Remembering TCPaul, 2016-2019

Small Firm Partnership Arrangements

It looks like I'll soon be starting a new chapter in my life dingbat03/13/19
This is very complicated, and made more so by the presence o guyingorillasuit03/13/19
we're not jumping into anything blindly. We're working on a dingbat03/13/19
I would say this will be an ongoing discussion as circumstan whiteguyinchina03/13/19
Did something similar a few years back. If she brings in the waka03/13/19
I'm not sure I read you right, let me recap and see if I und dingbat03/13/19
This arrangement is unfair to you if you are being asked to guyingorillasuit03/13/19
Correct—business she brings in you get 30-35% but nothing waka03/13/19
What about business I bring in and service? dingbat03/13/19
30% as well plus surplus in the pot. You have to actively do waka03/13/19
so basically, I get 30% of the business I bring in, and 30% dingbat03/14/19
Yeah.....but you will get 30 percent of a bigger bigger pie. demwave03/14/19
I am having trouble seeing it your way, to be honest. Maybe guyingorillasuit03/14/19
Some of the surplus over 30% goes into the pot which will be demwave03/14/19
Let's say I currently take in $1000 per week, and I work 30 dingbat03/14/19
In the above scenario you would get 300 from her case and 30 waka03/15/19
Like I said before it depends what kind of cases she gives y demwave03/15/19
My overhead, proportional to the above, would be no more tha dingbat03/15/19
Just to be clear, I’m doing fine on my own. She has some dingbat03/15/19
If the disparity is not that great then this wouldn’t work waka03/15/19
So why do you need to merge? Just charge each other a referr demwave03/15/19
Why do any firms merge? Because we’ll be better off overa dingbat03/16/19
Why do any firms merge? Because we’ll be better off overa dingbat03/16/19

dingbat (Mar 13, 2019 - 4:14 pm)

It looks like I'll soon be starting a new chapter in my life - I might be joining forces with another attorney soon.

I'm looking for advice on how to split income and expenses:

1) how much should the originating partner get for bringing in business
2) how much should the working partner get for doing the work
3) what about associates/paralegals/etc.?
4) what about overhead?

By way of setup, the other attorney has a larger firm. She has two associates and two non-attorney staff. She is the only one bringing in business at her firm. She has her practice area, and each associate has his/her own practice area. (none of which overlap with my expertise)

I have my own practice, but if we join up I will (probably) ditch my staff and office.

We envision an eat-what-you-kill type situation where I come in as partner, where we both bring in business and also both work as attorneys. If she brings in a client for my practice area or I will do the work, and if I bring in clients for her practice area she will do the work. (or, if it's an associate's practice area, said associate will do the work).
In reality, for the time being she will be bringing in a lot more business than I will, but a lot of that work will be done by associates.

NOTE: as of now, none of the associates are partner material (they don't bring in business nor will they be expected to do so) - but that doesn't mean we aren't looking ahead to maybe bring in other future partners or associates who have the potential to be partners, so any suggestions there are also welcome.

I'd like to hear some ideas on how this should function harmoniously and equitably.

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guyingorillasuit (Mar 13, 2019 - 5:40 pm)

This is very complicated, and made more so by the presence of these autonomous associates with their own practice areas. I am assuming they are scarcely supervised because your future partner doesn't know their practice area well (at least, that's what I gathered from your post).

In the beginning, you can't raise claim to any of the associates' collectibles, because you are not bringing in their business. You can charge a 10% origination fee on business you bring in that you will not be personally servicing, and split parts of overhead with your future partner. Which parts of overhead will depend on the facts. You will definitely be splitting office space, but you shouldn't be be paying 50% - her associates do her work. If you need one of her staff, you can pitch in for his or her cubicle. You will have to negotiate a rate for your own office.

Unless you are in a small town or rural area, a small firm with this degree of diversification is not really workable. Why not start out by sharing office space and seeing how you work together, before you make a decision that is as serious as a marriage? That is just my opinion.

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dingbat (Mar 13, 2019 - 7:19 pm)

we're not jumping into anything blindly. We're working on a few projects together and see potential synergies.

the main thing is that she can generate noticeable business in areas she can't adequately service and that requires serious expertise that I have. If not for me, she'd have to turn the business away - she reached out to me because she realized she was in over her head.

I can easily continue on my own, doing my own thing, but I can generate business I have no interest in pursuing myself.

So basically, she'll be bringing me matters she can't handle, I'll keep doing my own thing, and from time to time bring in matters that I don't want to be involved with.
In a vacuum, it makes sense, and so far we get along well and we trust each other's work product and abilities. So if we can figure out how to craft rules that are equitable to each, we might give it a go. Or we might not. But that's certainly the way things are pointing.

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whiteguyinchina (Mar 13, 2019 - 5:45 pm)

I would say this will be an ongoing discussion as circumstances change.

can you define some sort of a boundary within which this operates and then if things go beyond that you have to sit down again and rethink the deal?

I would say the barometer of the success of this is how comfortable you guys are talking about money. because you will likely have to talk this over a few times before it works for everyone.

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waka (Mar 13, 2019 - 7:19 pm)

Did something similar a few years back. If she brings in the client and you service the client, you get 30-35%.
Business you bring in 30% to you 70% to a pot to be split.
Business you bring and associate services 70% in the pot.

