July 2016

Capital Connection is published monthly for members of the Capital Chapter of the Association of Legal Administrators to provide information for the education and benefit of legal administrators, law office managers, managing partners of law firms, and other law related associations. Capital Connection is not engaged in rendering legal, financial, or tax counseling or advice through this publication.  The contents of all articles, letters, and advertisements published in Capital Connection should not be considered endorsements by the Capital Chapter of ALA nor the opinion expressed therein of any products advertised.   Contributing authors are requested and expected to disclose financial an/or professional interests and affiliations that may influence their writing position. Articles and materials accepted for publication are subject to editing by the editorial team and become property of the Capital Chapter of the Association of Legal Administrators. Links to Capital Connection may not be shared without permission from the Chapter. 
Editor: Jacqueline Moline 
Associate Editors: Paula Serratore; Cindy Conover
​Contributing Editors: Barbara Mannix; Shin Nan Goto, CPA; Vanessa Partin; ABA Retirement Funds; rand* Construction; Jennifer Tatum; Jay Erdman, CPA; Washington Express; Wilmara Guido-Chizhik; Arnold Sanow, MBA, CSP ​​
Newsletter Designed By: Jessica Davis


In this issue:

President's Message

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How does one find balance on vacation?  It’s hard to step away from work and many of the other obligations we have.  The last vacation I was on where I did not check e-mails or take any work with me, was my honeymoon 15 years ago.  Oddly, this doesn’t bother me.  Occasionally, I wonder what it would be like to have a job that is truly 9 to 5.  A job that when I was done for the day, I just logged off and did not think about it until the next work day.  The career I have chosen doesn’t seem to allow for this, or maybe it is just the way I work and the expectations I have for myself.
 
I try to balance the time I spend on work when I’m on vacation.  During vacation, the scales are tipped to family time. I don’t beat myself up when I stay on top of my e-mails and continue to handle the projects that need to move forward.  I don’t feel guilty when I pick and choose what work I handle when I am on vacation.  It’s not that I feel no one can do my job or I am indispensable.  It is simply that it is my job and I want to do my job.  It is helpful that I choose when to look at e-mail, so I feel more in control of my days which is nice.  On the flip side, I encourage my management team to take the time and not worry about work.  We are not saving lives I say…there isn’t anything that can’t wait a week.  I wonder why I don’t take my own advice.  It is my choice as misguided as it may be.  I am happy to be writing this article from the beach!  Wishing all of you some time away from work and finding the balance that works best for you.  Happy Summer!
​Barbara Mannix

New ALA Capital Chapter Members

Robin Schmal
Human Resources Generalist
Simpson Thacher & Bartlett LLP
900 G St., N.W.
Washington, DC 20001                     
robin.schmal@stblaw.com
 
Lovita Page
Washington Region Office Administrator
Hogan Lovells US LLP
555 13th St., N.W.
Washington, DC 20004
lovita.page@hoganlovells.com
 
Cookie Breaux
Office Manager
Sedgwick LLP
2900 K St., N.W.
Suite 500
Washington, DC 20007
cookie.breaux@sedgwicklaw.com
 
Kurt M. Powers
Information Technology Manager
Baker & McKenzie LLP
815 Connecticut Ave., N.W.
Suite 800
Washington, DC 20006
kurt.powers@bakermckenzie.com
Lorri Holland
Administrator
Walsh Colucci Lubeley & Walsh PC
2200 Clarendon St.
Suite 1300
Arlington, VA 22201
lholland@thelandlawyers.com

​Michael L. DeLargy
Executive Director
Barnes & Thornburg
1 N. Wacker Drive
Suite 4400
Chicago, IL 60606
mdelargy@btlaw.com
 
Tara Leigh Anglin
Office Administrator
Troutman Sanders
1850 Towers Crescent Plaza
Suite 500
Tysons Corner, VA 22182
tara.anglin@troutmansanders.com

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Congratulations, Bonnie Montgomery!

The Chapter would like to congratulate Bonnie Montgomery on her retirement!

After 42 years at Hunton & Williams, Bonnie is moving on. She will be working on a part-time basis for the DC Bar as a project advisor for the construction of their new building.

Bonnie shared with us that she would not have been as successful in her career without the ALA.  She credits her membership in the organization with having given her a network she could always count on and education which provided best practices in law firm administration.

In Memoriam

The Chapter extends its condolences to Vanessa Partin, Chair of the Diversity & Inclusion Committee, on the passing of her husband Deacon Partin.

Avoiding Shareholder-Employee Compensation Pitfalls

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Shin Nan Goto, CPA
Manager, Baker Tilly 

While the vast majority of law firms located in and around the District of Columbia are organized as partnerships or LLPs, there are still some law firms organized as C-corporations or personal service corporations (PSCs). PSCs face a unique challenge when it comes to compensating their shareholder-employees. As total income for the year is not easily predicted, PSCs tend to pay out more modest salaries to shareholder-employees throughout the year. Also, as clients generally want to get a deduction for their legal services by December 31, revenues in the last two months of the year can be significantly higher than in earlier months. Because of these factors, many firms pay bonuses to shareholder-employees at year-end.  Many firms also pay bonuses to associates and other employees at the same time.  Any income that is retained by the firm at year-end is taxed at a flat 35 percent federal tax rate.

