Ancillary Businesses: Assessing Their Overhead Costs
Editor's note: In February's edition of the A&FP newsletter, an article and accompanying worksheet provided an overview of various law firm resources that might need to be committed to a proposed ancillary business. That article focused on how an ancillary business might unexpectedly challenge the physical, financial or service resources of the law firm. This month's article examines somewhat the reverse issue: financial strains on the ancillary business that could unexpectedly result from its association with the law firm.
Managing 70%
Imagine the CEO of a major international corporation saying to her Board of Directors, 'We are doing a great job of managing 70% of our productive capacity.' And the Board responding, 'Great job, here's your bonus.' Or another CEO who says, 'We don't need to hire managers for our regional plants, because 70% of our capacity is in the main plant anyway. Let the others do what they want.' Hard to imagine, isn't it? Of course it is, because the concept of ignoring 30% of your business' productive capacity ' leaving it to 'manage itself' or, worse, considering it unimportant ' would get you fired in any business in the world.
Managing Fiscal Fundamentals
Understanding a law firm's fiscal affairs is not that difficult. One need only understand a few basic concepts ' concepts that are no different for the law firm or the law firm's clients. The trick is not in understanding the numbers but in managing for results. For a law firm, this is an even greater challenge. Its owners are well educated, strong willed, success driven, practice focused, independent minded and, at least for trial lawyers, somewhat more argumentative than the general population. The owners are also large in number relative to the total number of employees and are active in the day-to-day operations of the firm.
Motivating Partners to Bill and Collect
As in refining any other law practice skill, the key to improving billing and collection is self-motivation, enhanced and supported by the firm's operative structure.
Building a Comp Plan That Works
On a recent visit to Altman Weil management consultants in Newtown Square, PA, I met with James D. Cotterman, a longtime contributor to (and just-retiring Editorial Board member of) this newsletter. Jim was the lead author and editor of both the 2nd and 3rd editions of the ABA-published book <i>Compensation Plans for Law Firms</i>. Regrettably I can't share with you Altman Weil's excellent hazelnut coffee, but I hope you'll enjoy the following condensed excerpts from our conversation about Jim's book. With Jim's concurrence, I've also prettied up my sketched notes on some compensation system and profitability interrelationships explained in the book; these flow diagrams appear on pages 2 and 5.
Avoiding Extinction in a Turbulent Legal Market: Financial Hygiene Perils
The early days of 2003 have brought a stark reminder to the leaders of law firms: While strong law firms have experienced an exceptional level of prosperity and growth in a consolidating market, continued expansion and ever increasing profitability are not the only potential destinies for law firms today. As the high profile closures of long established firms such as Brobeck; Peterson & Ross; Hill & Barlow and others demonstrate anew, firms can fail.
Fee-saving 'DIY's' for Start-ups
The predicted economic turnaround will certainly bring new business start-ups with it. This time around, however, an entrepreneur's first step shouldn't be buying a sock puppet or a Super Bowl commercial.
The USA Patriot Act and Private Equity Funds
The Patriot Act was signed into law by President Bush on October 26, 2001. Title III of the Act impacts the anti-money laundering provisions of the Bank Secrecy Act (BSA). The amendments were made to promote the prevention, detection, and prosecution of international money laundering and the financing of terrorism.
Private Equity Valuation: A Significant Decision
Insiders (and others) in the private equity business are accustomed to seeing a good deal of discussion ' academic and trade ' on the question of the appropriate methods of valuing private equity positions and securities which are otherwise illiquid. An interesting recent decision in the Southern District has been brought to our attention. The case is <i>In Re Allied Capital Corp.</i>, CCH Fed. SEC L. Rep. 92411 (US DC, S.D.N.Y., Apr. 25, 2003). Judge Lynch's decision is well written, the Judge reviewing a motion to dismiss by a business development company, Allied Capital, against a strike suit claiming that Allied's method of valuing its portfolio failed adequately to account for i) conditions at the companies themselves and ii) market conditions. The complaint appears to be, as is often the case, slap dash, content to point out that Allied revalued some of its positions, marking them down for a variety of reasons, and the stock price went down - all this, in the view of plaintiff's counsel, amounting to violations of Rule 10b-5.
Client Intelligence: IT, Marketing and Library Services Unite
As a futurist to what law firms need to be thinking about, I am always excited about "out of the box" methodologies that can impact the marriage of technology, research and marketing. Over the last few years, as IT and marketing departments have played a more prominent role in law firms, IT departments have rolled out software programs to assist marketing with the capturing of basic client relationship information for mailings, law alerts, programs and the like while at the same time working in tandem with the library to upgrade their legal research tools. Happily, with the advent of solution-based client intelligence/relationship management products, a new method of delivering all of this information can now be aggregated in one interface.
