No matter how close or distant retirement is, succession planning can help you reach your goals for your solo or small law practice.
Retirement requires planning, and those of us who manage a solo or small law firm face decisions that can help prepare for a smooth transition upon retirement, whether through an “internal sale” and an external sale of the practice. Guidance from three law practice management experts across the US, including our own Laura Keeler (Mass LOMAP practice management advisor), along with Charity Anastasio (practice and ethics counsel at AILA) and Catherine Sanders Reach (director for the Center for Practice Management at the NCBA), was shared in a recent ABA Law Practice Today article, which opened with the following initial considerations:
You must identify what succession option best suits you and your clients. If you own a solo practice, do you already have a fellow practitioner on staff whom you’re grooming to take over when you’re gone? Though this classic example of a succession plan (the “internal sale”) sounds simple enough, a multitude of loose ends will still need to be tied up before hanging it up: What happens when they don’t or can’t take over, whether through a change in life circumstance or simply preference? What is the financial arrangement that leads to an orderly transition within the practice? Is it written down anywhere?
If you are solo, or no willing successor is in your practice already, have you identified another lawyer or firm who will take over your practice through an external sale (e.g. buyout, merger, or acquisition)? Assuming that your intent is not to simply close the doors and let the buzzards have at your clients and let the wind absorb your forthcoming profits, you have some serious decisions to contemplate.
THE MOST CRITICAL COMPONENTS OF SUCCESSION PLANNING: The mindset to commit to planning (i.e. with a concrete timeline) is key to having enough time for identification, onboarding, training, or selling, as Laura points out. Laura also notes that seeking expert advice on realistic valuation can be keeping the ‘endowment effect’ in check. Creating a plan that’s easy to access and update is most critical according to Catherine, and Charity emphasizes the importance of the people selected to help actualize the plan and your communication with them.
THE MOST PREVALENT PITFALLS IN SUCCESSION PLANNING: It’s unfortunately common for attorneys to die or become incapacitated without a succession plan created or communicated, leaving family, support staff, or associates to seek help, as Catherine observes. (Related: Picking Up the Pieces After the Death or Disability of a Solo Lawyer in Massachusetts [Guest Post].) Waiting until there’s a problem to start planning is the most common pitfall, as Charity elaborates. Charity offers two more: Not communicating with key stakeholders both in work and life, and not being organized and doing the work it takes to get and stay organized — to facilitate communication. Laura noted that you need to plan to transfer knowledge with documentation of firm operations, logistics, processes, and procedures — and that you need to build trust across successors and clients, which takes time.
THE BEST TIPS FOR STRUCTURING AN EXTERNAL BUYOUT: Laura points out valuation between cash upfront compared to structuring payments over a period of years. Catherine encourages lawyers to identify value beyond the book of business (even a great domain name or phone number!). And Charity highlights how lawyers can plan to manage expenses carefully and sell at the top of your game.
TIPS FOR NEGOTIATING AN INTERNAL BUYOUT: Have preparatory conversations early, Catherine notes. Remember that it’s still business — prepare and view it as such, Laura cautions, while embracing the trust and history you share. From there, Charity emphasizes the importance of cutting the cord once the deal is done.
THURSDAY, JULY 15, 2021 at 1pm! LAW FIRM VALUATION (ABA Webinar) — Practice valuation is a central to understanding a firm’s ability to secure loan financing, negotiate firm mergers and collaborations, and a host of other important business matters, including but not limited to the value of a firm upon sale. Join this panel of experts as they dive into valuation of a law firm.
You can find further resources in the full post on Law Practice Today and below.
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