Now a recent US Tax Court case puts into question this practice of reducing a PSC’s profits in the form of shareholder-employee compensation and bonuses.  In this instance, the court ruled in favor of the IRS and against Brinks Gilson & Lione PC, a PSC law firm in Chicago (Brinks), that a significant portion of their annual shareholder-employee compensation should instead be treated as nondeductible dividends.

Compensation versus dividends
Compensation paid to shareholders for services is a deductible expense to the PSC, whereas dividend payments to shareholders are not deductible by the PSC. Therefore, payments to shareholders in the form of compensation rather than dividends are preferred by PSCs because those payments lower the overall tax bill. As there are no hard-and-fast rules for estimating “reasonable” compensation, the challenge lies in determining what constitutes a reasonable compensation for services performed and what should be classified as dividends.  

​Brinks Gilson & Lione PC case
In examining the case, Brinks was found to have a multitude of policies and practices regarding shareholder-employee compensation that left them vulnerable to IRS challenge.
 
Here are the critical items to note: 
  • Shareholder-employees were paid year-end bonuses in exact proportion to budgeted compensation and overall ownership percentages. This left little room to argue that the compensation was based on services and the performance of individual shareholders.
  • Associates and non-attorney staff were paid bonuses during the year, but not at year-end. If bonuses for all employees were paid at the same time, it would help support the argument that bonuses were not paid strictly to manage income, but were based on individual performance.
  • Stock ownership for shareholder-employees mirrored compensation. Many professional firms annually adjust ownership to coincide with compensation. We recommend that ownership and compensation arrangements remain as independent as possible with separate criteria for each.
  • Brinks reduced their book income to exactly zero for years 2007 and 2008. Again, this was an indicator to the court that Brinks’ main objective was to manage income at year-end.
  • Brinks conceded the underlying compensation versus dividend issue without obtaining penalty relief. Had Brinks initially not conceded to the service, it is still debatable whether they would have been successful. However, it is important to understand that negotiating for waiver of penalties should always be a part of any agreement entered into with the IRS.
 
The IRS is cracking down on PSCs attempting to disguise payments to shareholder-employees as compensation rather than dividends.  It is important to note that some of Brinks’s practices might mirror other PSCs and are not uncommon in the industry. As such, administrators and directors of PSCs need to adhere to a few key best practices regarding shareholder-employee compensation:
  1. Be proactive in documenting shareholder compensation arrangements within the corporate minutes and within internal policy documents.
  2. Tie compensation paid to shareholder-employees to the performance and services each individual provides rather than to ownership.
  3. Apply the shareholder compensation program consistently from year to year and try to plan for steady, consistent growth rather than substantial spikes up or down.
  4. When planning for year-end bonuses, try to let some profits be retained by the PSC. Bringing net income as close to zero as possible could be a potential red flag, plus retaining some funds can help the PSC to manage short-term working capital needs.
  5. Try to time bonuses to non-shareholder attorneys and staff near year-end when possible.
  6. When shareholders invest large amounts of capital, consider establishing a dividend payment policy to shareholders.  
 
Shin Nan Goto is a manager in Baker Tilly’s professional services practice – focusing on law firms – and is located in the Tysons, VA office. He has been with the firm for more than nine years, performing financial statement audits, reviews, compilations, internal control reviews, and tax services. Shin Nan also has extensive experience performing employee benefit plan audits for a wide range of retirement plan types.

If you are interested in learning more or have questions, please visit bakertilly.com/professionalservices.
 
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.
 
Baker Tilly refers to Baker Tilly Virchow Krause, LLP, an independently owned and managed member of Baker Tilly International. © 2016 Baker Tilly Virchow Krause, LLP

ALACC Business Partners Named 2016 Top Workplaces

Congratulations to our Business Partners, who were ranked by the Washington Post Magazine as some of the top places to work in 2016!

Large Companies
#1 – HITT Contracting

Mid-Size Companies
#52 – Gensler
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Small Companies
#15 – rand* Construction

July 2016 Diversity Observances

Vanessa Partin
Associate Director, Human Resources, Kirkland & Ellis LLP
Chair, Diversity & Inclusion Committee

July 1: Laila Al-Qadr , “The Night of Power”, which commemorates the night that God first revealed the the Qur’an to the Prophet Muhammad. Usually fixed as the 27th day of the Islamic month of Ramadan, Sunnis may also observe it on the 21st, 23rd, 25th or 29th. Shi’ites observe it on the 19th, 21st or 23rd day of Ramadan.
July 4: Independence Day. Click here to learn more.
July 5: Eid al Fitr, the Muslim celebration commemorating the ending of Ramadan. It is a festival of thanksgiving to Allah for enjoying the month of Ramadan. It involves wearing one’s finest clothing, saying prayers, and nurturing understanding of other religions.
July 11: World Population Day, an observance established in 1989 by the Governing Council of the United Nations Development Programme. The annual event is designed to raise awareness of global population issues.
July 18: Nelson Mandela International Day, launched in recognition of Nelson Mandela’s birthday on July 18, 2009 via unanimous decision of the UN General Assembly. It was inspired by a call Nelson Mandela made a year earlier, for the next generation to take on the burden of leadership in addressing the world’s social injustices when he said “It is in your hands now”. It is more than a celebration of “Madiba’s” life and legacy. It is a global movement to honor his life’s work and act to change the world for the better.
July 19: Dharma Day or Asala Puja celebrates the first discourse of the historical Buddha’s first discourse following his spiritual awakening.
July 23: The birthday of Haile Selassie I, the Emperor of Ethiopia, who the Rastafarians consider to be God and their Savior.
July 24: Pioneer Day, observed by the Mormons to commemorate the arrival in 1847 of the first Latter Day Saints pioneer in Salt Lake Valley.
July 26: Disability Independence Day, which marks the anniversary of the 1990 signing of the Americans with Disabilities Act.

