The Business of the Practice and the Practice of the Business

David J. BilinskyTim Daley

Tell Me a Little about Yourself…

• What do we practice?– Expertise?

• With whom do we practice?

• Where do we practice?• How many years in

practice?• What do we like about

practising law?

Why Are We Here?

• What:– Questions,– Topics, – Issues, or – Challenges

do you want discussed to make this day a success?

Let’s Make this InterActive!!!

• Please don’t hesitate to add a comment, suggestion or ask a question!

• Aiming at sharing some ‘out of the box’ ideas!

• The more we share today, the more we all get out of the day!

Pablo Picasso

“Computers are useless. They can only give you answers…”

On with the Presentation!!

• The world hates change, yet it is the only thing that has brought progress. Charles Kettering

AgendaAgenda

• Introduction• Setting up a Solo / Small Practice• Lawyers Sharing Space• Selecting an Accounting System• Working Effectively with a Bookkeeper• Compensation System Considerations• Cash Flow Spreadsheet/budget• Associate Agreement Considerations• Financial Tips• Conclusions • Questions

Dual Roles in a Small Practice

• Have to do the legal work and

• Have to run the business side

• Managing cash flow is key

What Can Your Financial System Tell You?

• Budget: Achieve income goals and keep expenses in line

• Determine profitability• Timekeepers are

meeting expectations• A/R are staying in line• “Dashboard” report

that summaries your financial position

Top 7 Reasons for Business Failure

#1 Wrong Reasons to Start#2 Poor Management#3 Insufficient capital#4 Location, Location,

Location#5 Lack of Planning#6 Overexpansion#7 No Website

#1 Wrong/Right Reasons to Start

• Passion for business?• Fit and Well?• Strong Drive?• Positive Attitude?• Supportive Family?• Thrive on Independence• Excellent Integrity,

honesty & Social Skills?

#2 Poor Management

• Good businessperson is also a good delegator

• Delegate financial records mgmt to a good bookkeeper + good legal accounting package

#3 Insufficient Capital

• Lack of:– Start-up Capital– Operating Funds

• Common mistake:– Overestimate revenues– Underestimate expenses

• Draw up a 12 month budget

• Track actuals against budget

#4 Location, Location, Location

• Where are your clients?• Parking? Access?• Location of the

Competition• Condition & safety of

your office• Community• Internet location too

#5 Lack of Planning

• Have a business plan:– Management – Marketing– Technology– Budgeting

• SWOT analysis– What do we do?– How do we do it?– How do we excel?

#6 Overexpansion

• Expansion can lead to financial difficulties

• 105 day ‘lag’ between rendering an invoice and being paid.

#7 No Website

• Not being on Google is being invisible

• Google Map to your office

• Description of services• Consider a blog and

social media

Lawyers Sharing Space• Conflicts• Confidentiality

• Code of Professional Conduct of the CBA states:

• Practising in association:• “The definition of ‘law firm’

includes one or more lawyers practising in association for the purpose of sharing certain common expenses but who are otherwise independent practitioners. This recognizes the risk that lawyers practising in association, like partners in a law firm, will share client confidences while discussing their files with one another.”

Select the Right Accounting System

• General• Trust• Budgeting• Conflict checks• Calendaring• To-Dos• Time and Billing• A/R• Management Reports etc.

Working Effectively with a Bookkeeper

• Not just postings!• Month end procedures

– Trust reconciliation– Billing and A/R work– Pay disbursements– Prep of financial reports– Monitoring cash flow– Budget comparisons– Cash flow needs

You’re the CEO of Your Business

• Are you a businessperson or a lawyer first?

• Operate like a business• Make business decisions

using integrated legal practice management systems and good financial reports

What are Your Goals?• Move your financial system

from a historical (expense) position

• To a forward thinking (revenue) position

• Chart out financial goals and reach out to them…

• Integrate all of this into your practice and your financial systems

#1 Rule of Compensation

Plan to Pay Yourself First – Because no one else will!

If you don’t – You will end up with whatever is left, rather than meeting your own personal requirements AND those that you must pay

We are going to show you how to get financial reports from your accounting system that will allow you to ethically and responsibly do this.

Write a Business Plan

• Only way to measure progress

• Refocus and revitalize practice

• Organized explanation of how to start and manage your practice

Write a Business Plan!

• Software package• Available through ABA-

LPM publishing• Mission Statement• Overview of the Practice• Financial Plan• Management Plan• Marketing Plan

The Lawyer’s Guide to Creating a Business The Lawyer’s Guide to Creating a Business PlanPlan

Build a Budget

• Budget • Capital budget

– Investing activities: leasehold improvements etc.

• Operations Budget: – Cash Flow budget– Revenue and expense forecast

Build a Budget!

