General Practice, Solo & Small Firm DivisionTechnology & Practice GuideAmerican Bar Association
General Practice, Solo, and Small Firm Division
The Compleat Lawyer, Fall 1996, Vol. 13, No. 4
Balancing Specialties and Cash Flow
BY ROBIN PAGE WEST
Robin Page West is a sole practitioner in Baltimore, Maryland. She handles complex civil matters, including products liability, medical negligence, sexual abuse, and insurance fraud. She is the editor-in-chief of Solo, the newsletter of the ABA General Practice, Solo and Small Firm Division's Sole Practitioners and Small Firms Committee.
Maintaining a stream of cash steady and strong enough to keep a law practice afloat is part of the job description for many general practitioners. Yet how many lawyers consciously analyze and act on what it takes to accomplish this task?
All too often, lawyers are besieged with work and preoccupied with getting it done in time, or are so busy trying to drum up new work that they aren't able to reflect on what type of clients they really need to attract in order to develop a steady cash flow. As a result, lawyers wind up working long hours and business isn't as profitable as it could be.
There are four main sources of income for attorneys in private practice: hourly billings, flat rate fees, contingent fees, and part-time salaried work. Each has its benefits and its drawbacks. For example, hourly billings can be difficult to collect, and it can be hard to find clients who are willing and able to pay by the hour. Flat rate fees on repetitive, mechanical work such as wills or defense of drunk driving cases can be lucrative, but these cases can also be boring and cause you to lose money if you don't work as efficiently as you planned.
Contingent fee cases can result in huge windfalls, but only if you win or settle the case, and only if you or your client has the money to pay the expenses of the litigation, such as expert witnesses, deposition transcript costs, etc. Take on a dog of a case by mistake, and it will be years before you recoup your losses. Part-time salaried or contractual work, for local corporations or the government, for example, is steady and sure, but usually not enough to pay the mortgage. In addition, such positions can create conflicts of interest and prevent you from representing certain clients in your private practice.
By focusing on your strengths as a lawyer and evaluating your financial needs, though, you can develop a practice that includes different kinds of cases and fee arrangements that will result in a steady cash flow.
"Bill Quickly and by the Hour"
Amy Steerman, a solo practitioner in Philadelphia, concentrates on estate planning, tax planning, estate administration, and orphans court litigation, which includes will contests and trust litigation. According to Steerman, who has been practicing for eight years, the secret to a positive cash flow is to bill quickly and make sure the clients feel they have gotten something for their money.
"Most of the work I do is on an hourly basis," says Steerman. "I bill for estate planning as soon as I have done the work. When a couple comes in today to sign their wills, I will send them a bill tomorrow and they will pay within a week. My clients pay promptly because they feel they have gotten value--they left with a whole set of documents."
Although some attorneys prepare wills for free in anticipation of fees resulting from estate administration, Steerman does not need to. Nor does she insist on advance retainers. Rather, the bulk of her time is spent on matters she bills by the hour, while the rest she reserves for an occasional, well-chosen contingent fee case--usually a will contest or a dispute over a trust--that has the prospect of a relatively large recovery. "I just don't want to do the record keeping that would be required with retainers. I'd rather bill it. The clients are pleasantly surprised I'm so cheap, and they send me a check right away," Steerman observes.
Evaluate Your Cash Flow Needs
Steerman evaluated her anticipated cash flow needs before venturing into solo practice by calculating her business and personal expenses, taxes, and retirement needs. Armed with the knowledge of how much money she needed to make, Steerman set about doing just that. "I'm doing very well, I think, for just being out [on my own for] a year," she says.
Steerman uses Timeslips software to track her work in progress and receivables, and has noticed that her clients don't pay as quickly during tax time. "This is a cash flow problem to be expected when you represent individuals," she observes dryly. Even though she is in the black, she says, "I don't think I would be able to make enough, though, if I did not take a few contingency cases." Steerman undertakes selected cases--those larger litigation matters in which she believes she has a greater than 50 percent chance of success--on a contingent fee or on a billing structure that has a "bonus component."
In a bonus component case, Steerman bills her time on an hourly basis, but because she does not require a retainer and does not collect until the case is over, if the recovery is over a certain amount, she will charge a percentage of the excess, usually 10 percent. Using this fee structure, Steerman hedges her bets because even if her client loses, she still receives her hourly rate. At the same time, the client benefits by being able to defer payment until the conclusion of the litigation.
Consider What Specialties to Practice
By limiting her litigation to orphans court, Steerman also avoids a cash flow bugaboo faced by many litigators--lengthy dockets. While most civil courts of general jurisdiction have delays of years before trial, orphans court litigation is quick. According to Steerman, "Will contests are taking about seven months from start to finish now. I'll get a hearing within 30 to 60 days. These things turn around very quickly--although there is the rare case that goes up on appeal."
Before going solo, Steerman practiced with a large Philadelphia firm and a boutique estate planning firm. Her solo practice was profitable almost immediately, thanks to billable work from a network of referral lawyers she had cultivated who sent her matters that were too small for them, or outside of their areas of expertise. "I love working for myself; I love contingent fee cases--they give me more variety and they can be lucrative," Steerman says.
