Managing Law Firms in Transition

Managing Law Firms in Transition

Law Firm Retirement Plan Tweaking – Four Additional Things to Think About

Posted in Law Firm Leadership, Law Firm Succession, Law Firm Transition

At a growing number of law firms, the Boomer generation is reaching the age when retirement among the ranks has partners leaving in increasing numbers. Numerous industry focused writings have noted an array issues faced by law firms experiencing retirements.

As partners retire, financial ramifications can be felt. The monetary payout associated with the retirement benefits is one. While some firm’s retirement plans are fully funded, many plans require a “topping off” of a guaranteed benefit and others, not being funded at all, must be satisfied out of yearly profits. Second, when senior lawyers retire the impact can be negative due to the loss of their productivity not so readily replaced. Third, retirements can require the return of capital to retiring partners. In a world in which partner capital contribution levels have grown, the capital to repay can be significant-certainly often greater than the capital being contributed by incoming partners.

Individually each one of these financial “hits” can be material. When considered together (as they often occur), they not only can strap a firm but also can upset the financial bargain the younger non-retiring partners have come to expect. To respond to that predicament, some firms are lessening the financial impact by reducing the overall financial benefit paid on retirement, extending the years for repayment of capital, extending the years of service necessary to vest in a retirement plan, and lowering the cap on annual retirement benefits paid by the firm in any given year. Because such modifications must be phased in over a number of years, however, the initial ameliorative effect can be modest.

Even a proactive financial solution to the increased retirements does not necessarily solve all problems. Other issues tied to cascading retirements can loom over a firm, including:

Modifications to the Plans Can Take Too Long to Assuage Younger Partners. Because most modifications to the bulging retirement obligations firms face are phased, the financial strain on the firm and potentially felt by the next generation is not avoided immediately. That can mean an inordinate portion of the firm’s positive financial performance (at least in the eyes of younger partners years away from retirement) is allocated to retirees.  Will the younger partners accept a phase-in and hang around?

Eagerness to Invest Capital at Firms is not a Given. As senior partners retire and start recovering their capital, younger partners are afforded the opportunity to invest capital in the firm. Sure, it often is the sin qua non of a nice compensation package, but what if highly productive attorneys eschew partnership in favor of a contractual arrangement that requires no capital contribution. It happens now and may happen more often in the future.

Longer Vesting Periods Will Create Other Issues. Engineering the retirement benefits with longer vesting periods and the like may work in a firm’s financial model, but it could create a caste system among generations of lawyers. Moreover, in a market that competes for high value laterals or transformative mergers, the handling of “years credit” towards retirement plan vesting can be thorny. Many law firms will find that the vesting issue for new additions can have destabilizing ramifications.

Demographics are Trending the Wrong Way.  To the extent demographic trends make Social Security a bad bet, the demographic trends at law firms could be worse. The pyramid is dead and buried and signals a shrinking law firm workforce that will be expected to shoulder tomorrow’s retirement obligations. The numbers reported by Julie Triedmanin her The American Lawyer article Pensions Pose an Increased Threat for Some Firms, were not encouraging for law firms. There is little reason to expect them to have improved.

Many of today’s law firms are taking sound steps to address the progression of partner retirements. They simply have to. But as helpful these steps are to the long-term bottom line, they also may contribute to or fail to address some long-term implications that won’t be felt for years.   As you engage in retirement plan tweaking, are you addressing these long-term issues?

 

Focusing on Long Term Stability

Posted in Law Firm Leadership, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition, Uncategorized

“Focusing is about saying No!”   Steve Jobs

 

I was reviewing an article regarding the 13th Annual America’s Best Corporate Law Firms study and was struck with how consistent the same names appear on this list — year in and year out. Even if you haven’t seen it, chances are you can name many of the firms that have a stranglehold on a position on this enviable list.

It begs the question for firms seeking to achieve a similar position — How did these firms secure their position?  And what will it take for your firm to capture a similar position?

The answer is simple……….. Focus

Firms that hold dominant market positions have found a way to align who they are and what they do on a daily basis with the market position to which they aspire.

Dominant law firms hire, spend, acquire, merge, and compensate based on one question: Does this investment align with our strategic focus?  If it does not, it eats away at the desired position…and weakens the law firm.

The path to dominance is easy to define in theory.  Identifying and navigating the right path for your firm is much more challenging in practice.  A thousand good ideas, disparate aspirations and diverse views combine in an assault against focused and disciplined decision-making.

Without unwavering focus on the desired market position, every good idea seems worthy of investment.  Any opportunity to expand can appear to support growth.  Every opportunity can seem to be a good one; however, at the end of the year you find yourself having made significant investments, but no closer to your firm’s desired market position.

And the discussion is not limited to aspirations of a position of market dominance. The principle applies to whatever your aspirations are. Without disciplined focus your odds of achieving what you would like to achieve are greatly diminished.

Here are the guideposts that lead to the aligned law firm…and will help you chart your firm’s course to stability, the profitability you desire, and yes — market dominance.

  • Identify the market position to which you and your partners aspire.  (You can guess…but this is most effectively accomplished through a series of interviews/discussions designed to identify your shared vision.)
  • Audit your expenses and define which move you closer to the position you desire.  (Whatever they are – office space, infrastructure, people — begin now to create an expense ledger that is devoid of the things that do not move you toward your desired market position.)
  • What is lacking…in terms of talent, location, support and infrastructure?  Build a plan that moves you from where you are today to where you need to be…and invest appropriately.
  • Consider each decision in this context – will this move us closer to the market position we’ve targeted?

