The business of law®

Starting a new firm is quite distinct and separate from practicing law. It brings the lawyer face to face with what I call "The Business of Law®." Despite the continuing insistence of some that law remains a profession and not a business, I believe that a law practice is fundamentally the business of providing legal services to individuals and organizations. And lawyers, who receive no training at business during their professional education, are notoriously poor business managers.

Businesses fail because the owners fail to focus their energy on the business; most business owners are technicians, not entrepreneurs, according to Michael E. Gerber, best-selling author of The E-Myth Revisited. Law is a business as well as a profession. To succeed, lawyers must act in a businesslike way.

But Gerber may be right when it comes to lawyers. They tend to be technicians who want to do what they love doing, whether it's negotiating, drafting a contract, litigating, or some other task. They don't want to run a business, and they especially don't want to engage in business planning. When your business is a law practice, you unquestionably have a recipe for disaster.

Lawyers needn't be accountants, but too many fail to understand the basics of budgets, collections, profit, and loss.

Planning to fail and the top 10 mistakes

Legendary UCLA basketball coach John Wooden once said, "Failing to plan is planning to fail." Every Fortune 500 company has a detailed business plan. Yet it's estimated that fewer than half of the "Inc. 500" companies do – and these are the most successful, fastest-growing small businesses in the country. With Hurricane Katrina still a vivid memory, keep in mind that most companies that experience a major disaster are out of business within five years; only 25 per cent of these companies have a disaster plan.

In other words, the 10 biggest mistakes most lawyers make when starting a new law firm inevitably involve a failure to plan. That failure encompasses a host of shortsighted errors. This list, while not definitive, highlights 10 key blunders.

1. Failure to establish a timeline

Opening a new firm is such a complicated process that you should, ideally, allow six months to one year to accomplish the many tasks involved. Lawyers accustomed to the rush of meeting a 5:00 p.m. filing deadline at the courthouse tend to take last-minute effort for granted. Don't make the same mistake with starting your new firm.

2. Failure to negotiate office space effectively

When you look for the physical location of your practice, focus on three factors before you sign the lease: what you can afford, what kind of space you need, and what commitment you are making. The terms of the lease, the rent, the improvements needed before you occupy the space – all these can and should be negotiated.

3. Failure to contact key service providers

It's your practice, but you may not realize all the people involved in it who require notice about your new firm. The list includes financial institutions and insurance carriers, bar associations and courts, vendors, utilities, the news media, and the postal service. Forgetting any of these can cause big problems.

4. Failure to notify clients

If you start a firm from scratch, client development is your first priority. But if you're already established with clients, make sure they know what you're doing and can reach you at all times. Keep them fully informed of your timeline, provide full contact information and directions, and give them your cell phone or other emergency number.

5. Failure to publicize

Don't feel publicity is undignified. Send a press release to the local business and legal media. Consider an open house at your new office location. If you blog, tell the world about your new firm. A textbook example is how big-firm litigator Ernest Svensen used his high-profile ErnieTheAttorney Blog to announce his new solo practice early in 2006.

6. Failure to develop a budget

Physically setting up your firm has costs associated with it. You should develop a line item budget for everything you need to purchase or relocate: decorating, moving, telephones, computers, office furniture, supplies, etc.

7. Failure to plan your office space

In today's digital age, you can never have too many computer and telephone hookups. To avoid unnecessary expense later, make sure you plan the approximate location for current and future desks, computers, and phones.

8. Failure to establish banking relationships

During startup, your cash needs for staff, equipment, operating expenses, or some other purpose will exceed your cash-generating ability. You will need a bank loan; establishing a sound early relationship with your banker is the best assurance of loan approval.

9. Failure to strategize

Most lawyers realize they're in trouble only after the money ceases to come in the door. The seeds of such a problem typically begin months or years earlier through a failure to create marketing, receivables, and financial plans.

10. Failure to develop business literacy

Lawyers needn't be accountants, but too many fail to understand the basics of budgets, collections, profit, and loss. Each attorney should understand that profitability is determined by how well you win the business, do the work, and get paid.