• Forecast for future financial performance

• Month by month – 12 months

• Income and expenses

• Fudge factor 20%

• www.lawsociety.bc.ca/practice_support/articles/docs/Budget.xls

Produce a Statement of Time

• Time logged vs. time expectations• It typically sets forth:• The time logged (“WIP”) (measured

against budgeted amounts for a set period of time)

• The Time Billed (measured against budgeted amounts), and

• Fees Collected (measured against budgeted amounts)

• Necessary to measure EHR.

Income Statement

• Reflects:– All income received, less – All debts paid, and– the balance remaining

• Accrual method: – income statement ≠ Cash

Statement of Cash Flows

• Reflects:– All cash received, less – All cash paid, and– the balance remaining

• Accrual method: – Statement of Cash Flows

brings ‘everything’ back to Cash

The Power of LeverageThe Power of Leverage

• Focus on “net profit per partner hour” – David Maister

• Work smarter, not harder

Working with AssociatesWorking with Associates

• Rule of Three for associates salaries

• Independent legal contractors

• Paralegal billable hour targets

• Outsource or hire admin• Model Employment Policies

Cash Flow ManagementCash Flow Management

• Tips & tricks for greater profitability

Compensation Systems• Financial reports,

strategic business plan + compensation system should work together

• Are we achieving the objectives that we set for ourselves in our strategic plan?

• OR are we rewarding behaviors that are counter-productive to our stated goals for success?

Manage Suppliers & Costs

• Cost reduction review – zero-base all costs

• Cost control consultants can save you 20%+

• Project management for increased efficiency

• Integrate case & practice management software

Creating and Sending the Bill

Get Familiar with the Line of Gratitude; Get Familiar with the Line of Gratitude; Bill PromptlyBill Promptly

Bill Electronically & Regularly

• Top quartile firms:– Days to bill + days to

collect of 155 days

• Bottom quartile firms– 170 days

• Shorten the time to collect!

Spread Billing Out + Time to Payment Spread Billing Out + Time to Payment CycleCycle

• Bill ¼ of all files weekly (not weakly)• Find out when your client’s cutoff dates are

to process payments and bill accordingly

Draft Bills Clients Love to Pay

• There is an Art to getting paid

• Foonberg and Morgan’s advice is priceless

• Available from the ABA or Amazon

Creating and Sending the Bill

• Put it in your engagement agreement

• DO IT . . .automatically

• Don’t expect to collect the interest

Charge Interest on Past Due InvoicesCharge Interest on Past Due Invoices

Creating and Sending the Bill

• Not expensive any more

• Clients like it

• Collection becomes merchant’s problem

• Cash flow improves

Allow Clients to Pay by Credit CardAllow Clients to Pay by Credit Card

Focus on Prevention, not CollectionsFocus on Prevention, not Collections

1.File opening approval system

2.Credit limit system3.Quarterly income

distributions4.Capitalize firm

adequately

Be Fraud Vigilant!

• Collection Fraud• Retained to collect a debt• Send demand letter• Receive “certified funds”• Client demands $ • Cheque is fraudulent –

cleans out trust account• Bennett Jones Fraud etc…

Prune Your Client TreePrune Your Client Tree• Run realization reports

for all clients• Focus on cash in as a %

of WIP• Aim for 95% realization• Use an 80% realization

cut-off• Upgrade to higher

realization clients

Expectation Management is Key

• Engagement Agreement– Set forth your billing policies

• Gather Requisite Personal Data

• Trust Replenishment– Minimum trust balance at all

times

Prune Your Client Tree

Determine Lawyers Effective Hourly Rate, by client

Fees received= EHR

Hours Worked

Want high EHR clients!

Ask low EHR client to ethically leave

Marketing IdeasMarketing Ideas

• Client satisfaction interviews

• Utilize Social Media• Sell products

Consider Alternative Billing

• Unbundled legal services • Flat Fee, once you know generally

how many hours you will spend on the matter

• Contingency Fee Agreements• Gives clients a choice

SummarySummary

• Tips & tricks for greater profitability– Client selection is #1– The power of

leverage– Focus on value, not

price– Invest in technology– You’re the CEO of

your business

Conclusion• To thrive (not just survive) a law firm

needs more than just standard financial statements

• Need to know what to measure and what it all means.

• Accurate management reports allow firms to plan and measure their strategic growth towards their goals.

• Practice should satisfy the financial goals of the lawyers and staff who operate it.

Thanks and Questions!

David J. Bilinsky Tim Daleywww.thoughtfullaw.com www.gmpdlaw.ca The Law Society of British Columbia GMPD Law604 605 5331 902 755-4433 daveb@thoughtfullaw.com tim@gmpdlaw.ca ‘David_Bilinsky’ on Twitter

© 2010 Bilinsky