After 2-3 years when you’re bringing in business equal to her then you both split everything 50/50. Typically you both take a monthly draw of say 5k each with the surplus (after expenses) split 50/50

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dingbat (Mar 13, 2019 - 7:23 pm)

I'm not sure I read you right, let me recap and see if I understand:

If she brings in the client and I service, I get 30-35%
if I bring in the business, but don't service I get 30%
Everything else goes into the pot and gets split after expenses?

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guyingorillasuit (Mar 13, 2019 - 7:54 pm)

This arrangement is unfair to you if you are being asked to contribute to overhead. She is entitled to an origination fee for business you service, but it is nowhere close to 70%. Why show up to work for 30% pay? This is not a typical arrangement around here.

She is definitely not going to accept "everything goes into the pot and we split 50/50" because of your power imbalance. And what expenses? She gets to pay her staff and associates what she wants without your say? You need an eat-what-you-kill arrangement with a fair origination value, and then re-examine it a few years down the road.

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waka (Mar 13, 2019 - 7:58 pm)

Correct—business she brings in you get 30-35% but nothing goes in the pot. For business you bring in you get 30% and balance in the pot. Excluded from being placed in the pot are revenue generated by the associates (that you didn’t bring in).
You get dibs on that once you make “full partner” once your rain making skills are on par with hers or you can start getting a piece of associate revenue on a sliding scale, say starting in 6 months the associate profit pot gets split 90/10, then 80/20, etc (5-10% per quarter) until it’s 50/50.

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dingbat (Mar 13, 2019 - 8:59 pm)

What about business I bring in and service?

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waka (Mar 13, 2019 - 9:28 pm)

30% as well plus surplus in the pot. You have to actively do your part to bring in business, though. So this means writing articles, attending networking events, etc. So unless it’s a vip client or an interesting case you can learn from business you bring in should be farmed to the associates.
Cases you work on that’s brought in by the partner should also be from her big clients—e.g. recurring business, referral sources, etc

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dingbat (Mar 14, 2019 - 4:28 pm)

so basically, I get 30% of the business I bring in, and 30% of the business I service (but no double-dipping)?

That's ridiculous. I ain't giving up 70% of what I take in - she isn't sending me that much.

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demwave (Mar 14, 2019 - 8:00 pm)

Yeah.....but you will get 30 percent of a bigger bigger pie. With potential for more down the road. Depending on your area of practice you may be able to double your take by increasing your work hours by just 20 percent no?

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guyingorillasuit (Mar 14, 2019 - 10:09 pm)

I am having trouble seeing it your way, to be honest. Maybe I need to be educated on the subject.

So I bring in Jones and service his case. My partner makes 70% for doing nothing, and I make 30%? Then, my partner brings in Smith and I have to service the case. I make 30% for doing all the work, while she gets 70% for just bringing the case in? And anything brought in by her associates is off limits even if I am asked to "consult" on the case?

Sounds like serfdom.

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demwave (Mar 14, 2019 - 10:41 pm)

Some of the surplus over 30% goes into the pot which will be shared as well so in total it is more than 30%. It is alm about access to more clients. Depends what kind of work this is. If this is no fault that doesn't require trials it may be accretive.

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dingbat (Mar 14, 2019 - 10:50 pm)

Let's say I currently take in $1000 per week, and I work 30 hours per week. Realistically, I expect it to be a lot less, but let's say she gives me another 30 hours per week - now I'm working 60 hours per week.
but, i'm taking in $300 from what I was bringing in before, and another $300 from what she sends me.

So I went from making $1000 per week working 30 hours, to making $600 per week working 60 hours.

Please explain how that makes sense?

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waka (Mar 15, 2019 - 6:55 am)

In the above scenario you would get 300 from her case and 300 from your case plus half (after expenses) of 700. So that’s approx 950. But, you’re not paying overhead and what she gives you will likely be more than 1000.
You would do this for 2 years until you’re both at 50/50.

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demwave (Mar 15, 2019 - 9:05 am)

Like I said before it depends what kind of cases she gives you. If they are the labor intensive contingency kind it doesnt work as well as some other types of work where the average pay for worked is much higher.

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dingbat (Mar 15, 2019 - 9:55 am)

My overhead, proportional to the above, would be no more than $100.

I’m sorry, I just don’t see how what you suggested could ever make sense for me

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dingbat (Mar 15, 2019 - 10:00 am)

Just to be clear, I’m doing fine on my own. She has some overflow, and we have completely different practice areas, so there would be synergies created.

As of today, I guess I could generate 10-20% more business than I do now, (but wouldn’t do the work), and she would “not screw up) business she really can’t handle and is currently farming out to me already

So far, it makes sense for us to join forces, we just need to figure out payment arrangements that are reasonably fair to each

Edit: while she would handle most management functions, I’d probably contribute noticeably there too

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waka (Mar 15, 2019 - 11:24 am)

If the disparity is not that great then this wouldn’t work. The arrangement above is for an established solo bringing in someone relatively new who can’t afford to buy in

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demwave (Mar 15, 2019 - 6:54 pm)

So why do you need to merge? Just charge each other a referral fee for work you originate but the other handles. Is it to share support staff and equipment? As a solo you are 5 departments all rolled into 1: marketing, legal, billing, networking and payroll.

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dingbat (Mar 16, 2019 - 4:46 am)

Why do any firms merge?
Because we’ll be better off overall

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dingbat (Mar 16, 2019 - 4:48 am)

Why do any firms merge?
Because we’ll be better off overall

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