Checklist: Representative Questions That Can Help You Spot Unprofitable Lateral Candidates
by Joel A. Rose
At the request of many subscribers, the following presents a series of representative questions which may be used to help you spot unprofitable or less than profitable lateral candidates:
1. What are the lateral's patterns of billings and collections?
- Historical trends over the last three to five years are especially important. For litigators without frequently sued institutional clients, a longer period may be more appropriate. For each year, the lateral should set forth the following:
- The total amount of fees billed and collected,
- The amount of fees billed and collected by area of practice,
- The amount of fees collected by type of billing arrangements, i.e., hourly billing, contingent, fixed fee, retainer, combination , etc.
- Billing rates, if rates vary based upon the type deal or case.
- Number of billable hours, fee producing hours (on contingency matters) and non-billable hours.
- Realization rates, i.e., the percentage of fees billed that were actually collected; the percentage of total billable hours recorded to those that were actually billed, etc.
- The average lag time in billing. The average amount of time from when time is recorded and bills are , i.e., aging of unbilled time.
- The average lag time in collecting bills. The average amount of time it takes to collect bills, i.e., aging of accounts receivable.
2. What are the Lateral Candidate’s Billing and Working Relationships With Their Clients?
- Lateral candidates should identify their current clients for which they are the originating partner, billing partner, responsible partner for performing the work and/or have some other significant responsibility.
- The extent to which the working relationship between the lateral candidate and their clients will be of a continuing nature.
- As to each client, for the past three years, the following questions should be asked:
- What types of work were performed for the lateral's key clients, i.e., continuing, a one-time deal?
- What were the annual fees billed?
- What was the realization rate?
- What were the write-ups, write-downs and write-offs of unbilled time? Accounts Receivables? Expenses advanced?
- How quickly after receipt of bills do the lateral's key clients pay their bills?
- To what extent should your firm require confirmation through personal financial records, i.e., check stubs.
3. To what extent might current billings or types of work increase?
- As the result of the lateral joining the firm, will the source of future referrals continue or dry up?
- To what extent might there be conflicts of client and/or business interests?
- How did the client come to seek the lateral hire?
- How will the lateral's "profitability" translate to the new firm?
- Will the cost of the lateral's practice at our firm be higher, about the same or lower than at his or her present firm?
4. Might a representative of the meet with key clients of the lateral candidate?
- With regard to institutional and other corporate clients, who is the decision maker responsible for engaging the lateral's services?
- What is the decision maker's position in the client company?
- How secure is the decision maker in his or her position within the company?
5. How profitable is the lateral candidate's practice?
- What does it cost to produce the lateral candidate's revenue?
- How labor intensive is the lateral's practice? Can the lateral's practice be more or better systemized using technology, associates, paralegal personnel, management practices or combination?
- How many partners, associates, paralegals and administrative support personnel are required to service the lateral candidate's clients?
- For each support lawyer, approximately what percentage of his or her time is spent on such matters?
- What are these lawyers' experience levels? Billing rates? Approximate compensation and areas of expertise?
- Which of the support personnel are absolutely essential to the smooth transition and continuation?
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