Category: Financial Management

BillingBusiness PlanningClient relationsFinancial ManagementLaw Practice Management

Becoming a Cost Center: the Story of Attorney Andrew

image   by Sheila Blackford   ©2016   I get to talk with attorneys who are trying to figure out the best method of increasing business. Should they do a Facebook firm page? Should the try using Google AdWords or try advertising with Yelp! or start a blog, or twitter feed? There are more ways to spend money than to make it. What all lawyers can do is pay attention to what they are spending their money on. A good way to look at expenditures is to view how many hours of work you must spend to pay for this purchase. If you work for a salary, it is easy to calculate your rate of pay. You have your annual salary. You can calculate how your hourly rate of pay from there. If you worked 52 weeks – no time off– then divide your annual salary by 52. If you work 40 hours a week – in your dreams, right?– then divide the weekly salary by 40. What you get is your hourly rate.

This is very different when you work for yourself. You have a billable rate, but you have overhead costs, and you likely do not collect the same amount of money that you bill.  Let me introduce you to Attorney Andrew, admitted to the Oregon State Bar in 2005. Andrew has a billable rate of $200 an hour. He spends six hours working on the Client Carlton matter. He knows he really should have been able to do the work in four hours so he writes the Client Carlton bill down to four hours, $800. Client Carlton is billed $800 and pays $800. There are 10 additional clients billed during the same month totaling $8,400 and is paid only $6,600.

Attorney Andrew’s office rent is $1,200 per month. Allocating 1/12 of the Oregon State Bar annual membership dues equals $46.42; allocating 1/12 of the Professional Liability Fund annual assessment for the basic $300,000 malpractice insurance coverage and additional $50,000 claims expense allowance equals $291.67.

Attorney Andrew’s total gross income is $7,400 for the month. His proportionate expenses are $1,538.09. Attorney Andrew’s net income would be $5,561.91.Will he take the full amount as take home income? Or will he buy more paper and ink for his printer? Or should he save the money as a cushion against any future expenses.

What are Attorney Andrew’s numbers looking like? Attorney Andrew wrote down $200 on the Client Carlton time charges. What amount of time did he write down on the other client matters? If he billed $9,180 but only collected $7,400 then his collection rate for this month was 81%.  $7,400 divided by $9,180 = 81%.  COLLECTION RATE EQUALS THE AMOUNT RECEIVED DIVIDED BY THE AMOUNT BILLED.

But if his time charges entered for the entire month were 60 hours (value = $12,000) and he wrote off 14.10 hours and only billed 45.90 hours (value $9,180), then at his $200 billable rate he was only paid for 37 hours ($7,400). As a result, his realization rate is on 62%. $7,400 divided by $12,000 = 62%. REALIZATION RATE EQUALS THE AMOUNT RECEIVED DIVIDED BY THE VALUE OF TIME RECORDED. 

If you haven’t run screaming from being in front of this blog post, take a look at Attorney Andrew’s net income of $5,561.91. We realize there are other monthly overhead costs besides rent, and 1/12 of the  annual OSB bar membership dues and PLF assessment for malpractice insurance coverage. You can do your own precise calculations with all your numbers. If I told you that Attorney Andrew was somewhat prudent and only paid himself $5,000 gross salary a month, then his gross annual salary is $60,000. Based on 52 week in year, 40 hour work week, Attorney Andrew’s gross hourly rate of pay is $28.85. Considering how proud Attorney Andrew is to have a billable rate of $200 an hour, that gross hourly rate of pay is something else isn’t it?  Well, though painful, it isn’t accurate: don’t forget federal and state taxes and other withholding amounts for social security and medicare that Attorney Andrew must pay. His net pay is not $28.85. It’s less…

For the sake of our sanity, let’s just run with this $28.85 an hour gross hourly rate of pay. Attorney Andrew wants to purchase a new leather sofa long enough to nap on, delivered to his condo from Pottery Barn, he will spend $3,499. Not bad! He better like it because it will take him 121.29 hours to earn the price of that leather sofa based on his $28.85 gross hourly rate. And we won’t talk about the dream car Attorney Andrew is dreaming of buying. It is pretty cool looking for a car.  Okay, I’ll tell you what his dream car is so you can google it and share the dream: the 2016 BMW i8 with a MSRP of $140,700. If Attorney Andrew had a savings account to clean out, it would take 4,876.95 hours based on his $28.85 gross hourly rate to put that baby in his garage. I wonder what his condo cost if it has a garage. Hmm…

So the moral of this story of Attorney Andrew is multi-layered.

  1. Don’t get overly impressed that your billable rate is $200 an hour.
  2. Look at your collectible rate.
  3. Look at your realization rate.
  4. Before falling in love with new furniture and cars, calculate how many hours you will have to work to pay for them.
  5. Before getting more clients, look at how efficiently you are serving the clients you already have.

 

 

 

 

 

BillingClient relationsFinancial ManagementLaw Practice ManagementUncategorized

More About Money: “Don’t Just Ignore the Bills!”

image  by Sheila Blackford   ©2014   I hear solos talking about the client who isn’t paying. Now usually this is a client who fell further and further behind on paying legal bills. Sometimes there was an initial retainer but that is usually long exhausted. The client is now ignoring your bills!

Assuming you feel you cannot “fire this client” for not paying you, I want to you if you have talked to your client about his or her client matter. Did you discuss a realistic appraisal of how long their case would be and how much it might cost based upon what your estimated fees and costs would be?