DC Bar Leadership Dinner

Capital Chapter members gathered at the DC Bar Celebration of Leadership Dinner on June 15th to welcome newly elected officers and members of the Board of Governors, meet members of the Board of Governors, past presidents of the Bar, members of the judiciary, and other leaders in the Bar community, and celebrate extraordinary Bar members and projects.

The Value of Financial Advice

ABA Retirement Funds
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You’ve probably heard the phrase hope is not a strategy.   The definition of hope is “to want something to happen or to think that it could happen” (Merriam-Webster).  When it comes to saving for a financially secure retirement, many statistics would suggest that we rely more on hope than we do on strategy.  We hope Social Security will be around.  We hope we won’t lose our jobs.  We hope we’ll be able to pay off our debts.   We hope we’ll stay healthy forever.  We often get consumed by the things we need to pay for today - instead of focusing on ways we can save for our longer term future.  While we may hope that things will take care of themselves when it comes to money matters, the reality is that there is simply no substitute for long-term planning.  Sadly, only 31% of financial decision makers in families say they have created a comprehensive financial plan.1   This statistic suggests that more than two in three Americans will be left with nothing but hope to provide for a safe and secure retirement.   If you’re one of them, know that when it comes to creating your retirement plan, hiring a financial advisor may be the first step you need to take in order to turn hope into strategy. 
 
A Voya study shows that working with an advisor significantly increases the likelihood that an individual will have more saved for retirement within and outside of employer sponsored retirement plans.  Those who use an advisor have, on average, saved 36% more money for retirement than those who do not work with an advisor. 
​Retirement UNPLANNED
 
Retirement planning is not all about putting a certain percentage of your paycheck into your Company’s 401(k), while making sure you put in the amount your Company will match. That is a start - a good and necessary start - but it just isn’t enough. There are many other financial uncertainties that come up along the way, and you need to be prepared for the unexpected. According to a 2012 Retirement Confidence Survey by the Employee Benefit Research Institute, “half of current retirees surveyed say they left the workforce unexpectedly due to health problems, disability, or changes at their employer, such as downsizing or closure.”2 Also, older consumers are carrying more debt, including mortgage, credit card, and even student loan debt, into their retirement years than in previous decades.3 With a sound financial plan in place, unexpected issues beyond your control don’t have to cause sleepless nights.
 
The Age of Unemployment
The jobless rate has been above historical norms in the U.S. since the 2008 financial meltdown. Some people in their 40s and 50s have been forced to take jobs beneath their historical pay rate in order to make ends meet. Some older workers may find themselves forced into an early retirement. A Boston Globe article from 2013 talks of the struggles older workers endure looking for work after a lay-off or job loss. From 2007 to 2013, the number of people 45 and older who had been jobless for more than a year quadrupled. According to Andrew Sum, director of Northeastern University’s Center for Labor Market Studies, “the longer you’re unemployed, the more likely you are to leave the labor force, and the more likely it’s an early retirement for you.”4  Employment uncertainties make working with a financial advisor an essential step in preparing for the financial unknowns of the future.
 
Less Health, More Care
Estimating the future cost of healthcare is a common oversight when planning for retirement. A Society of Actuaries survey in 2012 showed that only about half of all people who retire do so by choice. Thirty-one percent retire due to health issues, either their own or that of a loved one.5 It is important that you properly estimate the potential financial need for increased health care as you age – a task you may find much easier completed with the help of a knowledgeable advisor.
 
The Cost of Living…In Debt
Many people are buying homes later in life, or taking out home equity loans in order to maintain quality of life. A Census Bureau survey shows that fewer older homeowners own their home outright compared to a decade ago, and the mortgages they hold have less home equity than a decade ago.6 Consumer debt is still high as well. The Employee Benefit Research Institute has stated that one in two families headed by a person 55-64 had a credit card debt in 2007, compared with about one in three in 1992.7 Debt, especially as you near and enter retirement, can eat away at your savings or worse hinder your ability to save altogether.  The balancing act of meeting your borrowing needs while growing your nest egg is one best performed with the help of a financial advisor who can help set a sensible budget and align financial priorities for you.
 
The Benefits of Financial Advice
 
Few people would dispute that seeking advice from a medical professional could pave the way to good long-term health.  Seeking advice from a financial professional – much like seeking advice from your doctor – can put you on a path to better financial health.  Life expectancy tables tell us the good news is that we are living longer.  The bad news is that most of us haven’t saved nearly enough to fund a longer retirement.  It is estimated that more than half (52%) of Americans have less than $10,000 saved for retirement while life expectancy is 78.5 years – more than 10 years into retirement.8  Professional financial advice could provide the planning necessary to help safeguard against outliving your savings.  People who work with financial advisors tend to save up to three times more for retirement, have more discretionary income, and generally have more confidence in their financial well-being.  The bottom line is - picking up your financial prescription may lead to better retirement outcomes.
 
