Robservations…
An issue
on the minds of many partners is the high levels of remuneration expected by
Employed lawyers…and the impact of those expectations on profits, given the
levels of fees generated by the lawyers concerned.
I still
see many examples of firms working with formulas, such as remuneration levels
at 1:3 , 1:4 etc relative to fee production.
I recently
had another look at the excellent "Annual Australian Legal Practice
Performance Survey 2000", produced by FMRC Armidale,
and it is very instructive in this area.
To me the
key is lawyer productivity. Looking at the top 25% profit firms with turnover
under $25M, we see that the average fee generation of lawyers was…
Larger CBD
firms $266,000pa
Smaller
CBD firms $193,000pa
Suburban
firms $227500pa
Remember
that the mix of lawyers will affect these averages…with larger CBD firms
tending to have plenty of younger lawyers too.
It struck
me that many smaller CBD and Suburban firms coached by KMS have lawyrer production averages well above $350,000…a factor
having a big impact on partner returns, especially where partner numbers are
nice and low…well-leveraged firms.
In
discussions with many lawyers around the country it appears that firms have
difficulty getting a balance between enough productive hours, and achieving for
employed lawyers the lifestyle quality they require.
The bottom
line is simply that employees who want to make a lot of money have to produce a
lot of money for their employer…but lifestyle needed suffer much at all.
There is
an easy answer.
Have your
employed lawyers effectively work moderate weeks…around 45 hours, to
protect their lifestyles, and set up their WorkPlans™ so they are using their
Firm Time effectively at an average of no more than 2 hours per day (460 hours
per year).
This
leaves 7 hours per day on average to work on Client files, and there is room
for leverage in many cases, and for fixed fees, so the following equation is
conservative.
Normal 230
days @ 7 hours @ $240 = $386,400…at 90% Realisation of the Raw Work in Progress
created = $350,000.
I have not
subscribed to the use of formulas in remuneration for fifteen years, preferring
to see above market remuneration as the goal for every valued employee.
However,
if a firm was short-sighted enough to work on formulas, even a drastic one
third of $350,000…say $120,000, would leave the firm plenty for operating
expenses and profit.
A quick
assessment of the better performing KMS firms in the 2000 year shows this
approach being taken, with more highly remunerated lawyers on average than
their peers, and excellent leverage at lawyer and para-legal
leverage…more people producing fees per partner.
It of
course places a premium on arranging enough profitable work to keep the senior
people busy all year, but sensible marketing programs will do that, and at any
event no-one said that exceptional super-profits just fall in your lap!
Interestingly
the average chargeable hours worked per year by employed lawyers in the larger
CBD firms was only 1419 or just over 6 per day…so maybe they are not the
"sweatshops" many imagine them to be.
Given that
there should be some leverage buried in the figures, the averages are really
quite low however…with many KMS-coached firms achieving averages over 1600 "apparent"
hours….including leverage.
GST Tips…
We've had GST over a year now…it should
have settled down but…
Tip #1 GST
has introduced a need for some different thinking in how you deal with
financial aspects of your practice.
If you are
on an accruals basis for GST one issue worth addressing is whether you
are taking full advantage of GST credits on all Invoices received by your firm,
service entity etc, irrespective of whether you have paid them.
If you're
stuck with paying GST on your Debtors when you haven't been paid…at least make
sure you're getting all available credits on the other side of the ledger.
Many firms
still appear to have large dollars in Anticipated Disbursements not posted to
their Accounts…are there GST credits there going begging?
Have a
chat to your Accountant about treatment of Anticipated
disbursements from the point of view of both GST and Income tax.
Tip #2 Consider
carefully the benefits of isolating the GST component of your next financing
deal, and paying it to your financier as a lump sum…then claiming it all back
in your next Business Activity Statement…rather than borrowing the whole lot,
paying interest on it, and only claiming it back each quarter during the life
of the loan.
Thanks to
a KMS client firm for this tip…they got a mainstream bank to organise this
without fuss…please no calls and e-mails asking, "Which Bank?". Again, if in doubt how this works, bother your
Accountant. He /she of course has so little to do at
present!
