The typical law office spends 45 to 50 percent of the fee dollar on the expenses of operating the office. These funds go for non-lawyer salaries, rent, telephone, library, equipment, supplies and other facilities. The comparison of overhead percentage ratios is, in fact, quite a game among some lawyers. We are often asked: "What should a law firm's overhead ratio be?" An answer such as 45 percent, derived from some recent survey, will often satisfy the questioner; or he may be unhappy because he realizes that in his shop, the figure is higher, say 55 percent.
Actually, the percentage ratio of overhead is quite unimportant and firm to firm comparisons of this number may be misleading. One Western firm of three lawyers that provided information to the authors for 1987 showed an expense ratio of 60 percent. Non-lawyer salaries alone were taking 30 percent of every fee dollar. Some firms of that size can operate on a 38 percent total expense ratio!
But the lawyers of that firm averaged income of $175,000 each in 1987, a figure far above normal. The firm used paralegal assistants and modern techniques to improve the productivity of its lawyers rather than hiring more lawyers. Such innovations change overhead ratios from the "norms" quoted in some quarters, but the dollar rewards of such organization speak for themselves.
In calculating the percentage of gross receipts spent on overhead, the compensation of all lawyers is normally excluded. That is, all payments to lawyers are treated as part of "profit." Unless this is done, a firm will be unable to compare its own year-to-year overhead ratio. Here's why:
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Harrison Barnes is the legal profession's mentor and may be the only person in your legal career who will tell you why you are not reaching your full potential and what you really need to do to grow as an attorney--regardless of how much it hurts. If you prefer truth to stagnation, growth to comfort, and actionable ideas instead of fluffy concepts, you and Harrison will get along just fine. If, however, you want to stay where you are, talk about your past successes, and feel comfortable, Harrison is not for you.
Truly great mentors are like parents, doctors, therapists, spiritual figures, and others because in order to help you they need to expose you to pain and expose your weaknesses. But suppose you act on the advice and pain created by a mentor. In that case, you will become better: a better attorney, better employees, a better boss, know where you are going, and appreciate where you have been--you will hopefully also become a happier and better person. As you learn from Harrison, he hopes he will become your mentor.
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