Top 10 tips for success

That's a lot of negativity, and not a note on which to end a discussion of such an adventure as starting a new firm. I much prefer to conclude with the positive – 10 common characteristics of successful law firms that I have uniformly observed over decades as a lawyer, coach, executive, and consultant. In these successful firms, the lawyers:

1. have a comprehensive business plan.
2. remember that the client comes first. Without clients, there’s no reason for a lawyer to exist.
3. sell solutions ("provide value") to clients, not time as expressed in billable hours.
4. begin each matter with an engagement letter -- a written agreement outlining the scope and responsibility of each party, including the client's responsibility to pay.
5. prepare budgets for each matter: tasks, events, timing and resources to be used for the benefit of the client. This process requires early analysis and client signoff.
6. understand that their inventory is not "billable hours," it's the cash those hours represent, and they focus on collecting accounts receivable and maintain a high realization rate.
7. practice effective cash flow management by getting funds into the bank as quickly as possible.
8. recognize that technology -- e-mails, blogs, cell phones, and voicemail – can’t replace personal relationships, personal integrity, and rapport with clients.
9. work with a coach or mentor to achieve business and practice success more quickly.
10. have a disaster plan in place and keep it current. Business survival and succession can’t be left to chance.

Put them together, and all the don'ts and do's have one message. To launch a successful new firm, view your practice as a business as well as a profession, and employ this businesslike perspective to provide your clients with value. Acting in this manner will ensure your new firm's long-term future.

Copyright 2006 Edward Poll. All rights reserved. Edward Poll is a widely recognized U.S. law firm management consultant, coach, and author. He practiced law for 25 years and has coached lawyers and consulted with law firms for the last 15 years in the areas of strategic planning, profitability analysis, and practice development. Ed's latest book is Selling Your Practice: The Profitable Exit Strategy. Visit Ed's Law Biz website and his blog. You can contact Ed via e-mail or telephone (800-837-5880). This article originally appeared on Technolawyer archive. CBA members can get a free one-year subscription to Technolawyer at http://www.technolawyer.com.

We know from his diaries that in 1956, Frank Manning Covert, then a lawyer with what is now the Halifax office of Stewart McKelvey Stirling Scales, worked 333 nights, 50 Saturdays and 52 Sundays. “The only way he could relax,” said Barry Cahill, who edited Covert’s memoirs, “was by working.” In 1982, Covert was made an Officer of the Order of Canada, which, I’ll bet, was not in recognition of his work/life balance.

The Covert model might not be yours, but one lawyer’s work/life imbalance is another lawyer’s work/life balance. Lawyers with whom I’ve spoken who keep Covert’s hours (or something close to those hours) view their personal lives as rich and fulfilling. Covert himself declared his love for life. Who are we to judge?

The fight for work/life balance is against a workplace culture, not unique to private practice or the legal profession but historically prevalent in both, that recognizes and rewards only that lawyer for whom living life to the fullest means taking the occasional Saturday off. Work/life balance is about flexibility at the firm, accommodating both those who want to keep traditional long hours and those who don’t or can’t.

Work getting on top of you?

For tomorrow’s lawyers interested in a little more life and a little less work, I have good news. What I have seen, read and heard suggests that firms are… well, I won’t say embracing, but they are accepting conventional work hours (“conventional” by other industries’ standards) and even unconventional practices, like flex time and sabbaticals.

In this lifetime, you will find your work/life balance in the profession. You will find it at your current firm or — if it’s important enough to you and you want to stay in private practice — you will find it at another. It will cost you in reduced pay, but that’s to be expected when compensation is tied even only loosely to billings, and billings are tied to hourly rates.

If you want to know why firms are increasingly accommodating work/life balance for those who want it, just follow the money. Back when Covert was carrying the bags, a lawyer left the firm when he (it was almost always a he) retired or died — more often the latter.

The last 20 years have seen unprecedented mobility in the profession. Lawyers leave firms for other firms, private- and public-sector employers and NGOs. A departing lawyer costs a firm more than the bill for a send-off lunch. Catalyst Consulting pegs the price of a departing associate at $315,000. Out the door goes the firm’s tangible and intangible investment in training, experience and client knowledge.

One of the reasons given by those associates, as the door swings behind them, is a pursuit for better quality of life, the kind that can be found in the mundane (and here, I’m speaking from personal experience) of changing a baby daughter’s diaper or wiping a three-year-old’s snotty nose.

The antidote to mobility is retention. Firms most successful in retaining lawyers have, among other things, implemented flexible workplace scheduling practices. Sometimes the accommodation is across the board and the form of a policy, as with paid parental leave for both mothers and fathers. Other times, the accommodation is tailored to the individual lawyer — as it was with Jeannine Bakeef.

