Many of my former students who have struck out on their own look for a physical office environment that doesn’t bust their budget, yet offers a professional environment for their client meetings and a receptionist. Some of them decide on an office share arrangement. Some of them opt for a virtual office. Some of them opt to rent an office by the hour. Whatever you choose, make sure that you do your homework and retain some flexibility without tying you down too much when you get started.
Recently, an add offering an “of counsel” position in a metro area. It was centrally located quality office space with conference rooms for client meetings, secretarial support, client billing, some referrals, and listing on letterhead as “of counsel” for that firm. You were responsible for your own malpractice insurance and bar dues. In turn, they were requiring 30% of gross billings with no top limit.
I forwarded that information to my students/graduates asking them to consider the following;
Do the members of this firm have the potential to be your competitors? Or your prospect enhancers? Is your area of concentration so similar to what they do that they may siphon business from you? Or, is your area of concentration one that will complement their distinctly different areas of practice?
Will the additional referrals be significant and will they be quality referrals or cases they would never take due to problems associated with them? Or, do they find that they have more business than they can keep up with and those cases will be assigned at random?
How much of your overhead will be devoted to office space, secretarial support, client billing, and what is the value of association with that firm on their letterhead? When you are just starting out, the value of association with a quality firm may be very valuable. On the other hand, if your clients are concerned about costs, they might feel that a larger firm presence, as opposed to a solo firm, might be more expensive due to the overhead it projects and seek legal services elsewhere.
Do You Loose Some Flexibility?
When you are just starting out, 30% of gross revenues isn’t much – actually, based upon your ability to generate revenue, for the first few months, it might be free! However, after you get going and find yourself becoming established, that price tag might be too great for you to continue paying. You may soon find yourself looking for another venue. What is the cost of that disruption? Will you continue to pay resisting change, when you know you can do better on your own? Have you established a following at that firm as an attorney on their letterhead that will make it hard to change public perception? Remember, the greater the value of association with them when you start out, the greater the potential loss should you decide to go on your own later.
What are the time limits on this agreement? Remember, there is significant expense to them to change all of their letterhead, signage and other materials to conform to the new “Of Counsel” identification. And, unless you have a track record and a book of clients, it will that some time for them to offset the early costs of bringing you on board. So, they might want you to agree to an extended term of association to engage in this venture in the first place.
Are There Other Options?
The “gross receipt” model works against both parties. From the start, it means that the office space is virtually free for the new lawyer and is totally borne by the law firm. Incentives to do well are somewhat cross productive. The more you produce, the more you pay. Also, for the new lawyer, it paints him in a corner concerning his reputation as a member of that firm. Whatever reputation that firm has, he will assume it, good or bad.
If you are going to consider shared space within an existing office as described above you might want to consider an approach which gives you an incentive to do well and creates a scenario which will encourage a long-term relationship. Instead of a percentage of gross receipts, you might want to offer a declining scale of compensation for your rent based upon gross receipts at certain levels or benchmarks. For instance, at $50,000 gross, you offer to pay a larger percentage, say 35%. From $51-100,000 gross, you pay 30%, at $150-200,000 gross, 25% and so on with a declining percentage. This way, their revenue increases with your increased sales but at a slower rate but with predictability that you won’t look elsewhere for your own venue. This provides greater stability for you and your partner.
As a solo practitioner with your own office, you would realize greater efficiency as you increase your revenue. Why shouldn’t you do likewise in a shared office arrangement? This also gives you an incentive to make more and to stay longer in your present environment. As you business increases, so too does the possibility of traffic that will populate their practices as well. This is particularly true if you chose a group of practitioners who are not likely to be your competitors.
Do the math and see if you can cover your overhead for less than that offered. If you cannot, consider negotiating a rental agreement that ultimately costs less for you and gives them greater long-term advantage in income and stability.