Increased Confidence in the Future
A study by Voya shows that use of an advisor can increase feelings of control and confidence in understanding how to pursue one’s retirement goals. It seems logical after all. Imagine you’ve spent time with an expert, discussing your goals, listening to him or her explain options in an easy-to-understand way. That advice has made you more knowledgeable and given you greater confidence about achieving your goals. It eliminates the guesswork and speculation, leaving you less worried than if you had to do it all on your own. People who don’t use an advisor are more likely to be risk-averse, which increases the risk that they will fail to capture market growth in their early savings years. The Voya study found that 39% of people who choose to invest without the guidance of an advisor characterize themselves as “conservative” investors, vs. only 19% of advisor-assisted individuals.9   This means you are more likely to stay with investments you deem as safe, while missing out on potential market growth that could help you achieve your financial goals.
A Better Understanding of Needs
Most people who plan for retirement only plan for their ideal scenario – retiring healthy, purchasing a second home, planned vacations and travel to see the grandkids. But the reality is sometimes quite different from the dream. A financial advisor can help you map out your needs, no matter which retirement scenario unfolds. An advisor can also inject a dose of reality when it may be needed and quickly correct your savings path so you can more adequately meet future needs. Understanding your expected and unforeseen needs is at the heart of a good financial plan. An advisor can build and maintain that blueprint for you as life’s unexpected events take shape. People who use an advisor are also much more likely to have a formal retirement investment plan in place. Fifty two percent of the people surveyed for the Voya study who use a financial advisor have a formal retirement investment plan in place, versus only 20% of those who go it alone.9
​Increased Savings
People who seek out help from a financial advisor have better savings habits, which may include multiple savings accounts or an emergency fund more appropriate to their specific needs. According to the Voya study, people who work with an advisor are significantly more likely to have an emergency fund, and to have more saved in it than those who don’t work with an advisor. Almost half of the people who seek out a financial advisor have an emergency fund equal to six months or more of their salary, while only 28% of those without the use of an advisor had the same.9   People who work with an advisor are also twice as likely to have a workplace retirement account balance of $200,000 or more.9
Better Diversification and More Balanced Allocation
Personal experience is a powerful navigational system for future actions, whether or not that experience is logical. This preference for the familiar, referred to a familiarity bias, leads us to the faulty assumption that just because we’re familiar with something, it must be safe.10 When we allocate investments based on this familiarity bias, it can lead to poor diversification – an integral element of a balanced financial plan. A financial advisor can bring experience, knowledge, and a better understanding of investing, that can help you to a better diversified portfolio that fits your unique situation.
 
A Better View of the Future
 
Your vision for retirement is just that – yours.  A financial advisor can help make that vision a reality.  We all go through life relying on the advice of experts.  That’s the beauty of living in a society where specialization can lead to improved standards of living.  So why won’t more Americans work with a financial advisor to help improve their retirement picture?  Today, advice and guidance are available in many shapes and forms, often in conjunction with a workplace retirement plan. These services can range from professionally managed accounts via Target Date Funds to holistic Managed Account guidance, and full-service on-line, phone-based, or in-person financial planning.  There is likely a “flavor” of advice for nearly everyone.  The challenge is getting more people to the table to have a taste.
 
Financial planning is a complex field where decisions are fraught with behavioral pitfalls.  An advisor can use proven methods and expertise to develop a personalized retirement plan based on your needs, wants and wishes.   When it comes to long-term planning, hope is not a strategy – but a sound financial plan developed with the help of an advisor should certainly give us hope for a secure and comfortable retirement.
 
SOURCES
1. Princeton Survey Research Associates International (July 23, 2012) 2012 Household Financial Planning Survey
2. Employee Benefit Research Institute (EBRI) (2012a). The 2012 Retirement confidence Survey, by Ruth Helman,
    Mathew Greenwald & Associations; and Craig Copeland and Jack VanDerhei, EBRI. No. 369
3. Federal Reserve Board, (2010) 2010 Survey of consumer Finances.
4. The Boston Globe, (March 25, 2013). Long-term Joblessness Hits Older Workers Hard, by Megan Woolhouse.
5. Society of Actuaries (2012). 2011 Risks and Process of Retirement Survey Report of Findings, by Mathew Greenwald
     & Associates, Inc. and EBRI.
6. Census Bureau, (2011). Complete Set of Tables: Table C-14A-OO Mortgage Characteristics – Owner Occupied Units.
7. Employee Benefit Research Institute (EBRI) (2009). Debt of the Elderly and near Elderly, 1992-2007. EBRI 20 (10)
    24pp.
8. Employee Benefit Research Institute (EBRI) (2014).  The 2014 Retirement Confidence Survey, by Ruth Helman,
    Matthew Greenwald & Associates; and Nevin Adams, Craig Copeland and Jack VanDerhei, EBRI. No. 397
9. Voya Retirement Research Institute, (2014). Advisor Value, A Voya Retirement Revealed analysis quantifies the
    benefits of working with a financial advisor. 
10. The New York Times, (November 22, 2010). “Avoid the Investing Trap of Familiarity,” by Carl Richards, CFP.

​About the ABA Retirement Funds
The ABA Retirement Funds, an affiliate of the ABA, is dedicated to helping lawyers with their retirement by providing fully bundled retirement solutions for law firms of all sizes. Established in 1963, the organization has nearly 3,800 law firm retirement plans, 38,000 participants, and more than $5.5 billion in assets in the ABA Retirement Funds Program (www.abaretirement.com).
 