Bakeef, 33, is a 1999 call and associate in corporate finance with what is now the Halifax office of McInnes Cooper. Since October 2001, her firm has accommodated her professional acting aspirations by acceding to her requests to work half time, then take a leave, then work projects on contract, and then return full time at reduced hours.

Jeannine, a friend and classmate, gets to indulge her passion for acting, and McInnes Cooper keeps an associate who — by just her third year, when she left to formally train as an actor — had more experience and education in corporate finance and securities than most associates in the city.

The news is also good for tomorrow’s Covert, the private practitioner for whom life is work. The economy is robust and quality files are in abundance. The firm will always value the quick turnaround on a file and the high billings that come from the 25-hour workday and 53-week work year. That won't change, so long as private practice is customer service and so long as customers will pay for a lawyer by the hour.

James Rossiter is an associate with the Halifax firm Wickwire Holm, father of three and secretary-treasurer of the Young Lawyers-CBA (jrossiter@wickwireholm.com).

Kermit Roosevelt and John Grisham are two real-life lawyers who have carved out more lucrative careers for themselves writing about fictional lawyers doing pro bono work than they could ever have enjoyed had they remained simply... well, real-life lawyers doing pro bono work. They also seem to have the pro bono fiction market cornered, so I am stuck being a young, real-life lawyer who does pro bono. I’ve come to accept that this state of affairs is simply the universe unfolding as it should.

What I can’t accept, however, is that in a universe unfolding as it should, the need for pro bono work just keeps growing and growing. The more I worry about it, the more I think that Kermit and John are part of the problem. Maybe we don’t need more fiction. Maybe, when it comes to pro bono, what we need is a bit of reality.

It’s pretty easy to argue that doing pro bono work doesn’t make a lot of sense for young lawyers. We have it hard enough trying to find time to fit in bits and pieces of “non-law life” around billable hours and obligations at work. It’s a lot harder, though, to argue that pro bono work doesn’t matter. The facts are simple and pretty much irrefutable: Legal Aid funding is inadequate, and the inadequacy of this funding results in unrepresented and self-represented litigants struggling through the system. Then there are all those others who just fall through the cracks and might never even make it into the system if not for all those real-life lawyers doing pro bono work.

Pro bono: it's more than just a Grisham novel.

So for the Roosevelt and Grisham fans out there who love a good story, here’s a bit of novel-worthy reality courtesy of a free legal clinic on the prairies. One of the clients at this clinic last month was "Gloria," an elderly lady who has assisted "Ethel," a mentally-handicapped woman, for the past 20 years. They live together and are surviving comfortably on pensions and a trust fund set up for Ethel’s care, when suddenly, things start to unravel. A family member begins stealing from them and the trust fund. Gloria slips and falls and requires ambulance service. Several weeks later, a $300 ambulance bill arrives in the mail, and things start to snowball. The police can’t find enough evidence to lay charges in the matter of the trust fund theft. A collection agency starts calling about the overdue ambulance bill. After the hospital scare, the ladies realize that they don’t have current wills. They also need legal advice about the collection agency demanding payment and managing the trust. They don’t have enough money to cover the ambulance bill and they don’t have enough money to pay a lawyer to hear the complicated story about how they got to where they are. A trip to Legal Aid is futile: they make too much money and their legal troubles are neither criminal nor family and thus fall outside the purview of the system. They’re stuck.

"Stella" is another client at the same free legal clinic. She’s an immigrant who has been raising three children by herself for the past six years. She works hard and makes enough to care for the children. She’s even saving for their secondary education. She has been separated from her husband for six years and has never received support payments. She wants a divorce, but she knows nothing about support, property division, or whether this court application will affect her attempt to sponsor her sister under the immigrant nominee program. As was the case with Gloria and Ethel, Legal Aid isn’t an option. Stella makes just a little too much money, and Legal Aid doesn’t assist with property division or immigration matters anyways. Stella doesn’t know much about her options, but she knows that a friend who spent $5,000 two years ago to get a divorce is still not divorced. Stella doesn’t want to make the same mistake.

