Monday, August 08, 2005

Take A Load Off

Today's blog is gonna be short. My teething six-month-old son (my wife and I suspect he's teething) and I haven't slept since Friday and I am just about to run short of steam. He seems to be doing just fine though.

At any rate, today's topic is: "What is the best type of business form for my firm?"

Small/solo practitioners are not as limited as you might think when it comes to creative business formation solutions. Some stick to classic sole proprietorship, while others go the partnership route. Still others go a little more exotic and try the PLLC or P.A. architecture.

Whatever the reasons for choosing a type of business structure, your choice should always be guided by the core principle of: "What will enable me to make the most amount of money?" Accordingly, this core principle can be broken down into two subgroups:

  • How do I limit my own liability?
  • How do I (legally) avoid the tax man?

Believe it or not, these two goals do not always work hand in hand. For starters, we must assume as axiomatic that the tax man is always going to get some slice of your pie. Therefore the goal is to limit the size of that slice. Further complicating things are the rules of professional ethics which limit the ability of attorneys to engage in more exotic business schemes that would potentially interfere with servicing clients.

A PLLC offers small/solo practitioners the nifty tax treatment (no double taxation) of a partnership while shielding its members from liability like a corporation does. However, a PLLC does not allow its members to be employed by the firm and requires them to take distributions subject to heavy-handed "self-employment" taxes which, in some jurisdictions, can be as high as 55%!

A P.A. with a sub-chapter "S" election may be a better alternative for some: It has limited liability and can employ its own shareholders while avoiding the dreaded corporate double-tax. However, salaried employees are still subjected to the same payroll withholding as before.

Sound confusing? It is - even for attorneys. The key then is to carefully analyze how and when you want to take distributions/salary and consult an experienced CPA/tax professional when making a decision. Doing so will make sure that you enjoy the most of your labors and avoid the pitfalls of taxation and liability.

Friday, August 05, 2005

The Stigma of Solo

Small/Solo practitioners are often regarded as the red-headed step-children of the medium/big firm legal establishment. Large, international firms work diligently to promote the image that firms, where the only attorney is the one on the letterhead are incapable of handling complex litigation and making a substantial impression in court.

Is the image unwarranted, or are small/solo practitioners also to blame for the "solo stigma"?

In 2004, the ABA Journal featured an article in which several successful solo practitioners related their experiences in dealing with medium/large firm colleagues and their own clients. Initially, they all shared the same stigma of being attorneys not competent enough to be employed by larger firms. However, they each overcame the stigma in the end through a combination of competent professionalism and effective marketing, in essence reassuring clients that they chose to pursue a solo career path rather than being reconciled to it.

In my opinion, the "solo stigma" can be both a handicap and a tool: Let's face it - there are a lot of small/solo attorneys out there who are practicing by themselves for reasons such as professional incompetence; or inability to play nicely with others. But for those who pursue a small/solo route because they would rather enjoy the fruits of their talents themselves, could the relative ineptitude of their less-competent colleagues provide an effective marketing device? In essence, can small/solo practitioners through marketing (read: branding); use of technology and past professional sophistication capitalize on the relative shortcomings of their other small/solo colleagues to their own benefit?

Have you suffered from "solo stigma"? If so, how did/do you remedy it?

Do you address "solo stigma" in your marketing plan? How?

Wednesday, August 03, 2005

Grandma - Is That You?

On a recent airplane flight, I was seated with a colleague who had maintained a successful small/solo legal practice on Long Island for quite some time. During the flight, I inquired with him as to how he remedied a key problem facing many small firms: delinquent clients.

His answer: "Get yourself a bluehair".

For a moment, I thought he was suggesting a cocktail from the open bar. But then I realized he meant hiring an elderly woman to do collections calls and keep the books.

"Why a bluehair? Why not a college student or construction worker?", I asked. "Look, you need someone who will work for pennies and not take any prisoners", he said. "An old lady reminds clients of their mothers and they inherently give them deference and respect. Plus, these old ladies tend to be tenacious, thorough and not afraid to call a spade a spade. Most college students are pretty dumb, unfocused and afraid to get aggressive. Furthermore, YOU can't make these calls. No attorney should ever call a client that is behind on his bills. Like I said, get yourself a bluehair."

How does your firm address delinquent clients?

Do you use a "bluehair"?

How long should you wait before harranguing a delinquent client?

The Weather Is Here, I Wish You Were Beautiful

Sincere apologies go out to all the loyal TFM fans who have checked this blog for the last week only to be presented with no new content. Your loyal blogger was called out to London last week on business and only returned yesterday evening. However, I promise new content will be up ASAP.