The information in this article is believed to be reliable. However, this newsletter is distributed with the understanding that the Program is not engaged herein in rendering legal, tax, accounting, investment management or other professional advice.

rand* Construction Spotlight: Smart Communication Drives Success in Law Office Construction

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In law, your office space is a showcase of your firm’s influence and creativity. Your space, from the lobby to the conference room, needs to communicate your expertise and drive to think outside of the box.
 
This ingenuity poses a special (and exciting) challenge for a general contractor. Law firms demand unique features with the highest quality finishes that test the expertise of even the most seasoned construction pro. You have creative ideas that push the limits of design, and it’s our job as the general contractor to deliver that vision.
 
Given the heightened design complexity and tight work schedules on law firm projects, smart communication is crucial. “Smart” communication is frequent, consistent, and different:  at rand*, we stay in constant contact with our clients to ensure that everyone is on the same page, providing design options, photos from work sites and consistent updates on a weekly, sometimes daily, basis. This is especially important when working with law firms because, given the complex nature of the designs, there is little room for error in the construction schedule.
 
rand* Construction Corporation has worked with top law firms in the DC Metro Area to create spaces with dramatic impact: soaring glass atriums, vast marble-decked lobbies, intricately-designed stone flooring. All of these are custom finishes, which require extra time, money and coordination with multiple subcontractors. It is absolutely critical that we establish expectations and our work schedule early to ensure every element is constructed in the right order and on time.
 
When we work with a client who has an ambitious vision, it is crucial to nail down design specifics early (pun intended). For example, when rand* constructed office space for a law firm in downtown DC, they wanted to build a one-flight staircase from a single sheet of metal. This was a new challenge for us; we had to figure out if, one, it was possible, and two, if we could find a subcontractor who knew how to accomplish it. The project required extensive coordination between multiple subcontractors – millwork, glass, metals, etc. – and consistent communication was integral in delivering each sequence of the schedule correctly.
 
The key to smart communication is to make it impossible to fail. These are the tools rand* uses to ensure we are communicating smart on a project:
 
  1. Technology
At rand* we use three cloud-based web applications to pull information on an iPad in the field :
             (a) Sharepoint stores project documentation and site photos; 
             (b) Plangrif stores project drawings, sketches, progress reports and other project
                   communications in real time; and 
             (c) Prolog, project management software, that tracks all elements of a project and
                  provides customizable material suited to meet the requirements of all of our clients 
 
2.   Weekly Meetings  and Updates
On every project, the rand* team meets weekly with the client to update them on the progress of the construction and upcoming milestones. In addition, we will send the client a weekly executive summary email every Friday afternoon with a progress report.

3.   Ask Questions and Build Expertise
During preconstruction, rand* gets in on the ground floor and becomes intimately acquainted with every aspect of the design demands. Then we have the knowledge and confidence to communicate the vision of the project with our subcontractors on a daily basis. In turn, we listen to our subcontractors and learn from their expertise.

4.   Build Open Communication
​Everything is easier with friends! At rand*, we build an open line of communication and friendliness with our clients so that we can keep them involved in the process. Between the weekly meetings and emails, our project managers reach out to clients and chat, about the project and maybe the last episode of Game of Thrones. In the high stakes world of law, it’s refreshing to take some time for some relaxed conversation. It’s a great way to get to know our clients and understand their personalities
 
rand*’s highly disciplined communication ethic allows us to build the best spaces in town. In Spring 2016, rand* completed Miller & Chevalier’s new DC office, a 33-week project with 86,000 square feet and six floors of glorious, marble-covered space. Almost every surface was covered in specialty materials that had to be custom ordered and sized; nearly nothing was “off-the-shelf.” In order to accommodate all of the different, highly technical installations, the construction sequence was broken down into dozens of mini-schedules that required precise coordination with multiple subcontractors. It was a challenge that made us grow, and through diligent communication we created a space with Miller & Chevalier that is truly spectacular. 

Sustainability Tip of the Month

This month's tip is provided by Silver Business Partner Newmark Grubb Knight Frank

July is the hottest month of the year!  Keep blinds in your offices closed during peak sun hours and especially on weekends.  If you have a green lease this cost savings through better energy utilization will go directly to the firm’s bottom line.
​
To find out how to get the full value for real estate savings through greening your lease, reach out to Jennifer Tatum at Newmark Grubb Knight Frank at 202-312-5771.

Profitability Accounting

​​Jay Erdman, CPA
Principal, Rippe & Kingston

What is it?
Over the years, the term ‘Profitability Analysis’ has meant different things to different people.    For example, some refer to ‘Billing Realization or Collection Realization’ as the ‘metric’ for measuring Profitability in the Law Firm environment.    

We believe that a different and better measurement can be derived from the traditional ‘cost accounting‘ methodology that evolved in the accounting function in the manufacturing world.  In that approach, the cost accountant would produce standard ‘cost models’ allocating direct labor and overhead absorbed to determine the standard cost of a product’s production.  From that analysis, companies would price their products appropriately so that a proper gross margin was realized to meet the company’s overall financial goals. 
 
In the service business, the production of ‘products’ is not so clearly defined, so the approach must be different.   In a Law Firm, the Profitability accounting analysis is a costing methodology which determines the cost of a revenue stream.  The analysis computes the series of direct and indirect rates per hour of the service provider and allocates those costs to the service provider’s (timekeeper) revenue to measure gross and net contribution to Firm profits.   

