As any businessperson will tell you, operating a business isn’t always an easy task. This is especially true when you’ve got next to no training in how to successfully run a company. Many lawyers find themselves in this position when they start their own practices. They’ve spent nearly a decade of their lives learning the intricacies of the law, but they lack the basic business acumen to keep their practices in the black.
Michael J. Swanson, CEO and Credit Committee member at Advocate Capital, Inc. in Nashville, understands these problems more than most. He believes that legal financing, especially for contingent-fee law firms, is a broken system that’s often hard to navigate for many trial attorneys. That’s why he wrote a book, How David Beats Goliath: Access To Capital for Contingent-Fee Law Firms , that details how contingent-fee lawyers can best go about securing financing.
The Basics of the System
In order to understand Swanson’s goal, it’s important to understand how contingent-fee law practices actually work. The term “contingent fee” essentially means that the law firms do not charge a fee unless they win the case. Most practices that offer contingent-fee cases deal exclusively with clients who are middle-class or, in many cases, indigent. Their cases often involve personal injury claims or similar matters. The contingent fee concept means that there is no risk for those plaintiffs.
Of course, there is certainly a risk for any law practice that deals with contingent fee cases. In his book, Swanson details the difficulties inherent in offering legal representation on a contingent basis. He notes that there is no guaranteed positive outcome in any trial. Putting all your chips on the table for a particular case can be dangerous because it could result in a major net loss. The money spent on representing the client is irretrievable if the case doesn’t turn out to be victorious.
Many businesses face similar problems with funding and income streams, but most of them do not put thousands of dollars and countless hours into assets that have the potential to yield nothing positive. Contingent-fee litigation is certainly an up and down business model.
How to Beat the System
In How David Beats Goliath, Swanson outlines how contingent-fee law practices can secure funding without dipping into their own coffers for each case. Swanson’s day-to-day job at Advocate Capital, Inc. revolves around offering financial advice and support to contingent-fee law firms. Before writing the book, he had spent a decade inspecting tax returns, financial dealings, and other information from trial lawyers. Thus, he became something of an expert on the matter.
In the book, he outlines 10 different ways that contingent-fee law practices can gain access to capital. Clearly, there are numerous ways to secure funding, but not all of these methods are ideal for every law firm. In any event, it’s important for these law firms to never lose sight of the business aspects of their practices. Although it is certainly altruistic to provide legal representation to clients that otherwise couldn’t afford it, it does not guarantee that the practice will stay afloat.
Swanson believes in the work of trial attorneys so much that he penned an entire book to help them steer clear of financial troubles. He is also not taking any of the proceeds from the sale of the book for himself. Instead, he is donating all profits from the book to the American Association of Justice’s Seventh Amendment Fund. The fund helps the AAJ preserve the right of every American citizen to have a trial by jury in civil disputes.[amazon template=iframe image&asin=1599322501]