Thirty years ago, I organized a program for my local young lawyers group and invited a prominent attorney who was a pioneer in legal marketing and advertising to speak. The first question from the audience was, “What advice do you have for a solo or small firm lawyer?” I was hoping he would respond with wisdom about advertising, getting new clients, landing big cases and increasing revenue, but his response was, “Make sure you pay your payroll taxes on time.”
What a letdown! Why would he advise us on something as mundane and uninteresting as paying taxes on time? We were hoping for something much more satisfying.
Last month, however, I picked up the state bar magazine and turned, as I always do, to the lawyer discipline pages—only to find that a local attorney had been suspended for, of all things, failing to pay her payroll taxes on time. Her case was a bit more complicated because she compounded her problems by giving employees their payroll statements indicating that the taxes had been paid. But when I read of her discipline, my mind flashed back to the warning that attorney had given us all those years ago.
I don’t know the lawyer who got in trouble, but in the end it didn’t matter how good she was at marketing, how willing she was to speak at CLE programs, how many trials she won or how good she was at cross-examining opposing witnesses. Her undoing was the result of what can only be called poor management skills made worse by what appears to be a panicky attempt to avoid dealing with the truth.
As any state or local bar practice management advisor can attest, she is not the only solo/small firm lawyer to crash and burn because of bad management. The discipline pages regularly attest to that fact. When large firms get mentioned, it is often because a partner has “gone rogue” or represented both sides of a transaction. Occasionally, BigLaw gets called out for more serious problems, but when solo/small firm lawyers get in trouble, poor management is usually the cause, including lack of oversight of financial issues, hiring the wrong people and failing to adequately supervise them once they are hired, failing to give proper attention to a case or, in an extreme situation, dipping into the trust account to pay the rent.
For years I have had an ongoing debate with BigLaw colleagues and the consultants who advise them on how much, if anything, firms with hundreds or thousands of lawyers have in common with solos and small firms. My colleagues regularly take the position that practicing law is practicing law, no matter how big the firm or how many partners, associates and support staff work there. My view has always been that I have more in common with the fellow who runs a dry cleaning operation across the street from my office.
Both the dry cleaner and I are completely responsible for the expenses that come due month in and month out: rent, utilities, loan payments, supplies, advertising, payroll and, of course, payroll taxes. When one of his two assistants called in sick, he would have to work the front counter, and then complain he could not get any of his “real” work done. I have faced the same situation when one of my two assistants called in sick on a day that I was scheduled for a deposition in the morning and an arbitration hearing in the afternoon. On days such as those, any phone calls went directly to voicemail, and I would spend the next day returning calls, often trying to mollify irate people on the other end of the line.
At a larger firm, I would have simply called the office manager or the human resources manager and asked for a temporary employee to fill in. In my office, I’m both the office manager and the head of HR. I’m also in charge of tech support and making coffee. And speaking of making coffee, I once ran into two attorneys who had left a large firm to go out on their own. By the time I congratulated them on setting up their own shop, they had reversed course and joined another large firm. When I asked them why, they told me—only half-jokingly—they were tired of making coffee.
Returning to financial management, I think the reason that solo/small firm lawyers have such a difficult time giving proper attention to financial matters is that for most lawyers, they are a lower priority than attending court hearings, responding to interrogatories, writing trial memos, meeting new clients and handling case-related crises. Those things cannot and will not wait. But creating a budget and balancing the books can always be done tomorrow, time permitting. In a small office, cash flow is everything, and the cash flow sometimes does not allow the hiring of a bookkeeper. The result is that the bookkeeping and other management tasks get done by the lawyer on a time-permitting basis—and time usually is not permitting.
Most of the solo/small firm lawyers I know who have gotten into trouble with the bar for management and financial problems were good, if not great, trial lawyers. In the end, however, their ability to bring an expert witness to tears under scathing cross-examination did not impress the auditors from the bar who came in to audit the trust account.
Managing a small law firm is decidedly different from running a large one. Solo or small firm lawyers often lack the time, money, personnel and other resources to do a good job of managing. In large firms, they have the resources to hire the right person for the job. Even when the money is tight, however, small firm and solo lawyers really should obtain the services of a part-time bookkeeper and a good payroll service to pay employees on time—and, of course, taxes too.
On the positive side, I think my dry cleaner friend would agree that there are many advantages to owning and managing a small enterprise. I often hear from large firm colleagues about how difficult it is to innovate and change direction in a large firm, or even a midsized one. Large firms often have problems with powerful partners who are resistant to change, with practice group leaders who threaten to leave and take their team with them if they don’t get their way, and with management committees who refuse to listen to good advice from consultants and nonlawyer managers.
In this rapidly changing world, law firms must adapt to keep pace. We have all read about large firms that failed because they were unable to adapt to the new marketplace. Solo and small firm lawyers—and dry cleaners—don’t need to persuade too many people (other than their spouses, perhaps) before doing such things as opening a new office, hiring or firing an employee, building a new website, moving into a new practice area, or launching a new advertising or marketing campaign.
That kind of freedom, for me, makes the solo or small firm life so much more enjoyable, even with all its attendant responsibilities. It seems apparent that the lawyers at Morningstar and Valorem, profiled earlier in this issue, would echo my remarks, along with the many other lawyers who have taken this path.