Is “non-refundable” retainer really non-refundable?*

We get this question here every now and then. The El Paso court of appeals in Texas has reiterated the rule that a fee is not earned simply because it is designated as non-refundable. Foley v. Daniel, 2009 WL 3301738 (Tex.App.-El Paso, ). A key lesson learned from Foley, is that lawyers should keep careful records of where the money in his or her IOLTA account goes.

I’ve attached the case for your reading pleasure.

*hattip Texas Lawyer

I’d like to advise you to take anything that comes through the door.  To be sure, I pretty much did that in an earlier post.  Let me back track on this piece of advice a bit.  First, it is fairly easy for me to give this sort of advice because it is basically what I do.  I will do just about anything a client asks me to do.  However, my clients are usually lawyers and they usually pay.

Would I take anything that came in the door if I was mostly working for lay people on their cases? Most definitely not.

So, my real advice is to take everything that comes through your door within reason. To do this you should create and maintain a business plan.  This isn’t a particularly complicated task.  To be honest, my business plan probably wouldn’t get me a loan at any reputable bank.  This is okay though, because having one keeps me grounded and focused on my goals and what I want to accomplish.

My initial business plan looked like this:

1. Firm Name: “The Tab Law Firm”

2. Initial Capital:10k in loans and “sweat equity.”

3. Potential Clients: Attorneys who need someone to help them out with their cases; litigators who need a decent motion drafter and researcher; people with easy divorces; people with easy contract matters; etc.

4. Rates: Attorneys = ??? ; Lay clients = ???

5. First Year Compensation Goal: To make more than 36k in income (after expenses, overhead, and taxes).

6. Broad Goals:

a. Deliver an exceptional work product;

b. Learn a as much as possible about the real practice of law;

c. Continue to be a decent and ethical person;

d. Keep early mornings to a minimum;

e. Don’t be late; and

f. Don’t take any criminal matters.

This morning the WSJ law blog caught this story from The American Lawyer – On Going Solo: A Cautionary Tale. The tale of Jaffe, Robert, and Schiller is one of cluelessness, errant business sense, and technological ineptitude.  In this post, I’m going to tell you why these guys failed.

“This winter, Scott Jaffe, Paul Roberts and Ross Schiller had an idea that could only have come out of the recession: a law firm staffed by laid-off lawyers. “

1.  It is not only difficult to build a partnership right out of the gates, it is inadvisable.  Here you have three “big swinging dicks,” who’ve just been canned by big law and they decide to form a partnership?  Yeh.  Don’t do this unless know that you can get along well with another person in a highly stressful and financially burdensome situation.  Partnerships are like marriage without the sex.  The divorces are just as horrible.

“The trio planned to open a boutique firm in midtown Manhattan that specialized in finance, commercial law and bankruptcies.”

2. At first, you should probably take anything that comes in the door.

“They bought computers, distributed marketing materials and signed up a few clients.”

3.  Keep overhead low and make sure your clients can pay.

“In a 450-square-foot rented space, each lawyer had a desk, and bookshelves divided the room. There was a small table with two extra chairs, in case a client came by.”

” Because the expenses were so low — the rent was only $1,500 a month — they also thought they could charge less.”

4. lower

“The lawyers contributed $2,000 apiece for the initial capital.”

5.  $6000 for three attorneys.  This isn’t enough capital for a single attorney.  The key is to have enough money to sustain your operation for at least six months to a year.  If you are single or the main breadwinner of your family, of course, you’ll also need enough start-up money to cover your household and living expenses.  Don’t expect any income for the first four to six months.

“ It also took a month longer than planned to get brochures.”

6.  Use a website, Google Ads, and Google Docs to advertise.  Don’t use brochures or the Yellow Pages.  This isn’t the 1980s folks.  Also, make friends with other established solos and small firm attorneys and get referrals.

““He’s always had secretaries doing his markups, and he’s never used a computer before.” Jaffe, 44, admitted that he was still getting used to typing his own letters. “Especially for a dinosaur like me who didn’t type e-mail until now, that is the hardest part,” he says.”

6. WTF?

The bottom line is that these fools had absolutely no idea how to start a business.  They naively believed that if they rented office space, potential clients would take a whiff as they were walking by, smell their big law stench, and amble into their clutches with outstretched arms and a fist full of benjamins.  I don’t care how brilliant you are, you will never stay in operation with this kind of attitude.

http://www.law.com/jsp/law/careercenter/lawArticleCareerCenter.jsp?id=1202433325835

Every “solo training manual” that you will read including, the classic “How to Start and Build a Law Practice,” will tell you that you have to have some savings or capital before you go out on your own.  This is true.  I had savings in the form of a $10,000 loan from my husband and capital in the form of a hard working and ultra supportive  husband.  Despite my vast start-up capital, however, I knew that I had to keep my overhead as low as possible.

A law practice is a small business. This is an important point to remember.  Like any small business, your law practice will have a number of fixed costs.  Before I resigned my job as a legal intern, where I was making the ginormous sum of $11/hr,  and went out on my own, I opened up a spreadsheet on Google docs and typed in my anticipated monthly expenses.  In August 2008, my spreadsheet looked something like this:

As you’ve probably noticed, I didn’t budget for an office.  At the time I didn’t anticipate renting an office.  I honestly thought that I would be able to work at home for the most part.  I figured that I could always rent an executive office for a day if I needed to meet a client.  I also supposed that I could meet a client at Starbucks.*

Then I spent a week or so working from home and I noticed the most curious thing.  My dogs, all four of them, like to bark and play and be generally annoying.  They like to do this all day long.  Also, and this is weird too, folks like to come to my door to hawk their wares during the day.  Nuts.

By  September, I came to the abrupt realization that I needed an office that was outside of my home and not in a coffee house.   I knew that I wouldn’t be able to afford an office that cost more than $600 a month.  I looked around.  I considered renting monthly from an executive office provider.  I also seriously considered office share agreements where I would work for another attorney in return for a free office.  Ultimately, I opted to rent a small office in a building owned by a small law firm and occupied by other sole practitioners.  I pay $400 a month in rent.

Last September, I was also hired by my first major client.  Because her case was quite document heavy and because my goal is to have a “paperless” office, I decided to buy a subscription to Basecamp.  Basecamp is web-based project management software that combines database tools with “to-do” lists and a time keeping option.  What makes Basecamp so valuable to me is that I can create separate databases for separate clients.  Moreover, a client is able to access the database from home.  So each client gets his own space where he can upload his documents, download documents that I’ve created, and send me messages.

My overhead as of December 2008 was $812.26 a month.  During this same period, I averaged from $2000.00 to $2500.00 a month in income.

A year later, my overhead has increased by about $600.  My income has also increased.  More on this in a later post.

* I also took the advice that some espouse and actually met a client at Starbucks.  Starbucks is a horrible place to meet a client. Even at 10:00 am, it is noisy and impersonal.  Luckily, my client was getting me for free and she knew I was just starting out, so she was very understanding.

A year ago, I decided to open my own law firm.  My endeavor has been more successful than I had anticipated.  Therefore, I’m starting this blog in order to help and assist other young attorneys who are forced or choose open their own practices.