Volume 5, No. 3 – January/Janvier 2008  Printer-friendly Upcoming Program(s) Publications Multimedia Products Section Executive Listserv National Pro Bono Mentorship Program  OBA at a Glance  Editor: Ginevra Saylor OBA News Editor: Vickie Rose   Can You Pass the Listening Test? By Paul Kuttner Find out whether your ears pass the listening test. Law Firm Accounting Part VII By David Debenham In part 7 of our Law Firm Accounting series, learn how your accounting system can support good strategy decisions. Inject New Life into Ho-Hum Practice Descriptions By Paul Kuttner Do your website practice descriptions attract or distract prospective clients? What Young Lawyers' Division Membership Can Do for You By Susannah Roth Interested in trying another Section?  The Young Lawyers' Division may be for you.   Law Practice Management is published by the Law Practice Management Section of the Ontario Bar Association. Members are encouraged to submit articles or suggest story ideas. The articles that appear in this publication represent the opinions of the authors. They do not represent or embody any official position of, or statement by, the OBA except where this may be specifically indicated; nor do they attempt to set forth definitive practice standards or to provide legal advice. Precedents and other material contained herein are intended to be used thoughtfully, as nothing in the work relieves readers of their responsibility to consider it in the light of their own professional skill and judgment.

Can You Pass the Listening Test? Paul Kuttner* How good a listener are you? Right now you might be thinking, “Right, I am a lawyer; of course I am a good listener.” But, are you really? To find out, take the following self-test by rating yourself on a scale of 1 [low] to 5 [high] for each of the following: I always give every person I talk with equal or more time to talk. A person’s gender and age make no difference to how I listen. I listen even when I do not particularly like the person talking. I put aside what I am doing while someone is talking. I always give every person I talk with equal or more time to talk than I take. I always look directly at the person who is talking and give that person my full attention no matter what is on my mind. I encourage others to talk by giving them feedback and asking questions. I ask for clarification of words and ideas I do not understand. I never interrupt a person who is talking. I withhold all judgments and opinions about what the person is saying until I have heard everything. I listen past the words to the feelings and meanings the person is expressing and test to see if I understand correctly. I respect every person’s right to his or her opinions, even if I disagree with them. I view every dispute or conflict as an opportunity to understand the person better. I remember the colour of the speaker’s eyes. Scoring: 50+ You are all ears. 40 - 49 You are a pretty good listener, but need to pay more attention in a few areas. 30 - 39 You are missing a lot because you may think you know it all. 29 - 0 Uh-oh! * Paul Kuttner is a principal of innovate! Marketing, www.innovatemarketing.ca. Back to top >>

Law Firm Accounting Part VII Make Sure Your Accounting System Supports Smart Strategy David Debenham* In past lessons, we have learned that law firms sometimes try to increase their profitability by moving away from routine legal work, like residential real estate and collections, into more challenging areas with less fierce price competition. We have also noted that a firm’s accounting system must capture all costs associated with the new market to be certain that the new work is properly priced to cover true costs. In lesson seven, we explore this concept more fully. The first step requires considering what costs to allocate to the new business sector. When competing for new business, one may be tempted to use “variable cost” pricing. What exactly does this mean? Well, over a time period, certain costs are “fixed,” meaning they do not vary. Other costs are “variable,” meaning they vary directly with production or output. Finally, still other costs are “semi-variable” or stepped, in that that they are fixed to a certain level of output and jump to another level where they then remain fixed for that new level of output. Consider rent, for instance. A firm may rent one floor in a building with the rent fixed for 10 years. Rent remains a fixed cost unless production increases to the point where more space must be rented. At this point, rent becomes semi-variable. The same can be said for salaried employees, whose cost is more or less fixed until people must be hired or fired, at which point the cost becomes semi-variable. Equipment generally is fixed or semi-variable, while supplies like pencils and paper and casual-wage employees are variable. Since law firm revenue is predominantly variable, firms may try to move fixed costs to variable costs or use assets to the maximum, either of which fixes costs, to maximize profitability. So, how can the accounting system lead to bad management decisions? Suppose all fixed costs, like rent and salary, are allocated as follows: All fixed costs except an assistant’s salary are overhead, with overhead allocated as $100,000/lawyer or $50/billable hour. Two associates share an assistant, where the associates’ assistant costs less than a partner’s and the cost is split equally between the associates so the cost/associate is $12,500 or $6.25/billable hour and the cost/partner is $40,000 or $20/billable hour. Suppose the partners, billing at higher rates than associates, have an average effective rate of $300/hour compared to the associates’ average rate of $150/hour. A transaction might break down as follows for accounting purposes: Revenue Billed and Collected Expenses 1 partner 15 hrs at 350/hr= 4,500 2 associates 200 hrs at 350/hr=30,000 Revenue $34,500 Overhead costs $10,750 Associated costs $ 1,550 Profit $22,200 Consider, however, that complex matters tend to use more than the average amount of space, equipment, and time generally associated with more run-of-the-mill matters. Consequently, the average fixed costs underestimates the true costs of novel engagements. What is more, since novel engagements are treated as though they consume only existing resources, a firm may be tempted to price them according to only their additional variable costs, rather than their actual fair share of overhead. Miscalculating overhead and other fixed costs can lead to underestimating profits on simple files that consume below average fixed costs and overestimating profits for more complicated, resource-intensive tasks. Because revenues generally do not mirror expenses as files become more complex, lawyers need to tweak their management accounting systems to ensure they make wise strategic decisions. All too often, here is what happens. A firm’s “finders” – being the marketing partners – bring in big clients with large, complicated niche matters. Very soon, the complicated new work monopolizes staff and displaces other work for smaller clients, whose matters slip in priority to make way for the exciting new files that demand premium service. The premium service devoted to the new work is under-priced given the amount of overhead it eats up, particularly when additional work is thrown in either as a “freebie” or at a deep discount to attract more complex business with the new client. Consequently, lower volume business increasingly displaces the firm’s more profitable, higher volume, but less “sexy” files. As these bread-and-butter files are put on the back burner, revenues increase without profits rising proportionally. Concluding that the routine work is the least profitable, management decides to shift to the more revenue-intensive complex work to shore up profits, which can then spiral into disaster. This process of forcing profitable, but less exciting work out of the firm leaves the remaining work to carry the same fixed costs. The next level practices that now must carry additional fixed costs as the average overhead costs rise, suddenly appear to be marginally profitable and find themselves next in line to be shunted aside; these practices may leave and set themselves up as boutiques operating from offices with far lower overhead costs. At the same time, the original firm continues struggling with the paradox of growing revenues and sagging profits per partner. Lesson Seven: Adjust your accounting system to accurately reflect the true cost of work in new markets. * David Debenham is Counsel with the Ottawa office of Lang Michener LLP. He can be contacted at (613) 232-7171, extension 103. Back to top >>

