How to Make Money! Tips for Financial Success in a Solo or Small Firm Practice.
We lawyers are privileged to do interesting, significant, challenging work for the benefit of others. But we also need to make money to pay our bills, support our families, and do the things we want to do – money to sustain our personal lives. So, we must figure out how to turn this interesting work we are privileged to do into a sustained flow of money that allows us to continue to do this interesting work we are privileged to do. Despite the public perception of lawyers rolling in dough, turning the practice of law into a profitable business, at least for a lot of lawyers, and especially young attorneys striking out on their own, is not always that easy. Last year, I published an article here providing “Tips for Solo Success”. With this article, I narrow my focus to provide tips for financial success as a solo or small firmer.
To sustain any degree of long-term financial success, lawyers must run their legal practices like businesses. Fee arrangements with clients must be business deals with well-understood risks and benefits, and off-ramps for both sides if terms are not met. Lawyers do provide services guided by professional and ethical responsibilities. Requiring clients to meet their fee obligations, running efficient practices, and turning good profits are not inherently at odds with those professional and ethical responsibilities. One can always choose to stay in a case too long for a non-paying client, or cut one’s fees to get a case, or make any number of bad business decisions in furtherance of case, cause, or client. Sometimes, you just can’t walk away from the case, or the new client who can’t pay full freight really needs help and you can’t say no, or you just hang in with a slow-pay client because you like the guy and believe he will get you current in six months. We are all people driven by emotions, perceptions, and impulses, good and bad, and not always by the calculated need to make money. But one needs to make those types of decision fully understanding the likely ramifications and not with pie in the sky hope it will all work out. Run your practice like a business based on thoughtful, deliberate, decision-making. That is the key to long-term success. Here are some tips to help you do just that and to help you find financial success in your practice:
1. Set Market Rates and Hold to Them.
This is, at times, a hard lesson to learn. Discounting your rates or fees to get new clients is bad business. It is a race to the bottom. There is always an attorney around the corner who will work cheaper than you. Your attorney time is valuable. It has a market value. Investigate the market, determine what your rate/fee should be, and then stick to it. Discounting your rates/fees undermines your value to your practice, and the perception of your value to your client. If you want to give some money back to a good client, give a courtesy discount for work done.
2. Get Fee Agreements.
Needless to say, you are required to do so in most instances under State Bar Rules. So, there’s that. But fee agreements are also just good business. They provide, in black and white, the obligations and expectations of both attorney and client. They set forth in detail how the attorney will be paid, how her fee will be calculated, and the ramifications of non-payment. It provides exit points for attorney and client under articulated circumstances. It is the source and basis for any successful enforcement effort in the event the client breaches. Further, negotiation and execution of the fee agreement requires both attorney and client to reflect on the seriousness of, and significant obligations arising from, the to-be-undertaken work. It’s easy to say I want to sue so-and-so for this-and-that! It requires more thoughtful reflection when to actually sue so-and-so for this-and-that, one has to sign a fee contract with significant financial commitments and pay a retainer. And that is as it should be!
3. Require Replenishing Retainers.
Require a retainer in every case and the replenishment of that retainer if it falls below a pre-determined level. If a prospective client cannot, or will not, provide a retainer, then that client is likely not serious about sustaining, has no idea what it costs to sustain, or will not be able to sustain, the financial burden of the matter going forward. Set a fair minimum retainer on all your cases. Modify upwards dependent on the nature and scope of the case. Tell prospective clients you have a minimum retainer on all cases and let them move on if they cannot meet that retainer. Don’t negotiate below your minimum retainer or, if you do, do so with the clear understanding that it is not a wise business practice. The replenishment requirement, if enforced, allows the attorney to remain current and above water in a matter on an ongoing basis. If the client does not meet the replenishment requirement, one can withdraw without getting significantly underwater on the fee. Plus, assessing and setting a fair retainer in a case requires the attorney to seriously consider and assess the nature, scope, cost, and financial risk of the prospective matter. A “sign them up, worry about the fee later” approach to client generation is not good business.
[3.5. For Litigators Only – Get Trial Deposits!]
If you’re not a litigator, you can move to #4. For litigators, seriously consider including a provision in your fee agreement that allows you to increase the retainer size as you move towards trial or other significant case event. Litigators are most at risk, financially, as cases ramp up for trial. The work, the fees, the costs increase, often times explode, outpacing retainer levels set early in the case. Then, post-trial, one finds oneself in deep to a client, with a concluded matter, and a client wanting to negotiate the fee. It’s even worse when you didn’t get the desired result at trial. Include a provision that allows you, within a set time before a trial or other significant marker, to require a deposit of fees that fairly covers the cost of that event. Not only does such a provision give the attorney some degree of protection from the risks of a trial, it also requires the attorney and client to seriously focus on and assess what the case will cost to go to trial and whether settlement is a viable alternative. Heading to trial with a case on financial cruise control is bad business.
