Getting the right paying clients first...
by David J Bilinsky

If you run short of money
I’ll run short of time
you got no more money
honey I’ve no more time …

Words and music by Lefty Frizzell, recorded by Willie Nelson.

In thinking of Access to Justice, it occurred to me that lawyers and law firms are often asked to contribute to the cause by taking on pro bono cases for worthy clients who otherwise could not afford a lawyer. As we all know, law firms can only take onpro bono cases if they are sufficiently afloat in order to offset their pro bono time by other, presumably, paying clients. Accordingly, this column will look at tips for keeping your house in tip-top financial shape in order to be able to support your firm’s pro bono activities:

GET THE MONEY UP FRONT
I am continually asked how best to collect receivables. My answer, perhaps unhelpful, is to prevent them from happening in the first place. Most lawyers have long stated that there is a litmus test in the practice of law, and this is asking for money at the start of the file. If a client is reluctant to provide funds at the start of a file, there is a better-than-even chance that they will be even more reluctant to provide such funds at the end of the file. The simple act of asking for money is not embarrassing – it is a tested means of determining if you have a “good and true” client before you or your firm invests time and money into their cause.

DETERMINING YOUR HOURLY COST STRUCTURE – WHAT IS YOUR PROFIT SPREAD?
Abraham Lincoln said that a lawyer’s time is his stock in trade, and it’s true. The only way we know of to measure the cost to a firm of providing legal services is to seek to allocate personnel and other costs by lawyer across the number of hours of billable service provided. Every lawyer and every firm should know how much it costs to provide an hour of legal services. Without this basic financial building block, you don’t know whether you’re making money or losing it by working on any particular file.

If you have a fair fluency with Excel, it’s not too difficult to use linked spreadsheets to allow you to determine your hourly cost structure. Understanding this has enormous implications for determining your top-profitability lawyers, clients, and files (as opposed to top revenue generators… which may, or may not, be the same!).

PREPARE A DETAILED BUDGET
Carl Sandburg said “Nothing happens unless first a dream.” This means forecasting your future financial performance – income and expenses – and then tracking your actual income and expenses to see how you are doing. By taking the steps to build your budget, you are actively visioning your expected financial returns. By tracking your income and expenses, you are building a “feedback loop” that allows you to determine if you are staying on your financial path. Furthermore, a budget is part of your overall business plan – which represents the difference between “taking in whatever comes in the door” to “going after the markets and the clients that you wish to work for and drawing them to you.” A spreadsheet to create a budget can be found at: www.lawsociety.bc.ca/practice_support/articles/docs/Budget.xls.

TRACK YOUR TIME
“Why track my time?” Why? Simply because if you have financial goals (recall the budget?) those goals translate to daily, weekly, monthly and yearly billable time targets (even if you bill by contingency, you still need to achieve an average hourly rate at least equal to your budgeted amount to bring home the amount that you have forecast!).

Tracking your billable time is the essential starting point for any financial analysis of your practice. Without accurate time records you can’t determine:

• The cost of rendering services (i.e. what did that conveyance actually cost you to produce?)
• EHR (your Effective Hourly Rate – or your total hours logged (not just billed) divided by the fees recovered on the file)
• Time written off, etc…

CRAFT INTAKE FORMS
Craft intake forms and procedures that ask you questions about the potential client and incorporate specific intake policies to match your business and marketing plan (remember that vision?). Your intake forms set forth the area(s) of practice and types of files that you wish to pursue (as well as those that you don’t) by incorporating a check-list as part of the form.

Your intake forms ask you whether the potential client matches:

• Your target clients (area of practice and type of files).
• Your fee agreement expectations.
• Whether the client is someone with whom you wish to work (potential trouble?).

Your client agreement should also:

• Shape expectations (incorporate an information sheet that discusses their type of claim, the process that they can expect and the range of possible outcomes for their type of file).
• Minimize unnecessary calls (by providing information early in the process to the client).
• Facilitate communications (state that you will send your clients copies of all correspondence sent and received as well as periodic (standard) information when their file reaches predetermined milestones).
• Handle emergencies (advise your client how best to contact you and your office).

Proper client and file management will help you attract the right mix of paying and pro bono clients to achieve your income goals and avoid having those awkward moments sitting across from clients and telling them if they have no more money honey, you’ve no more time....

David J. Bilinsky is the Practice Management Advisor for the LSBC. E-mail: daveb@lsbc.org Blog: www.thoughtfullaw.com.

This article originally appeared in the April 2008 issue of BarTalk and is reproduced here with permission of both the author and the Canadian Bar Association, British Columbia Branch.