What’s the process?
First, you must identify the revenue method you are measuring:            
1.    Full Accrual – time worked
2.   Modified Accrual –  time billed
3.   Cash Basis – time collected

Each method has its pros and cons.   #1 and #2 may never turn into cash (due to write offs or non-payment) and the client might look profitable under those methods – when the client never paid their bills!!   The management committee will quickly lose faith in the profitability analysis as a useful too if this occurs.   We prefer #3, as the cash has been received – and the profitability measurement is – ‘what did it cost us to create that revenue stream’?       

Second, you must identify what profit you are measuring.  
Is the Firm’s profit to be measured:
1.   Zero, and all of the equity Partner’s compensation is considered part of their direct cost
             A. Note - some equity Partners will have timekeeper costs greater than their billing rate
                  creating a ‘loss’ for everything they work on.
2.   The equity Partner’s compensation and none of their compensation is considered part of
      their direct cost?
             A. Note - the equity Partners will have no compensation cost and will look very
                  profitable.
3.   The amount distributed over the base monthly draws.
             A. Note – this is a generally acceptable approach, as the monthly draw is deemed to be
                  the Equity Partners compensation

When a Non-equity Partner, Associate or Paralegal’s direct cost is calculated, their W-2 compensation is the value used for their salary.    But for Equity Partners, whose compensation is more than just their ‘attorney’ salary because it includes their share of the Firm’s profits, there is no industry standard for identifying their ‘attorney’ cost for delivering legal services.    Many Firms end up assigning the Equity Partners a (culturally acceptable) ‘salary’ for their direct cost for being an attorney and then use the difference of their total compensation as the profit to be measured.

Third, the direct expenses must be identified for each timekeeper.   These typically include salary (see above for equity Partners), bonus, taxes, medical, benefits, parking, etc. – those costs that come and go with the timekeeper.  Included in this calculation should be their proportional share of their secretary or administrative assistant (also with their respective direct costs calculated in the same manner).

Fourth, we must calculate the indirect costs.    Simply take the total revenue, subtract the net profit to be measured, subtract the allocated direct costs and the rest must then be the indirect amount.
​
Generally the indirect pool is allocated to each timekeeper based upon a weighting average that properly distributes the cost as it is perceived to be utilized.  For example:
              Partners a 100% weighting factor
              Associates – a 50% to 75% weighting factor
              Paralegals – a 0% to 33% weighting factor

Each timekeeper would then be allocated their indirect cost amount. 

The direct and indirect costs are then allocated on an hourly basis by dividing each individual’s direct and indirect total costs by their collected hours.  The end result is the direct rate per timekeeper per hour and the indirect rate per timekeeper per hour.

Note – all of the steps identified above and the assumption made for each must gain acceptance by the user (for example, the Management of Finance committee) of the analysis, so that the Profitability process and reporting gains acceptance by the user as both fair and objective.

Presentation
Depending on the system you employ (Excel sheets with a pivot table or a full blown profitability product), you should be able to arrange the Profitability report with the following elements:
  • Collected Hours
  • Collected Fees
  • Direct Cost Partners
  • Direct Cost Non-Partners
  • Gross Profit
  • Gross Profit %
  • Indirect Cost Absorbed
  • Net Profit $
  • Net Profit %
  • Non-Partner Leverage %
  • Revenue Per Hour
  • Cost Per Hour
  • Difference Per Hour
 
Additionally, this information should be easily sorted (or pivoted in Excel) to provide statistics by:
  • Originating Attorney
  • Billing Attorney
  • Responsible Attorney
  • Working Attorney
  • Client
  • Matter
  • Area of Law
  • Practice Group
This information will then allow you to analyze the Firm’s profitability from a number of perspectives.
 
Use it to your Firm’s advantage
Performing the Profitability analysis will be an education process for the Firm.  With the information above, the Firm can better improve its profits due to a better understanding of its Revenue Streams, Cost Structures, Pricing Points, Relevant Volumes, and Profitability Logistics.  Every Firm needs to have a solid understanding of its Profitability components – the Products (Areas of Law), the Clients (those who buy the products), and the Attorneys (those who sell the products, manage the products, and create the products)!

Jay Erdman, CPA, a Principal in Rippe & Kingston, LLC, consults with a large number of Law Firms across the country on a range of topics including Partner development and Financial Management issues.  He has spoken at local, regional, and national ALA events.
Jay earned his degree in Accounting and Management from the University of Cincinnati and now has over thirty-five years of accounting experience and Law Firm specialization.
Rippe & Kingston was a pioneer in developing the Profitability Accounting Methodology for Law Firms, which began in 1989. Over the years, R&K has been involved in over 130 Profitability studies. 

Washington Express Spotlight: Small Move Specialists

Picture
When was the last time you needed to deliver some boxes within hours? Or to transport office furniture or IT equipment on the spot with no advance notice? Or AV equipment or trial site materials requiring specific timing and coordination, and it needed to be done right away? 
 
Washington Express heard from our clients and we have answered with our newest service line, Washington Express Office Freight. Our ‘white glove’ freight division combines the speed, convenience and security of a local courier with the resources and scale of a traditional transport company. This allows us to offer a new, nimble and cost effective means of transporting your office moves locally or long distance with little to no advanced notice. 
Small Move Specialists
 
Like our courier division, Washington Express Office Freight operates 24/7/365 and gives you an immediate proof of delivery email when completed.  We can provide quick pick-ups, pinpoint deliveries, packing and crating, cross dock and warehousing services with the same level of professionalism and responsiveness that you are accustomed to with Washington Express.
 
