There seems to be a great deal of erroneous conventional wisdom related to the economics of practicing law -- especially related to a solo or small firm practitioner just hanging a shingle trying to make a living. Law schools try to sell this outcome as though it was a preferred outcome for a law student in debt and a good employment result. I will be posting a series of blog entries in the coming days to attempt to dispel some of the legal urban legend myths related to hanging a shingle. The bottom line is that its a really hard way to make a living for anyone -- much less someone deep in student loan debt.
MYTH #1
IF THERE WERE REALLY TOO MANY LAWYERS IN THE MARKET, THEN THE COST OF LEGAL SERVICES WOULD COME DOWN.
One frequent claim by law school apologists is that there isn't an oversupply of lawyers in the market, because if there was then the cost of legal services would be coming down. "The cost of legal services is simply supply and demand, stupid!" This criticism lacks a fundamental misunderstanding of the economics of practicing law, particularly for a solo practitioner.
First, let's understand that the attorney's take home pay does not somehow equate to the billable hour charged. "I wish I made that much money an hour!" is the common client refrain when signing a retainer agreement. No one ever stops and thinks how much a doctor is making per hour moving from patient cubicle to patient cubicle spending about 5 minutes with each one then billing $80 for an office visit plus extra charges for peeing in the cup. An attorney friend of mine, who hadn't made $100 that day practicing law, was once in a party store when the person in front of him checking out asked the store owner if he could change a $100 bill. The store owner just stood there and smirked and laughed and replied, "If I can't change $100 bill then I need to close my doors!" An attorney doesn't have cubicle after cubicle of clients lined up or a cash register with a line of people waiting to put money in it. All an attorney has is his or her time; every task is very time intensive if it is done right. Some of this time can be billed for and some cannot.
Second, the attorney is lucky if there is anything left over after all of the overhead of a law practice is paid. The reality is that even a modest no-frills modern law office is an expensive undertaking. There is rent, hazard insurance, malpractice insurance, workman's comp insurance, personal property taxes, income taxes, unemployment taxes, bar dues, continuing ed fees, telephone service, postage, cell phone, fax lines, computers and back up systems, practice and billing software, scanners, office supplies, printers, business cards and letterhead, furniture, advertising, legal research fees, signage, constant updates coming in for your library, legal newspapers, cleaning, storage of closed files, utilities, bookkeeper costs, security costs, etc., etc., etc. And have you seen the cost for health care these days? If you take on contingency fee files, you may end up fronting thousands of dollars which you never recoup if the file doesn't pan out. The bottom line is that bills for hundreds of dollars from dozens of vendors come in the mail every month that have to be paid before the attorney sees a single dime of profit.
If you have staff, that is a huge overhead expense to meet; if you don't have staff, that means a huge amount of your time is spent on tasks you can't bill for. Staffing is always a conundrum for an attorney. It always gives off an air of success and professionalism to have someone answering your phone, making the copies and getting the mail out. I'm not being disrespectful here or arrogant, but the reality is that most secretaries or paralegals in a small firm setting can't be trusted to do more than that. Perhaps in a large firm where the secretaries and paralegals are making significant wages the work product is better. This is not typically the case in a smaller firm or with a sole practitioner who cannot afford to pay top wages and benefits. For example, even drafting a simple deed, you need to be able to get the names right, make sure the interests being conveyed are spelled out, make sure the property is being conveyed into the right estate for the circumstances, get the legal description correct, make sure any easements or right-of-ways are properly dealt with, make sure all the transfer taxes or exemptions are identified, make sure the document conforms with local recording requirements. With computers, it is usually simpler to do the work yourself than to explain it to a secretary, review it, correct it, review it again, probably correct it again, etc. It is not uncommon for a legal secretary/paralegal to actually make more money than the attorney he/she works for given that they get paid first shocking as that may sound.
If an attorney chooses to just do the work themselves and not hire staff, the efficiencies are many times devoured by the "time sucks" associated with running a business. It is amazing the number of solicitor calls that come in over the course of a day, particularly from business who serve the legal services industry. You can hang up on the telephone calls but it is not so easy to get rid of the steady stream of door-to-door solicitors. Every summer brings a supply of fresh-faced college students desperately trying to sell you cheap art to hang on your walls. When you are answering your own phone, each call has to be answered but each call is also a distraction that causes you to break your train of thought on the task you are trying to accomplish. Probably close to 1/3 of your time is spent wasted on things you can't charge anyone for like answering calls from people who don't end up hiring you, getting your bills out, paying bills and general bookkeeping, dealing with junk mail, etc., etc., etc. A sole-practioner trying to make a living spends much of their day simply running in quicksand.