Part Criminal, Part Civil, Dash of Estate Planning
Judith Stainbrook, a Maryland lawyer who maintains a general practice in rural Carroll County, echoes Steerman's admonition about billing quickly. In many cases, Stainbrook takes this advice one step further: she bills quickly and often. She finds that this billing style controls the number of calls from clients.
"In domestic [divorce and custody] cases, you have to bill the client religiously as you go, say two or three times a month," Stainbrook explains. "This way, the client can see immediately what the cost of calling you on the phone is. The client tends to use the lawyer as a psychologist/therapist. When they see how much it costs them to vent, they tend to call you less often to vent. Telling the client on the phone that this is expensive doesn't work. They don't believe you until they see it on paper."
Stainbrook spends 40 percent of her professional time on criminal cases, although they make up 60 percent of her caseload. She also handles civil litigation and does a small amount of estate work by using a part-time lawyer with special expertise in that area. "I try to avoid domestic cases, but to a certain extent, you have to do it in this community if you are going to have a general practice. I am one of only two women in this county who do domestic, and right now I am getting a really heavy load of these cases."
She is leery of not getting paid for her work on domestic cases. "Women clients in domestic cases generally simply do not have the money to pay the lawyer. Until you get the money for them [by litigating the case], they can't pay. You tend to go with the expectation that when the house is sold, you will get paid, but often there isn't money in the end. Several people here, who did exclusively domestic, have had to go out of business," Stainbrook observes.
"People Will Pay You Not to Go to Jail"
Contrast this with Stainbrook's experience in criminal cases. "Criminal cases are a lot more lucrative for us than civil cases. People will pay you not to go to jail. As long as you get the money in advance, before you go to court, they will pay you, or borrow to pay you. In civil cases, people make promises to pay but do not follow through because they are not sufficiently motivated," Stainbrook says.
Stainbrook has difficulty asking her clients in civil matters for payment in advance. "I get carried away, particularly with constitutional issues, which I think are extremely important--often I think these issues are more important than my client does--and I get swept away by the romance of the whole thing." Knowing this about herself has allowed Stainbrook to avoid financial problems by limiting the number of civil cases and contingency cases she will undertake.
"We don't take any more pure contingency cases, except personal injury, and even this may stop in the near future because personal injury cases are becoming so difficult to settle and litigate. For the non-injury civil cases, I charge an hourly rate with a ceiling, say $500 or $10,000, depending on the case. I will charge the client on an hourly basis [and the client is expected to pay the bill upon receipt]. I stop billing when we reach the ceiling, and then at the conclusion of the case, I will get my contingent-fee percentage and back out the amount already paid on the hourly billing.
The purpose of this is to give the client an investment in the case, according to Stainbrook. "When the client first comes into my office all upset, he wants to litigate. After a number of years, clients can lose interest, but by then I am embroiled in the case, and have my time invested, too. If the client has money invested, he views the case as his own, and is more cooperative. Also, the hourly billing acts as a filter for clients who are not serious enough."
In addition to finding it more lucrative, Stainbrook finds criminal work more enjoyable than civil cases. "I like litigation, and I do not like paperwork. In the typical civil case, you have years of paperwork; 99 percent of your time is pushing paper, and 1 percent of your time is spent in court. I would rather have it the other way around, which is certainly what you get in criminal law. You also have to think on your feet in court much faster in criminal law due to the relative lack of discovery, and I enjoy that. After years of being in court not understanding how you can think in the courtroom the same way you can think in your office, one day I found myself able to think that way in the courtroom. You eventually get to the point where you don't mind getting the hell beat out of you and then you find yourself with a certain psychic freedom," she explains.
Zero in on Your Clients
Knowing this about herself allowed Stainbrook to target criminal defendants as clients. How did she do it? "We get publicity from sensational cases we may take that we know we will not make money on but we think we will get a lot of publicity from if the results are favorable. Cultivating good press is something you have to work on. It took me five years of taking such cases before I started realizing that people knew my name wherever I went," she says.
Stainbrook also maintains four satellite offices, in addition to her main office in the county seat, in order to serve a county of approximately 150,000. Her "northern office" is ten miles away from the main office. "We get a lot of business from the northern office, because there is a mentality there that they want a local lawyer. They do not want to drive ten miles to go to the county seat. So we make one trip up there, hopefully to see five or six clients."
Although she may be willing to set up and travel to the northern office to attract clients, Stainbrook generally does not give free initial interviews. "I charge a modest amount--$45 no matter how long the consultation is--when I am allowed by law to do that. This fee certainly does screen out people who are not even serious enough to pay $45 to see if they have a case. If they want a free consultation, they should go to a firm that can afford to do it. Generally, that would be a firm that is spending millions of dollars on advertising," Stainbrook says.
Choose Your Path Wisely
Ed Poll, in his book The Business of Law, observes that "In today's economy, walking long enough to get to an undefined destination is a recipe for disaster. The path to nowhere in particular is the path to failure." Many lawyers can relate to that sentiment, but don't know how to start walking on the right path.
Steerman and Stainbrook found their way onto the road to riches through years of practice. For those ready to change the direction of their own practices for the better, Poll's book offers a wealth of shortcuts. Armed with his book, and an understanding like Amy Steerman's and Judith Stainbrook's of what practice areas make lawyering personally meaningful, the general practitioner can easily transform a hectic but marginally profitable practice into one that provides psychological comfort and financial security.
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