Practical Tips on Accountants and your
firms Accounts…
Tip #1 This one follows on from the two GST tips in this issue… Many
Accountants now have excellent websites packed with useful information. You can
cut down your Accounting bill substantially by using what they provide there to
keep you out of their hair. An example worth a quick look is www.wearne.com.au.
Tip #2 If you feel your Accounting fees are running out of control
ask your Accountants to tender for your
accounting work. They'll often even help you prepare a tender specification, so
you and they know everything is in there!
Whether
you actually get other tenders or not, you should be pleasantly surprised with
the fees quoted. As usual, never take the lowest quote per se…there are plenty
of factors to consider including any one-off work needed in a change-over!
Once
you've got the quote, ask what sort of discount will be provided for you
setting up a monthly transfer of one twelfth of the fees to their Bank Account…again
you should be pleasantly surprised!
You have
to pay sooner or later, why not seek to make it cheaper and fairly painless.
The trouble of changing the status quo also usually means that you'll get the
benefit of the original quoted amount for longer than normal too!
Tip #3 Do
you really understand your firm's Accounts? Your Editor is not embarrassed to
'fess up' to struggling to understand the Accounts of all three legal practices
he was a partner in!
Accounts
follow conventions and Accounting rules most of us have either never been
taught or very quickly forgot.
Lawyers
often have a feeling that they should understand, and that asking
questions they really would like answers to may expose their ignorance. My tip
is just ask and keep asking until you do understand.
Then apply
your mind to whether you should start having an influence on changing anything!
If you
don't already get a simple Sources and
Application of Funds Statement prepared for you in your practice each month
I suggest that you should.
In our
experience it helps enormously in fully understanding where the cash has come
from and gone to, and the critical differences between profit and cash, Capital
Expenditure and Deductible Expenses, and most importantly…Profit and Drawings!
We've seen
crises of confidence in highly profitable firms when the available cash was,
for good reasons, not anything like the trading profit. This document soon
improved partner awareness and, frankly, morale in the partner base!
We are
happy to e-mail you an example kmsrob@bigpond.com
Technology Tips…
Tip #1 There are still e-mail and Internet "virgins" out
there, and some "relative virgins" too… if that's not too much of a
contradiction!
At page 10
of the Sydney Yellow Pages there is a good little basic explanation called,
"Online"…including some good websites for beginners like www.kisser.net.au/learn/…
Tip #2 What passwords etc. are required for your computer
system? We recently encountered a
situation in which a disgruntled and fraudulent employee “trashed” numerous
files in the firm’s computerised accounting and practice management system,
including wages records.
It is
important when staff are dismissed in circumstances where there is bad feeling
that they leave the office immediately...if
not sooner!
This can
assist in minimising the opportunity for them to “bad mouth” the firm with
remaining team members, but also reduces the opportunity for mischief within
the firm’s critical computer information system.
What has
taken years to build up can take seconds to wipe out.
If you
have proper backup systems they should be under the control of totally
different individuals so that there is a recent backup available for the
replacement, or trusted ongoing, team members to use to restore the firm’s
information.
Further,
you need an excellent system for maintenance of your passwords. What areas of the computer system in your
office are passwords required for? How
often are they changed? Who has the
ability to change them, and is any outside access available to your system via
the Internet or even via simple modem connection to your home or an employee's
home?
It is
quite normal these days for many currently highly valued employees to have
access to the firm’s computer system from home to carry out appropriate work
from home.
You need
to be in a situation where you can swiftly and effectively remove these
people’s access to the system, and also their ability to issue themselves
with a new password at some time in the future, and then gain access to your system,
including perhaps areas of the system they would never have had access to
previously.
Tip #3 Are
you getting all your e-mails? Are all e-mails you're sending getting to the
addressee? It's not a given that an e-mail sent gets to the person to whom it
was addressed, for a variety of reasons…so if it's really important make sure
you do some reasonable follow up.
Recently a
mysterious problem plagued your Editor and one partner in a KMS client firm. E-mails
sent to his correct e-mail address were never getting through, although copies
were arriving properly on the computers of his secretary and partners.
The answer
was simple, but took a long time to locate. In experimenting with the features
of his e-mail program our intrepid techno-buff had set up a special folder for
KMS…then promptly forgotten it.