Inject New Life into Ho-Hum Practice Descriptions Paul Kuttner* Describing your law practice may be as easy as swimming across the Amazon River. Once you learn to swim fast and dodge small fish with incredibly sharp teeth, you may feel like you are home free. That is, until one of those small fish with incredibly sharp teeth catches hold of you as you swim past. The same holds true for writing a law practice description – you need to remain constantly vigilant of the small fish circling your draft just waiting to bite the “punch” out of your prose. The following tips will help you keep your practice descriptions crisp, credible and compelling: Maintain a High What’s–in-it-for-Me? Quotient Far too many law firms squander prime opportunities to connect with prospective clients by posting bland practice descriptions on their websites. Often, these descriptions are hard to read, generic, and weighed down by an abundance of useless information that makes one firm indistinguishable from the next. In short, these firm-centred practice descriptions register a perfect zero on clients’ What’s–in-it-for-Me quotient. Somewhere along the line, someone forgot that website visitors look for solutions to their own real problems. Readers sitting in front of a monitor scan. They have no patience for drawn out narrative. They want the facts. They want relevance. They want you to respect their time. So, how do you deliver? Get Into the Buyer’s Head Your challenge is to answer the reader’s three big questions: So what? Who cares? What’s in it for me? Before you start writing, review the marketing basics you have mastered and apply them to the task at hand. The fundamentals are: Know your audience’s needs, wants, expectations, pet-peeves, and business home-runs and mine-fields. Write a show piece, not a slow piece. Be clear and avoid legalese. Distil a few key messages about your practice. Break the text up with a layout that makes reading and recognizing the key messages easy. Include facts about your experience and the matters you have handled to give readers a good reason to believe your message. Present concise, fact-rich biographies of the lawyers involved in your practice. Talk directly to readers as though they are seated before you. Make Every Word Count Make sure that every word in your practice description adds depth. Delete all generalities and superfluous language and avoid wordy sentences. Focus on something unique and interesting that makes your practice stand apart from similar practices in other firms. Because you are advertising your capabilities to potential buyers, your prose has to pass the glazed-over-eyes test. Never mire readers in stodgy 40-word sentences with seven commas. Do not list every imaginable permutation of your skills to attract all possible business. Remember, no client is generic; clients bring their own problems and opportunities. Use headlines to pull prospects into the text. Reorganize your list of services offered in priority of profitability and interest. Next, rank the points within each service by likely importance to prospective clients. Use a Checklist The following checklist may help you focus on what the description needs to accomplish: Service What do we sell? What is the essence of the problems we solve and the opportunities we unlock? Audience Who buys what we sell? Who decides? Who influences the decision? Emotional drivers What does that audience really care about? What keeps the audience awake at night? Stand Out To stand out as special, you cannot sound hackneyed. Resorting to the following tired phrases when describing your practice will do nothing but annoy your readers: client-centred committed to clients dedicated to helping clients full range of services extensive experience active practice cost-effective service responsive regular basis variety of tribunals dedicated to achieving favourable results Instead of resting on these empty phrases, define the main selling proposition by answering three questions: Why should the reader hire our firm instead of any other firm? Why should the reader retain our particular practice group instead of our competitors’ similar practice groups? What do we offer that no one else offers and exactly how do we do it? Think about how an objective, knowledgeable outsider – removed from your firm – might answer these questions. The answer should be something more compelling than “reduced hourly rates.” After you draft answers to these questions, make sure the words, sentences, paragraphs, headings, and style all help convey your key messages. Break Free Describing your practice well requires the courage to swim past those nasty sharp-teethed fish. You will need to bring your partners into the exercise. And remember – sometimes a little outside help can tip the scales in your favour. * Paul Kuttner is a principal of innovate! Marketing, www.innovatemarketing.ca. Back to top >>

What Young Lawyers’ Division Membership Can Do for You Susannah Roth* If you are an OBA member interested in Section membership, consider joining the Young Lawyers’ Division (YLD). Available for lawyers 40 years old or younger or with 10 or fewer years of call, YLD membership offers much. The YLD’s programs are designed specifically for young lawyers and their newsletter articles feature topics of interest to young lawyers. If you wish to expand your role in the OBA by serving on a committee, you may have discovered that many Section committees already are full. However, the YLD Executive always needs more volunteers to join its exceptional group of dedicated young lawyers. Even mid-term additions are welcome. For more information on YLD membership or to join the YLD Executive, visit the YLD page on the OBA website or contact any member of the YLD Executive. The YLD would love to hear from you. * Susannah Roth, Chair and member of the YLD Executive Committee, is an associate at O’Donohue & O’Donohue. She can be reached at (416) 361-3231.   Back to top >>