In the most recent issue of the Oregon State Bar Bulletin, Lee Wachocki provides a great strategic insight into the option of law firm succession planning rather than selling your practice. Our very own Justin D. Farmer contributed to the article, titled “Sales Isn’t The Only Option.” You can read the full piece by clicking here. Following is our own synopsis and comments:
Frankly, not every private law practice can be sold. There are several factors that impact transferability, but “retiring in place” is often the biggest culprit. Some attorneys find this out the hard way as they near retirement age and are unable to find a buyer for their firm. If you are the most valuable asset of your small law firm, then you may also be experiencing this difficulty and wondering what to do.
Consider finding a successor for your practice, rather than a buyer. If you properly integrate your successor into the practice (think ownership from the outset or a very clear path to ownership), then over time you will be afforded an easier transition into retirement without needing to worry about the future of the business you have built. This is the advantage of succession planning for law firms.
Without a doubt, the true assets of your firm are its intangible assets, meaning the goodwill you have built, the loyal client base, and your firm’s name recognition. While your tangible assets (desks, computers, and the like) have some value, that is not truly what a buyer is looking for. Thus, you lose out on the intangible asset value when you retire abruptly. Thus, putting a succession plan in place whereby you gradually transfer the goodwill to another attorney will help ensure the success of your business for years to come.
So, how do you choose the right successor to take over your small law firm? Look for someone who you trust and who is interested in running a business, not just practicing law. Just like any other courting process, identify the attributes that will signal success: amazing work ethic, impeccable references, strong writing skills, and the right personality/temperament for your clients. Make sure your successor’s philosophy of law practice aligns with your own to maintain the integrity of the mission of your firm. Once you have narrowed down your field of finalists, consider giving your top choice a trial run. Bring them in on a case as a contractor or consultant. If it does not seem like a good fit, move on realizing that you have not committed to this person for the long term.
Once you have chosen your successor, you can begin your transition into retirement – but do so slowly. Abandon your traditional notions of what this should look like. Every practice is unique, and every transfer of ownership to a successor will be unique, too. Get some outside advice as you go through the law firm succession planning process and work with your successor to come to terms on what your ultimate compensation will be. There are no hard and fast rules here, and having an experienced professional assist you in drafting these contracts will make the entire process run more smoothly.
Your small practice means the world to you because you built it with your own two hands. Do not give up hope because you are having a hard time finding a buyer. Transition slowly into retirement by handing operations over to a successor who can carry on your legacy. If you need help choosing between business succession vs. selling for your firm, we can help. With the help of trusted professionals like those at Private Practice Transitions, you can make this transition gracefully, and enjoy peace of mind.