The good news is that Gloria and Stella found help at an organized pro bono legal clinic. The bad news is that not everyone is so lucky. The details of the stories will change slightly from province to province to territory, but a quick survey of the typical clients at the free legal clinic helping these ladies paints a picture of the areas of law that require the most pro bono attention across Canada: family, immigration, criminal, and poverty-related issues generally categorized as civil matters (small claims, government service appeals, debtor-creditor issues, etc.).

Another not-so-pleasant reality with ramifications for pro bono organizations is that represented litigants often end up as self-represented litigants when the legal bills reach $10,000-$15,000 and there’s still no resolution in sight. Don’t get me wrong – I’m not suggesting that as lawyers, we don’t deserve adequate compensation for our services. Of course we do. If Kermit and John are making the big bucks writing about the law, then we should be making something for actually practising it. However, the reality is that for many in our society, legal fees are simply not something they can deal with. The individuals we're talking about don’t have savings and emergency funds. They generally live from paycheque to paycheque, and unexpected expenses wreak havoc on their finances and their ability to keep on getting by. Events requiring legal advice are by their very nature unpredictable and are often overshadowed by emotional and stressful circumstances. Borrowing money to pay for legal services is scary at best; at worst, it’s impossible. Banks and lending institutions don’t like the bottom line on hard-luck tales.

The end result of all of these realities is a growing gap between those individuals who are entitled to receive legal representation through government legal aid and those who can actually afford going-rate legal representation.

It's this gap -- and the individuals who keep falling into it -- that is so troubling. More pro bono work is not the ultimate solution (proper legal aid funding is), but until legal aid funding is what it should be, organized and ad hoc pro bono efforts alike can make a real difference. Just ask Gloria and Stella. (OK, so I made up their names, but their stories are real). They ’d probably be the first to tell you that their predicaments weren’t all that terribly complicated once they got them sorted out. However, their chances of sorting them out without legal advice and/or representation were in line with my odds of penning a best-selling novel.

And so, having been drawn in by the Kermit opening and hooked by the real-life stories, you are now completely convinced that a little pro bono work is not only necessary, but that it might be a good fit for you. It will help to instill public confidence in the justice system, after all, and it’s something you can see devot ing a few hours to here and there. But where to start? How do you find the Glorias and the Stellas?

Well, Kermit and John suggest working at a large Washington law firm, becoming disillusioned, letting your hair grow, and then stumbling upon a highly convoluted and incredibly dangerous conspiracy that only you can unravel. Alternately, you could just contact your local CBA Pro Bono Committee Chair or you can visit the Committee website.

P.S. No slight intended to either Kermit Roosevelt or John Grisham. For some very good storytelling, check out In the Shadow of the Law and The Street Lawyer, respectively.

Pamela R. Kovacs is a member of the CBA’s National Pro Bono Committee and an associate at the Regina firm of McKercher McKercher & Whitmore LLP.

Ed.’s note – With rising tuition fees and accrued student loans a harsh reality for both the current generation of young lawyers and graduates to come, Loreley Berra, chair of the Young Lawyers-CBA for Saskatchewan South, takes a look at how Australia handles the challenge of getting students through university with a reasonable debt load.

How do you pay for an education that costs thousands of dollars each year and still pay for a roof over your head, put food in your mouth, and pay for those ever-increasing-in-size-and-weight textbooks? In Australia, tuition for students who are Australian citizens and permanent residents is set up through the Higher Education Contribution Scheme (HECS). Students contribute to the cost of their education, but don’t pay the full cost of the service. But don’t get me wrong – yearly tuition can still be high.

Students are given three options at the beginning of each academic year:

1. Pay your tuition in full upfront each year and receive a discount of 20 per cent;
2. Pay part of your tuition up front, receive a discount of 20 per cent on that portion, and defer the remaining portion through the HECS system;
3. Defer your tuition in full each year through the HECS system and pay your debt through the tax system.

The second and third options are the ones likely to attract the most interest. If you defer your tuition, it's like a loan from the federal government. The federal government pays the service provider directly on your behalf, and the debt is recorded with the Australian Tax Office against your tax file number (the Australian version of your SIN). Your tuition loan accumulates until you complete your program.

It may not look like Canada, but our Commonwealth heritage means we may have more in common with Australia than you might think – including the need to produce innovative programs to help fund tuition.

How is the loan repaid? Compulsory repayments begin when you start earning the minimum threshold income – in 2006, that level was A$36,000. Payments, a percentage of your income ranging between four and eight per cent, are automatically processed through the tax system.

