albert at http://www.llrx.com/features/actionableinfo.htm. John Albert is the Technology Partner for Bryan Cave LLP, a diversified practice firm with offices across the U.S., as well as in the UK, Middle East, and Far East.

If you are interested in moving away from after-the-fact printed reports to actionable information, there are two prior posts that are worth your visiting again.

Key Performance Indicators – KPI posted on July 21, 2005

MyJuris® for Law Firms posted on August 16, 2005.

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Juris® connects to most popular case management systems. It is pretty obvious that connecting the firm’s core business system and case management system to work together will result in “more partner income." I recently got my hands on an article by Jeff Tefelske that highlights the benefits their clients can expect by taking advantage of the connection between their product, LawBase, and Juris®. What he has to say is worth your time. 

Jeff wrote “You can greatly improve the efficiency of your office by connecting the firm’s case management application and business system. One of the leading law firm business systems, Juris®, connects with LawBase case management application from Synaptec Software, Inc. The resulting benefits for LawBase clients include: 

 

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