Value
  • No 4 hour minimums
  • No travel fees assessed
  • No advance notice
 
This means you will only be paying for the time you need and won’t be rushing around to find work to fill up 4 hours. Just like our courier service, your move will be charged according to the mileage and items delivered and you won’t be charged any travel fees for us to come to you, that’s already included!
 
Materials Handled
 
So what can we deliver? Anything from office furniture, attorney files, personal belongings, IT and AV equipment, trial site materials, conference and convention supplies, palletized freight--basically, you name it and we will take it! Our “freight guys” can also pack and crate everything for safe delivery of fragile items. If you need labor just to move things within your office, we can provide that too, under your direction and supervision.  Or if you just want some “stuff” hauled away or electronics to be destroyed and recylced, you can call and we can do it and on the same day.
 
Check out our website for details or contact us  for a quote. Generally, no on site visit by us needed. We hope to hear from you soon!​

Small Firm Section Update

Wilmara Guido-Chizhik
Office Manager, Bookoff McAndrews PLLC
Co-Chair, Small Firm Section
 
At our June meeting we were joined by Mark Lewandowski of The College Funding Coach to discuss strategies for saving for a college education and saving for retirement.  As we all know the cost of higher education continues to increase.  This is an area where families are greatly financially impacted and it is further complicated by simultaneously saving for retirement. 
 
Mark reviewed the two options for 529 plans.  One option is a savings plan in which contributed money is invested and thus subject to market gains or loses.  It is very similar to a 401k plan.  The second option is a pre-paid plan which is not subject to the market and allows you to set aside money to pay for an in state public university.  529 plans are easy to open and can be done by a relative or even a friend, not just the parents.  The presentation also touched on the process for the Free Application for Federal Student Aid (FAFSA) and the expected family contribution (EFC) figure.  The FAFSA must be completed every year the student is enrolled in order to have a picture of the family’s finances.  It’s important to note that the FAFSA does not take into account expenses a family may have such as caring for other family members or debts owed.  It’s therefore very important to know your EFC in order to properly plan for paying for tuition, room and board, and books. 
 
For members that are interested in having a presentation on this topic at their organization you can reach out to Mark at mlewandowski@thecollegefundingcoach.org.   

Do You Want to Be Right or Happy?

Arnold Sanow, MBA, CSP
Sanow Professional Development

Standing firm on the hallowed grounds of "rightness" is a dead-wrong approach for connecting with others. It smacks of arrogance and alienates.


The need to "be right" gets in the way of winning the acceptance, appreciation, and respect of others-qualities critical to caring connections, customer satisfaction, and harmony everywhere.
 
Whenever you need to be right, you make others wrong in the process with a polarizing effect, and that pushes people away.
 
If you find yourself playing the "Right and Wrong Game," get out immediately! Remind yourself what you could lose by winning.
 
Naturally, you want your beliefs to be validated by others, but not at the price of alienating them. It boils down to this: "being right" jeopardizes your connections. Would the loss of your colleague or comrade truly be worth a momentary victory in a ridiculous battle of egos?
 
Giving up the need to be right doesn't mean giving up your preferences and perspectives. Rather, it means letting go of demanding that others must or should see things your way. It's respectfully disagreeing, but not demanding that others conform to your beliefs. You strengthen your relationships with a willingness to accept and respect differences.
 
A steadfast insistence on "being right" can throw you steadily off course with people and the direction you want to head. "Being right" can be expensive, costing you clients, customers, credibility, and connections; it's definitely the wrong approach if you want to keep valued relationships.
​
Instead of "being right," do what is right for the integrity of the relationship and demonstrating your intention for creating good connections.
 
Arnold Sanow, MBA, CSP is a keynote speaker, workshop leader, facilitator and coach. He is the author of 6 books to include, “Get Along with Anyone, Anytime, Anywhere” and Present with Power, Punch and Pizzazz.” He was recently named as one of the top 5 best “bang for the buck” speakers in the USA by Successful Meetings Magazine.  www.arnoldsanow.com – speaker@arnoldsanow.com  - 703-255-3133 

Administrative Committees

Communications and Media Relations
As members of the Newsletter and Media Relations Committee, Chapter members participate in producing the award-winning Capital Connection. Members gather to brainstorm new ideas for editorial themes for upcoming editions. The newsletter reports Chapter business activities such as Section and Committee news and provides information about upcoming educational and other events. It also includes articles of interest to members and other legal management personnel, collected, authored and/or edited by members of the committee. This committee also works with other legal associations and the media to ensure that ALA and the Capital Chapter are represented in the legal industry. The Newsletter Committee welcomes new members.

Contact: Jacqueline Moline, jam@carmaloney.com; Paula Serratore,pserratore@alacapchap.org

Diversity & Inclusion
The Capital Chapter of the Association of Legal Administrators is a professional organization comprised of administrative managers from private, corporate and government legal organizations in the Washington DC, Northern Virginia and suburban Maryland areas.  ALACC embraces and encourages diversity within the legal profession. We value diversity and those initiatives that promote it and look to partner with affiliated professional legal organizations to advance diversity. We not only strive to raise awareness, but to increase our sensitivity in the area of diversity and more closely reflect the diversity of our community at large. Having a more inclusive and diverse legal community will improve the quality of our organizations workforce and respond to our client’s requirements for diversity. As a committee we are very interested in your thoughts, comments, and suggestions about achieving greater diversity in our Chapter, our profession, and in our firms. 