For example, say you have a salary of A$36,000. Your pay stub reflects your general deductions, including the appropriate tax. You will have an additional deduction of four per cent for your repayment of your HECS loan automatically.

As your income increases, the repayment percentage increases, to a maximum of eight per cent on an income greater than A$67,000. You can make voluntary repayments at any time, and for every voluntary repayment of A$500 or more, you also receive a 10 per cent discount. There is no interest, but your HECS loan is indexed annually to reflect changes in the Consumer Price Index (CPI).

You are eligible for funding of this nature generally only once at each level of tertiary education. For example, you can be funded for each of the following: a certificate, a diploma, a bachelor’s degree, a graduate degree (such as an LL.B), a master’s, and a Ph.D.

Of course, there's more to studying than the cost of tuition. Other funding options are available for living expenses – but that’s a story for another time.

Comments or questions? Feel free to contact me at lberra@justice.gov.sk.ca.

The Young Lawyers-CBA will table a resolution at the 2006 Canadian Legal Conference in St. John’s calling on the federal, provincial, and territorial governments to do more for law students and young lawyers by considering articling periods and bar admission programs in each province or territory as part of the period of study (so that interest on student loans doesn’t accumulate and payments aren’t owed), to ensure equal access to professional schools for all, and to establish funding programs to help ensure access to professional programs for all qualified applicants. The full text of the resolution is available on the CBA website.

If you’re a young lawyer just starting your career, it helps to get advice on your practice, your responsibilities, and your future from someone who’s already traveled the path. But while mentors are invaluable, they don’t just fall into your lap – developing a complex and crucial relationship of this type takes both time and effort. In this issue’s 5 Sites, we look at some resources to help you find potential mentors and develop the relationship – along with some tips for those of you far enough along the career trail to consider giving back.

1. Managing a Mentoring Relationship – http://www.practicepro.ca/Practice/Mentoring_Booklet.pdf. PracticePro's 39-page booklet is chock full of tips for those looking for a mentor, those interested in becoming one, and those interested in developing a mentoring program within their firm. It’s a comprehensive look at the ins and outs, as well as potential pitfalls, of a mentoring relationship from start to finish.
2. An Advocate's Guide to Good Mentoring – http://www.advocates.ca/mentoring/goodMentoring.html. The Advocates’ Society has produced this web-based resource on mentoring, including tips for finding mentors and protégés, a look at formal and informal mentoring programs, and hints on what each person involved in the mentoring relationship should and shouldn’t expect.
3. District of Columbia Bar Mentoring Resource – http://www.dcbar.org/for_lawyers/bar_services/practice_management_advisory_service/mentor.cfm. The D.C. Bar’s online mentoring resource is heavy on the early stages of developing a mentor relationship, including how and where to find a mentor, protocols to help you avoid minefields in the early stages, and ideas on how to keep the relationship developing.
4. Mentoring Across Differences: A Guide to Cross-Gender and Cross-Race Mentoring – http://www.mcca.com/site/data/researchprograms/GoldPathways/index.shtml. The Minority Corporate Counsel Association’s look at challenges and success stories from women and racialized groups in their search for mentor relationships. It’s also a valuable resource for those looking for mentors who might not hail from the same background.
5. “Want a mentor? Find and develop your own,” New York Law Journal – http://www.law.com/jsp/article.jsp?id=1048518175101. A capsule overview of how to find and develop a mentor. Don’t have time to wade through the comprehensive resources above? Start here to get an overview of how mentoring works and what your first steps should be.

Jared Adams is editor of Addendum and a 2006 Kenneth R. Wilson Award winner.

Often, a gap exists between the generation of lawyers that has developed the firm’s current business and the incoming generation that has little experience in this area. For law firms functioning in an increasingly competitive environment, this generation gap can have serious business consequences.

This month on CBA PracticeLink, learn how firms are passing rainmaking skills to the next generation of young lawyers. Plus, check out the latest chapter of Welcome to Reality: A New Lawyer’s Guide to Success, on career planning.

Also new on CBA PracticeLink:

• Podcast on Podcasting: The Latest Addition to the Legal Marketing Toolkit
• Tools, Tips, and Techniques for Mobile Lawyering

To read on, and to check out the site’s new podcasts, interactive features and newsfeeds, visit: www.cba.org/practicelink.