Little did
he know that it had been set up so that all future messages would be
posted there without his intervention, and without any
apparent advice to him.
Eventually
the offending folder was located and opened, and lo and behold, there were all
the "missing", unanswered messages from your Editor.
Could you
have any of these folders lurking on team members computers in your practice?
Tip #4 Computers
are getting easier and easier to learn…and necessary for most people in
business, even when you determinedly ensure that you don't fall into the trap
of hiring IT staff and doing most of the barking yourself.
Keep your
software updated, actually read the notes about new features, and try them out.
Help menus really are a great help!
These days
Help programs actually show you exactly where on your screen you need to go to
perform the next step, and prompt you all the way.
Hire staff
who can use the software to train themselves…expensive training is often a
waste of time, especially if people are not going to be using software regularly…a
heavy dose of intuition is more useful and less expensive.
Generally programs
are very intuitive. Recently your Editor had to get a document to
Opening it
up, reading a quick on-screen introduction and turning on the inbuilt Assistant
all lead to a pretty trouble free successful saving of the document using the
new software and the document was loaded onto the WebSite in .pdf format that
afternoon.
Quicktip…e-mailing
the document to yourself first is a simple, non-techno way of checking you've
got it pretty right before sending it to the intended recipient!
Tip #5 The new "Dark Ages"…How many old office
procedures, pre-computer, continue to be slavishly followed in your firm?
An example…The
number of firms still keeping manual file books is astonishing. All necessary
input goes into the computer, usually much later, but file numbers are issued
consecutively from the book and manual details written in. To see how many
files are opened in a period a quick subtraction is done!
We've also
seen lawyers and staff waiting three days for a file number…with all the
consequent problems!
Obviously
the better firms open files live, capturing the available information, once
only, straight into the system following basic prompts. The file number is
available immediately, computer generated, as are screen or hard copy reports
of files numbers in any selected period, matter types, new business sources,
referrer details etc etc.
If you
have concerns about input quality there are still immediate methods of
allocating file numbers without even accessing the computer or interrupting
Accounts staff. If this is an issue for you we'd be happy to elaborate via
e-mail.
Firms with
computerised archiving systems backed up by a manual card
index still abound.
The new
Dark Ages may be as recently as a few short years ago!!
ProfitPower™ Web Tips…
Tip #1 Not
all cookies are bad for you! The tip about web "cookies" in our May 2000
issue generated a lot of enquiry. At the risk of boring those in the know,
here's a quick run down.
A
"cookie" is a piece of information set by a web server in your
computer when you visit a website.
The next
time you connect to that website (maybe even to that server or even to
other sites?) the server can interact with the cookie lodged in your computer
to collect information about what you are doing on the site and where you are
going to from there! There are obviously some real privacy concerns here.
Businesses
out there can build up a profile of how you use the Web, where you go, what you
look at…and use that to market to you, sell the data to others, and who knows
what else!
To get an
idea of the scope of the problem, before your next Internet session, go into
the Preferences area of your Browser, and set the preferences so you are asked
every time a server tries to set a cookie, whether you wish to accept it. In
some sessions it will feel as if you're doing nothing but address those
questions, and effecting no actual research
whatsoever!
You'll see
that you can delete all the cookies previously set in your computer, but they
will build up again fast as you visit websites...unless you block them all which
has ramifications.
Not all
cookies are bad for you! They may actually help make the site easier to use and
more relevant to you… based on your past history of use. In some sites if you
don't agree to cookies being set you may be restricted by the site as to what
parts of the site you can visit, limiting its value to you potentially.
Telstra's
online newsletter recently contained an article about an upgrade to the Internet
Explorer Web Browser which is helpful…
It
explains that the upgrade now allows you to distinguish between cookies set by
the server itself to enable you personalisation options and user registration,
and cookies set by third party advertisers on the sites which allow the advertisers
to track your movement around the Web.
You can
set your Browser so you are advised of third party cookies (and better
information about who has set them) and can choose to block them, while
receiving the "good" ones (less evil perhaps?).Hopefully this will
allow you full access to the features of the sites you are visiting, while
offering some extra measure of protection of your privacy.