Contact: Vanessa Partin (Co-Chair), vanessa.partin@kirkland.com; Cindy Schuler (Co-Chair), cschuler@skgf.com 
Salary Survey
The Salary Survey Committee is responsible for maintaining, updating and running the local survey each year. They review the positions listed, the job descriptions, and the benefits questions to ensure that the survey remains relevant to the end users. The members of the committee also promote the survey within the Chapter to stimulate participation. In addition, the committee is tasked with selling the license to the survey software to other chapters within ALA for use in their locales. They also provide technical support and logistical guidance to those chapters who purchase and utilize our survey software.

Contact: Sheri Shifflett (Chair), cshifflett@saul.com; Emily Christianson (Co-Chair), echristianson@relmanlaw.com
Listserv: finance@lists.firmseek.com


Member Experience
The Member Experience Committee will establish a welcoming environment for new members to be integrated into the Chapter through a formal Ambassador Program. Ambassadors will provide support and guidance to new members through their first 12 months of membership, ensuring new members realize benefits of membership and become ambassadors of the Chapter. 

Contact: Barbara Kernus (Co-Chair), bkernus@gsblaw.com; Cheryl Flynn (Co-Chair), cflynn@wileyrein.com


Educational Sections

Branch Office Administrators
The Branch Office Adminsitrators Section focuses on a broad range of topics of interest to local adminisraotrs who must coordinate with other officees of their firms. The Section's monthly luncheon meetings, held on the second Tuesday of the month, provide a venue for members to discuss issues of common interest, share ideas, and network. Members are encouraged to raise topics and to recommend speakers.

Contact: Jenna Carter (Chair),  jenna.carter@ropesgray.com; Danita Ellis (Co-Chair), danita.ellis@nelsonmullins.com
Listserv: branchofcadmin@lists.firmseek.com


Office Operations Management
The members of the Office Operations Management Section represent a cross section of legal expertise from functional administrators to branch office managers. The Office Operations Management Section (OOMS) meets on the fourth Wednesday of every month to discuss operations related hot topics. We welcome all members to join the section, especially if you are an administrator in a small law office and you have to wear multiple hats. We can provide you with many best practices to run your operation smoothly.

Contact:  Kenia Garner (Chair),  kenia.garner@pillsburylaw.com; Qeyana Hart (Co-Chair), qeyana.hart@bracewelllaw.com
Listserv: ooms@lists.firmseek.com
Intellectual Property (IP)
The Intellectual Property (IP) Section focuses on all aspects of legal management as it pertains to the IP Administrator. The group discusses the complexity of the ever-changing IP environment and how to effectively create and apply IP specific, non-legal procedures in both boutique and general practice firms. 

Contact: Sharon Smith (Chair),  smith.sharon@arentfox.com; Kimberly J. Potter (Co-Chair), kpotter@sgrlaw.com
Listserv: ipadmin@lists.firmseek.com



Small Firm Management
The purpose of the Small Firm Management Section is to provide Administrators of law firms with 35 or fewer attorneys educational opportunities through vendor presentations, idea sharing and open forums specifically designed for those who work in smaller firms. The Small Firm Management Section meets the fourth Tuesday of the month at host law firms.

Contact: Julie Tomey (Chair),  tomey@thewbkfirm.com; Wilmara Guido-Chizhik (Co-Chair), wguido-chizhik@bookoffmcandrews.com
Listserv: smallfirmadmin@lists.firmseek.com



​
Finance
Based on member feedback the Capital Chapter has formed a new Finance Section. We are seeking active members to helps us get this group up and running in 2016! As we get started, we will be focusing on what issues members are facing within their firms that we may be able to help address together. Topics may range from reviewing new time and billing systems to tax filings and matter budgeting solutions and anything in between. Your input is needed! Please consider adding Finance section meetings to your monthly educational schedule.

Contact: Andy George (Chair),  andrew.george@finnegan.com; Evan Kettig (Co-Chair),  kettige@gotofirm.com
Listserv: finance@lists.firmseek.com
Human Resources
The Human Resources Section operates as a venue for educational information on global human resources issues.  While the Section is mostly comprised of HR professionals, any member is invited to participate in the meetings which typically take place on the second or third Wednesday of each month.  The meetings feature industry speakers or roundtable discussions on topics such as recruiting, benefits, strategic planning, performance management, career pathing, retention and other matters of interest.

Contact: Carmen C. Barboza (Chair),  cbarboza@hpm.com​; Aryn Blanton (Co-Chair),  aryn.blanton@bracewelllaw.com ​​
Listserv: hr@lists.firmseek.com

Technology
The Technology Section is looking for members to join the group for lively discussions about practical situations we all face daily in the information technology world. With ever-changing IT needs and issues, we will look at our firms' policies and procedures and help develop best practices and speak of the many concerns we all have. Even if you are not in the IT field,  your experiences and opinions will help us in bringing all departments of a law firm together and working on the same page.

Contact: Kenny Mitchell (Chair),  kmitchell@wbklaw.com; Frank Schipani (Co-Chair),  schipanif@gotofirm.com; ​
Listserv: alacaptech@lists.firmseek.com