4. Record Time Concurrently.
Easy to say, hard to do. I hate recording time. Every attorney hates recording time. For those of us who principally work on an hourly basis, it is, without exception, the worst part of practicing law. But, in the context of running our businesses, it is the most important thing we do. That recorded time is the life blood for our practices. And our clients are entitled to fair billing, accurately reflecting what we did for them and what we are billing them for. The only fair and accurate way to record our time is to do it as we do the work. The major billing programs all have running clock features to record time as you work and mobile time-keeping functions for work on the go. They work great. It just takes discipline, excruciating discipline, to use them. In this age of email, we all have email roadmaps to create time entries for past work done. And, if we are honest, we will all admit to having done so, perhaps quite often. But, we really shouldn’t. It’s not fair to the client, it serves to delay prompt end-of-the-month billings and, for the attorney, invariably results in the underreporting of billable time. Further, it takes much more time to recreate billed time than it does to record the time while you work. So, if you don’t record while you work, you will ultimately end up spending more time, creating less accurate billings, which underreport your actual billable time – spending more time to produce less accurate billings which make you less money! Dumb, huh? Currently, I use the Time Capture function in TimeSlips – works perfectly when I am disciplined enough to use it, which is most, but surely not, always. But I try!
5. Capture All Billable Expenses.
Your fee agreement will detail what expenses are to be charged to the client and how they are to be charged. Promptly charge the client for and collect those expenses. Expenses are incurred and documented in many ways in this digital age. Many services, like filing fees and online research fees, are drawn directly from bank accounts with emailed receipts. These can get lost in the daily deluge of email, then not billed and recovered. A few unbilled filing fees or service charges a month can add up to a sizable chunk at year’s end. And, that’s money right out of your pocket. In my office, both my paralegal and I double check our draft bills at month-end against withdrawals reflected in my online operating account statement. We, invariably, catch charges, usually small ones, that otherwise may not have been billed. Try that approach – works for us.
6. Bill Fairly and Promptly.
Bill promptly at the end of your billing period. Cash flow is critical in a solo or small firm practice. Billing delays interrupt regular cash flow. Don’t sit on cashflow in the form of un-billed, un-invoiced time. You don’t bill promptly, you don’t get paid promptly, you can’t pay your bills or bring money home promptly. It’s pretty simple. Plus, prompt, regular billing creates a positive client perception of office efficiency. And, the more you delay your billing in a case, the more work you put into the case without corresponding case cash flow, placing yourself at greater financial risk in the case. And, bill fairly. Work and bill the case as and when required, and not as the billing calendar dictates. Do not cram in a bunch of work on a case into the last couple of days of the billing period just so you can squeeze it into this billing period as opposed to the next. Clients will see that and properly question it.
7. Religiously Monitor Your Finances & Pinch Every Penny.
Again, cashflow is king. Regularly monitor your collections, your billings, and your expenses to maintain cash flow. If a client is not paying when she should, call her. On the expense side, buy what you need. Beyond that, pinch every penny. It’s not the big, fully vetted expenditures that hurt. You have done the cost-benefit analysis on those. It’s always the accumulated small expenditures that hurt. Get what you need – after that, pinch every penny!
8. Enforce Fee Agreements.
Enforce your fee agreements. If the client is not paying in accordance with the fee agreement, get out and move on to the next client. If the client will not replenish a retainer per the agreement, get out and move on to the next client. You are running a business. You need cash flow to meet your business obligations and take money home. Make sure the clients meet their contractual fee obligations. If they don’t, get out. You’re their lawyer, not their legal line of credit.
9. Make Your Quarterly Tax Deposits.
Make your quarterly tax deposits. Religiously set aside the money you need to pay your taxes. Once you start slipping back on your tax set-asides/deposits, you will soon find yourself getting extensions on your returns to make the money to pay last year’s taxes. Been there, done that! It gets brutal and it’s a difficult cycle to get out of.
10. Pursue Arbitration to Get Paid.
This will be controversial, But I generally will not let a former client, who can pay, walk away from a bill for my services. It’s just not fair. I will let a client pay off a bill over time, even a long time, and will cut deals to get immediate payment. But, unless it is a fairly small amount or I am satisfied after investigation the client no longer has the ability to pay, I will enforce my agreement and pursue that unpaid bill through arbitration or otherwise. I have rarely been in that position and it has usually been because I did not follow my own advice noted above. And the accepted rationale for not doing so – the invitation of a cross-complaint for malpractice – is surely valid. But I will just not walk away from getting paid for my work. And in those rare instances where I have pursued enforcement of fee agreement, I have gotten paid and there was no malpractice claim. If I follow my own advice noted above, I should not find myself in that position again. And the vast majority of clients, including mine, are good people who understand their obligation to pay for their legal services, and make every effort to do so. So, hopefully, I never have to follow my own advice on this one again!
As a final and rather obvious piece advice, do excellent work and provide good service. Happy clients are paying clients!
With some minor differences, this article appears in the July/August 2019 issue of San Diego Lawyer magazine, available here – https://bit.ly/2LOPQmn. It is reprinted with the permission of the San Diego County Bar Association.