BATON ROUGE, La., August 18, 2022 (Newswire.com) - Over his career spanning four decades, consultant Tim McKey has witnessed disruptive changes to the commercial banking and accounting professions. The next disruption, he says, is emerging in the legal profession, and his firm, Vista Consulting Team, is counseling law firms on maximizing the advantages coming from those fundamental changes.
The Evolution of an Industry
To understand the upcoming disruption in the legal profession, McKey said, it is necessary to understand how the financial system changed. In the late 1970s and 1980s, large, progressive banks saw potential economies of scale in operational functions and the ability to automate transactions as new technology emerged. In order to seize that potential, they began buying up smaller community-based financial institutions. Interstate banking laws were also being relaxed at that time. That has led to a cycle, McKey said: Big bank swallows smaller bank; the combined entity functions well and grows; service to small customers suffers; and the market creates a fix: A new community bank specializing in customer service emerges, and the cycle restarts.
That mirrors the change McKey personally experienced in the accounting sector. While the field is stereotyped as resistant to innovation and change, the accounting industry ironically was quick to recognize and seize upon an opportunity, he said. In the mid-1980s, there were eight giant accounting firms in the country that serviced mostly public companies by providing audits and tax advice. They also assisted usually larger, privately owned businesses and their owners. "I joined one of those firms, Deloitte Haskins and Sells, and quickly realized how impersonal the service was," he said.
Through mergers and acquisitions, these eight firms, known back then as the "Big Eight", are now down to what McKey calls the "Final Four." The theory behind the push to merge was the same as with the banks, with a potentially broader service array and economies of scale- but this time there was a twist, McKey notes. An ethical rule change promulgated by the American Institute of Certified Public Accountants now allowed non-CPAs to be partners (owners) of these firms. "This was heresy," McKey said, "for about an hour or so as the firms adjusted to management consultants and advisors without a CPA certificate providing valuable business services to clients." The additional services meant more income for the giant firms, while plenty of smaller, independent accounting firm partnerships and solo practitioners remained to provide services to the masses that were not public entities or large enough to pay the Final Four's rates. "Specialty and superior service will always be in the mix!" he said.
The Legal Industry Faces Changes to Business Structures
Now a similar change is coming to the legal industry, McKey believes. "Just like the flywheel analogy in Jim Collins' book Good to Great, it will turn slowly at first and require lots of effort, but soon it will be spinning on its own with only slight touches," he said. "The Washington DC and Arizona Bar Associations have now provided guidelines for ethical ownership of law firms by non-lawyers. These first few bar association ethical rule changes will likely create a domino effect."
While McKey is uncertain how long it will take for the dominos to start falling, he is confident it will happen. His consulting firm, Vista Consulting Team, has been "behind the green curtain" of more than 200 plaintiff firms across the United States and Canada. Through that work, he understands most firms seek more efficiency and potentially broader service offerings. "The most progressive firms smell change coming and are not afraid of it," McKey said. "These firms are listening to the business people that are creeping into the law firm space, just as the banks and accountants did. The barrier to entrance as an owner of a business that happens to practice law is eroding before our eyes." He notes that the legal industry is now commonly using a new acronym, ABS, short for Alternative Business Structures.
The impending change, McKey said, means that law firms should concentrate on running a law practice as a business. "Being good at practicing law is not good enough to assure success anymore," he said. "Being good at practicing law is a 'table stake' that gets you in the game, but it does not assure financial success, which is a key ingredient to any viable business." Law firms need to invest in and implement successful marketing, efficient and effective operations in intake, case management, reporting, HR/training, accounting, and client relations.
How well law firms establish those business practices may determine whether they are buyers or sellers, McKey said. Non-lawyer owned firms and progressive lawyer owned firms will certainly be looking at ways to improve and expand services through merger and/or acquisition. Vista proposes the following questions for law firms to consider as they assess their current market position as either a buyer or seller:
For potential buyers:
1. Has the target firm been profitable in the past?
2. Does the firm have a budget or projection of future gross revenues and net income?
3. How confident are you in the accuracy of #2 above?
4. How dependent is the firm on a single or a few personalities? If they are leaving, is there a cogent transition plan?
5. Might you need "stay" agreements with key personnel?
6. Are the practice areas ones with which you are familiar or are you intentionally acquiring a new area(s)?
7. How confident are you in the target firm's accuracy of reporting? Are they currently utilizing reports in firm management (financial and operational)?
8. How is the firm structured?
9. Are there strong leaders in the proper positions? Will they stay?
10. If the firm needs better management, can your team handle that? What will it take away from your current day to day responsibilities?
11. What are the terms with which you are comfortable regarding payment? Cash up front, financial institution funding, seller financing, earn out, or combination?
12. Do you have an intermediary to assist with negotiation?
For potential sellers:
1. How effectively would the firm run if the current owner is not at the helm?
2. What would the transition plan look like?
3. Will your management group and leaders stay with a new owner?
4. Do you have a budget or projection of future gross revenues and net income?
5. Does your current team have the tools, training, and fully understand the firm's expectations of them regarding their job position and individual tasks?
6. Are all of your firm's functional business areas operating smoothly? (Functional areas: Intake, Case management, HR/training, Client relations, Reporting (Financial and operational), and IT)
7. If the answer to #3 above is "no", are you currently addressing the situation?
8. Is your "marketing machine" effective?
9. Are there dual tracks for smaller dollar value cases as well as cases with more potential?
10. Are you willing to offer seller financing and/or an earn-out?
11. Do you have an intermediary to assist with negotiation?
"Whether a firm chooses to be at the table or on the menu, I hope that choice will be an intentional one. Either spot may be right for a particular firm," McKey said. "Keep your ear to the ground- steamrollers are loud, and you can hear them coming before they arrive."
About the Author
Tim McKey is the owner and co-founder of Vista, a consulting group aimed at helping plaintiff law firms improve operations, culture, and leadership. Vista helps each client develop a realistic vision of their firm for the future, create a strategic plan to achieve that vision, design law firm owners' desired lifestyles, and perform extensive succession planning for positive transitions. Tim also assists Vista's clients with reviewing firm tax entity structure, accounting systems analysis, and financial reporting. Tim has decades of CPA experience with local, regional, and national CPA firms. A self-proclaimed business nerd, Tim enjoys reading, pondering and discussing future business trends/models, disruptive change, tennis, exercise, and the pursuit of the "abundant life."
Contact: April Kemp
CIM Marketing Partners
Source: Vista Consulting Team