The point is that the oversupply of attorneys isn't going to bring the cost of legal services down significantly. The cost of the services is driven by overhead and lost time managing the business as much as anything. Even a simple no-frills office is expensive to run. A young attorney with a large monthly student loan payment simply finds it more difficult to make a regular monthly payment on top of all the other regular monthly payments. This is particularly true because of the feast and famine cash flow up and downs associated with a small law practice.
The myth that "there isn't an oversupply of lawyers because otherwise the cost of legal services would come down" is BUSTED.
One frequent claim by law school apologists is that there isn't an oversupply of lawyers in the market, because if there was then the cost of legal services would be coming down. "The cost of legal services is simply supply and demand, stupid!" This criticism lacks a fundamental misunderstanding of the economics of practicing law, particularly for a solo practitioner.
First, let's understand that the attorney's take home pay does not somehow equate to the billable hour charged. "I wish I made that much money an hour!" is the common client refrain when signing a retainer agreement. No one ever stops and thinks how much a doctor is making per hour moving from patient cubicle to patient cubicle spending about 5 minutes with each one then billing $80 for an office visit plus extra charges for peeing in the cup. An attorney friend of mine, who hadn't made $100 that day practicing law, was once in a party store when the person in front of him checking out asked the store owner if he could change a $100 bill. The store owner just stood there and smirked and laughed and replied, "If I can't change $100 bill then I need to close my doors!" An attorney doesn't have cubicle after cubicle of clients lined up or a cash register with a line of people waiting to put money in it. All an attorney has is his or her time; every task is very time intensive if it is done right. Some of this time can be billed for and some cannot.
Second, the attorney is lucky if there is anything left over after all of the overhead of a law practice is paid. The reality is that even a modest no-frills modern law office is an expensive undertaking. There is rent, hazard insurance, malpractice insurance, workman's comp insurance, personal property taxes, income taxes, unemployment taxes, bar dues, continuing ed fees, telephone service, postage, cell phone, fax lines, computers and back up systems, practice and billing software, scanners, office supplies, printers, business cards and letterhead, furniture, advertising, legal research fees, signage, constant updates coming in for your library, legal newspapers, cleaning, storage of closed files, utilities, bookkeeper costs, security costs, etc., etc., etc. And have you seen the cost for health care these days? If you take on contingency fee files, you may end up fronting thousands of dollars which you never recoup if the file doesn't pan out. The bottom line is that bills for hundreds of dollars from dozens of vendors come in the mail every month that have to be paid before the attorney sees a single dime of profit.
If you have staff, that is a huge overhead expense to meet; if you don't have staff, that means a huge amount of your time is spent on tasks you can't bill for. Staffing is always a conundrum for an attorney. It always gives off an air of success and professionalism to have someone answering your phone, making the copies and getting the mail out. I'm not being disrespectful here or arrogant, but the reality is that most secretaries or paralegals in a small firm setting can't be trusted to do more than that. Perhaps in a large firm where the secretaries and paralegals are making significant wages the work product is better. This is not typically the case in a smaller firm or with a sole practitioner who cannot afford to pay top wages and benefits. For example, even drafting a simple deed, you need to be able to get the names right, make sure the interests being conveyed are spelled out, make sure the property is being conveyed into the right estate for the circumstances, get the legal description correct, make sure any easements or right-of-ways are properly dealt with, make sure all the transfer taxes or exemptions are identified, make sure the document conforms with local recording requirements. With computers, it is usually simpler to do the work yourself than to explain it to a secretary, review it, correct it, review it again, probably correct it again, etc. It is not uncommon for a legal secretary/paralegal to actually make more money than the attorney he/she works for given that they get paid first shocking as that may sound.
If an attorney chooses to just do the work themselves and not hire staff, the efficiencies are many times devoured by the "time sucks" associated with running a business. It is amazing the number of solicitor calls that come in over the course of a day, particularly from business who serve the legal services industry. You can hang up on the telephone calls but it is not so easy to get rid of the steady stream of door-to-door solicitors. Every summer brings a supply of fresh-faced college students desperately trying to sell you cheap art to hang on your walls. When you are answering your own phone, each call has to be answered but each call is also a distraction that causes you to break your train of thought on the task you are trying to accomplish. Probably close to 1/3 of your time is spent wasted on things you can't charge anyone for like answering calls from people who don't end up hiring you, getting your bills out, paying bills and general bookkeeping, dealing with junk mail, etc., etc., etc. A sole-practioner trying to make a living spends much of their day simply running in quicksand.
The point is that the oversupply of attorneys isn't going to bring the cost of legal services down significantly. The cost of the services is driven by overhead and lost time managing the business as much as anything. Even a simple no-frills office is expensive to run. A young attorney with a large monthly student loan payment simply finds it more difficult to make a regular monthly payment on top of all the other regular monthly payments. This is particularly true because of the feast and famine cash flow up and downs associated with a small law practice.
The myth that "there isn't an oversupply of lawyers because otherwise the cost of legal services would come down" is BUSTED.
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