Being a criminal defense lawyer, my business model is relatively simple.  A fee is determined and paid to retain my services.  Sure, there are expenses along the way, and sometimes fees vary based upon how the case progresses (such as a fee for trial), but in essence the business model remains straightforward.  The one thing that the business model does include is financing the client. 

This means that some clients will not be able to retain me, no matter how much they might want to.  For a variety of reasons, that have been explained elsewhere in this blawg, I avoid creating conflicts with clients that will damage the relationship.  I avoid charging a fee and not getting paid.  There are time when problems arise no matter what, but they are rare, and when they do, the impact on my business model is minimal.  I keep it simple.

But as I learned from the Securities Law Blog, via Tannebaum’s twit, Biglaw has a different business model.  Ever wonder how Biglaw can pay its first year associates about $200,000 a year (which, I learn, is billed out at $495,000 a year)?

You see, BigLaw finances all of this. BigLaw borrows money from BigBank to meet monthly expenses, salaries and partners’ draw. Silly business model, but apparently a necessary one. Heaven forbid one should pay expenses out of cash flow. No, you borrow money from the bank to pay the rent, and the salaries and the overhead. You then repay the bank with your receivables, and start all over again.

Sorta sounds like a ponzi scheme, doesn’t it? Not really, and it all works; until a recession comes along.

BigLoans meet Uncollectible Receivables. Add a dash of credit crunch, and its bye bye BigLaw.

So Biglaw has been paying all these fine young lawyers on borrowed money, waiting for their corporate clients, their well-heeled CEOs, to mail the check.   But when very large corporations become very large rocks, there’s no blood to be had.  When the bank shuts off the faucet, there’s no loan.  That big sucking sound is Biglaw going down the drain.

Many lawyers think that solo practitioners who practice criminal defense are archaic in their expectation that legal fees be paid in advance.  They laughed at us.  Hah!

But my practice remains financially viable and sound.  Not bad for a dinosaur.  And I have no plans to hire any first year associates for anything close to market rate.  It’s not the money (though I wouldn’t pay that even if I could).  It’s that they don’t know how to practice law.