The Business of the Practice and
the Practice of the Business
David J. Bilinsky
Tim 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:
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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
Agenda
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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
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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:
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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
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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
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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!
The Lawyer’s Guide to Creating a Business Plan
• Software package
• Available through ABALPM publishing
• Mission Statement
• Overview of the
Practice
• Financial Plan
• Management Plan
• Marketing Plan
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_su
pport/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 Leverage
• Focus on “net
profit per partner
hour” – David
Maister
• Work smarter, not
harder
Working with Associates
• Rule of Three for associates
salaries
• Independent legal
contractors
• Paralegal billable hour
targets
• Outsource or hire admin
• Model Employment Policies
Cash Flow Management
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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; Bill 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
Cycle
• 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
Charge Interest on Past Due Invoices
• Put it in your
engagement
agreement
• DO IT . .
.automatically
• Don’t expect to
collect the interest
Creating and Sending the Bill
Allow Clients to Pay by Credit Card
• Not expensive any
more
• Clients like it
• Collection becomes
merchant’s problem
• Cash flow improves
Focus on Prevention, not Collections
1.File opening
approval system
2.Credit limit system
3.Quarterly income
distributions
4.Capitalize firm
adequately
Be Fraud Vigilant!
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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 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
Hours Worked
= EHR
Want high EHR clients!
Ask low EHR client to ethically leave
Marketing 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
Summary
• 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
www.thoughtfullaw.com
The Law Society of British Columbia
604 605 5331
daveb@thoughtfullaw.com
‘David_Bilinsky’ on Twitter
© 2010 Bilinsky
Tim Daley
www.gmpdlaw.ca
GMPD Law
902 755-4433
tim@gmpdlaw.ca