Communication about the likely expense of legal services is essential before setting forth on a client matter. But you may be saying, “it’s a little late now!” Not so. Sit down and review this client’s bills sent and not paid. How much is owing for how long? How much more fees and costs are likely to be be incurred? Does the client wish to pursue? Can you put your client onto a regular payment plan— such as $50 on the first and $50 on the fifteenth of the month. That is only $100 per month spread over the client’s two paychecks. Can you partially forgive the debt if the client can pay 50%-75% of what is owed to bring it current? Is this a client you are willing and able to help on a pro bono or partial pro bono basis? Can the client borrow money from a relative?

You may decide to do something yourself instead of ignoring your bills. Consider whether you can go forward in this representation. On the PLF website (www.osbplf.org) you’ll find an article, “How to Fire a Client.” See the practice aids and forms category on Disengagement Letters for the article and some sample disengagement letters. You will also see a sample agreement for charging a credit card which can be used for setting up a recurring charge to the client’s credit card in the category on fee agreements and engagement letters, “Fee Agreements: Authorization to Charge Credit Card.”

It is always wise to pick up the phone to check in with you client. If you feel uncomfortable, write out this telephone script and use some variation of it to get this situation resolved. At 45 days past the statement date, call your client and say, “Hello [CLIENT]. I just wanted to know if you got my monthly statement for [MONTH]? Is there some problem with the bill that is preventing you from paying it?” Then discuss your withdrawal, or offer a monthly payment plan or negotiate a settlement of whatever amount is past due. Remember the Oregon State Bar offers arbitration services for fee disputes. The important thing is not to ignore this situation.

BillingClient relationsEthicsFinancial Management

New Amendments to Oregon Rules of Professional Conduct

JEL23652-Blackford, Sheila P3 (2)   by Sheila Blackford   ©2010   I just learned that the Oregon Supreme Court approved changes to Oregon RPC 1.5 and 1.15-1 regarding earned on receipt fees and RPC 3.3 relating to a lawyer’s responsibilities when a client or witness offers false evidence.

Let me say that “Earned on Receipt” fees have been troubling legal fees because many lawyers want to designate them as “Nonrefundable.” If you didn’t do the work bargained for, then to hang onto the fee would be collecting a ‘clearly excessive fee,” putting you in violation of Rule 1.5. Now the rule has been amended and if you charge earned on receipt fees you will want to review this amendment so that you can comply:
Rule 1.5 Fees

“…(c) A lawyer shall not enter into an arrangement for, charge or collect:
(1) any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or upon the amount of spousal or child support or a property settlement;
(2) a contingent fee for representing a defendant in a criminal case;
(3) a fee denominated as “earned on receipt,” “nonrefundable” or in similar terms unless it is pursuant to a written agreement signed by the client which explains that:
(i) the funds will not be deposited into the lawyer trust account, and
(ii) the client may discharge the lawyer at any time and in that event may be entitled to a refund of all or part of the fee if the services for which the fee was paid are not completed.”

Make certain that you following the guidelines and have a written agreement signed by your client that properly explains this type of fee arrangement. Be prudent: use the actual language of the rule in your written agreement.

Rule 1.15-1 Safekeeping Property
“…(c) A lawyer shall deposit into a lawyer trust account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred, unless the fee is denominated as “earned on receipt,” “nonrefundable” or similar terms and complies with Rule 1.5(c) (3).

Make certain that you put fees that are designated “earned on receipt,” or “nonrefundanble” or other similar terms into your general account – not into your trust account.

Rule 3.3 Candor Toward the Tribunal
“(a) A lawyer shall not knowingly:
(1) make a false statement of fact or law to a tribunal or fail to correct a false statement of material fact or law previously made to the tribunal by the lawyer;
(2) fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel;
(3) offer evidence that the lawyer knows to be false. If a lawyer, the lawyer’s client, or a witness called by the lawyer, has offered material evidence and the lawyer comes to know of its falsity, the lawyer shall take reasonable remedial measures, including if [necessary] permitted, disclosure to the tribunal. A lawyer may refuse to offer evidence, other than the testimony of a defendant in a criminal matter, that the lawyer reasonably believes is false;
(4) conceal or fail to disclose to a tribunal that which the lawyer is required by law to reveal; or
(5) engage in other illegal conduct or conduct contrary to these Rules.
(b) A lawyer who represents a client in an adjudicative proceeding and who knows that a person intends to engage, is engaging or has engaged in criminal or fraudulent conduct related to the proceeding shall take reasonable remedial measures, including, if [ necessary ] permitted, disclosure to the tribunal.
(c) The duties stated in paragraphs (a) and (b) continue to the conclusion of the proceeding, [unless compliance ] but in no event require[s] disclosure of information otherwise protected by Rule 1.6.
(d) In an ex parte proceeding, a lawyer shall inform the tribunal of all material facts known to the lawyer that will enable the tribunal to make an informed decision, whether or not the facts are adverse. ”

Be careful when reading the Rules. When in doubt, be sure to call the Oregon State Bar General Counsel, Helen Hierschbiel for help with interpreting the application of our Rules to your situation and for any ethics advice at extension # 361 at the OSB (503) 620-0222 or toll free in Oregon at 1-(800)-452-8260. If you can’t reach Helen, you can call Chris Mullmann, Assistant General General Counsel and Client Assistance Officer Manager at extension # 392.