We’ve all heard stories about lottery winners who go on spending sprees and wind up broke. We assure ourselves we would have more discipline. Unfortunately, some personal injury attorneys fall into the same trap.
I spoke recently with former NCAJ President John McCabe about why personal injury attorneys should have a financial plan for the big payday.
Yanke: What are common mistakes made by new personal injury lawyers receiving their first big award or settlement?
McCabe: One of the biggest mistakes new attorneys make is to assume their first large fee is the first of many. It’s good to reward yourself for a job well done; however, there is a temptation to increase your standard of living to meet this new income level. There will be times of higher and lower income depending on the result of individual cases. Attorneys should set up their practices to continue functioning during the lean times.
Young attorneys aren’t always looking to the future. They should reinvest the largest part of the fee into growing the firm. Invest in finding new cases; build a website, have a presence in the community, and join professional organizations. Work to build a strong cash reserve as an emergency fund—the foundation of any financial plan. Make sure you never have to worry about meeting your payroll.
Yanke: What advice would you give a new attorney?
McCabe: Keep your overhead low. This applies to your personal overhead as well as your business. Just like any other business, you can’t count on this one always working out as you would like. Have enough that you can continue to take care of your family and even transition to another industry if this one doesn’t work out for you.
The need for a win to keep operations going may cloud your judgment. Don’t try to salvage a bad case and don’t try to overwork a good case. Do you know how you get a million-dollar case? Mess up a $3 million dollar case. If financial decisions are made in anticipation of a coming fee, you may back yourself into a corner where you become desperate for the win. Take each case on its merits and work it to its logical conclusion.
A word of advice I was given by a mentor of mine: “There are many slips between the cup and lips.” This means that there are many things that can go wrong before a case resolves, even in an open and shut case. Don’t count the chickens before they are hatched.
Yanke: What about planning for the future?
McCabe: Work in the here and now and plan for what comes next. Just as you wouldn’t want your client to go to court without you, don’t expect to be an expert on saving and investing. Every lawyer should have a financial planner you can trust. Let them help you plan for the future. Consider a retirement plan for the business. It will help the attorney be ready for retirement someday and can also help with employee recruitment and retention.
Plan for your family. Believe it or not, you won’t live forever. Think about what happens to your family and firm if you become disabled or deceased. Is there a succession plan in place? Conduct yourself as if you will live to be 100 years old but plan for contingencies that make life unpredictable.
According to McCabe, these are just some of the ways attorneys can develop a mindset for success in this industry. The goal for any business is to stay in business. This requires a plan for financial stability in an unstable environment. New attorneys can learn a great deal from the experience of veterans.
Make sure to discuss all legal, tax, and financial matters with appropriate professionals.