Is your firm on its way to the top?

 

Four Important Phases in Achieving Law Firm Merger Success

Posted in Law Firm Growth, Law Firm Leadership, Law Firm Merger, Law Firm Transition

Law firm growth gets a lot of attention. Among the various approaches to law firm growth is the tactic of merger. Almost weekly we are treated to another announcement about two law firms fulfilling their desire to grow by combining. And although law firm mergers have been part of the landscape for years, the incidence of law firm growth through merger has become commonplace.

When law firms get involved in the merger game typically little is publicized until the merger is announced.  Even in the instances in which a law firm’s interest in a merger is leaked before the merger is a done deal, details about the merger mechanics are scant. The leaked news usually only stokes a rumor and a closed deal may or may not result.

For firms that have not done a merger the question often asked is “how does a merger come together?” While the genesis for each transaction is unique (as are the negotiations), virtually all mergers involve four distinct phases that are interrelated and build on each other. Performed well and a merger is positioned for success. Performed poorly and a merger’s prospects are suspect. The four key stages are:

Phase One-Embracing the Idea of Merger. The reasons behind a firm’s decision to pursue a merger can be many. Some firms need a rescue; others see a need for additional capabilities or have a desire to enter a new and critical market. A frequent reason to merge is one premised on the combination adding market share not easily gained through organic growth. As the Boomer generation reaches retirement, merger also can be a useful tactic to address leadership or succession issues.  Whatever the impetus, the decision to consider merger should be one premised on meeting a strategic initiative identified through thoughtful and critical analysis.

Phase Two-Deciding on the Right Criteria.  In Phase Two, it is essential that the criteria for a merger be clearly identified before seeking out a potential merger partner. Only once the criteria are established should a firm purse candidates-all the while remaining faithful to its criteria. Whether acting opportunistically or methodically, staying true to the criteria protects a firm from letting the thrill of the conquest dictate its tactics. It also provides the foundation for the discipline needed to walk away from a bad deal that momentum would have you close otherwise. Understood criteria and discipline prevent emotional or irrational decisions. They should not be compromised.

Phase Three-Selecting the Right Merger Partner. For firms approaching merger correctly, a thorough diligence process provides guidance on firm compatibility. In this phase, a firm should consider whether it and its prospect are compatible on matters of culture, finances, compensation systems, clients, and operations. An additional important factor is the fit of leadership styles and the potential for evolving to a leadership team that will be accepted by people in the unified firm. Ideas on succession and vision should be compared to further confirm the fit.

Phase Four-Blending Two Firms into One.  While it is essential that the integration and assimilation of the two firms be planned before the merger is finalized, also essential are an attention to detail and a dedication to bringing together disparate groups post-merger. Everything from forging a singular culture to creating systems, processes and procedures to gauge, motivate and reward the new firm’s valued behaviors.   Hard work post-closing is not only important to avoiding crisis during the honeymoon period, but it also is important to the care and feeding of the next generation of performers and leaders.

Doing the right merger and finding the right partner takes work. It does not come about by happenstance but requires an unyielding focus at critical points along the way. Has your merger experience shown you other important phases?

 

Managing Law Firm Strategic Initiatives

Posted in Law Firm Growth, Law Firm Leadership, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition

This post is inspired by a recent interaction with a former colleague that has done very well with her career. 15 years ago, she was an entry level law firm HR professional that was smart, had lots of energy and a passion for excellent work. She has advanced through a variety of positions in the law firm management arena and recently accepted a position which includes primary responsibility for developing and managing strategic initiatives. Following a call asking for my thoughts and perspectives related to the topic, I created the following discussion outline and am  sharing it.

1. Identify strategic initiatives
a. Strategic initiatives are those things that if accomplished will make the greatest difference in advancing the firm towards its destination. This obviously assumes the firm has done work to define its desired future.
b. Implement a vetting process that allows constructive debate as to what is and what is not a strategic initiative. Sponsorship by an influential partner alone should not be the defining mechanism.

2. Estimate cost of each initiative.
a. Prepare a budget for accomplishing each strategic initiative, allocating cost to the budget periods the costs are expected to be incurred.

3. Determine funds available for discretionary spending.
a. Law firms spend money in two broad areas – mandatory and discretionary spending. Mandatory spending includes items for which there is no choice in the near term, examples include taxes, rent, salaries and benefits to existing personnel and other contractual obligations. Discretionary spending is everything else, examples include marketing, CLE, business development, growth, seminars, contributions etc.

4. Allocate funds to strategic initiatives.
a. If funding requirements for all strategic initiatives exceed the discretionary funds available, choices have to be made. Ideally, funds would first be allocated to the initiatives perceived to have the greatest long-term value. Practically, other factors will influence the allocation of resources including the firm’s need to accommodate influential partners or other political realities. To the extent these non-strategic influences are minimized the stronger the firm’s future.

5. Assign responsibility for each strategic imitative with milestones and associated dates.
a. In order to achieve accountability, one person must be named as the person with responsibility for the initiative’s timely completion on budget. The assignment of responsibility should be made in a highly visible manner. Critically, in addition to a responsible person, each initiative should have clear milestones and dates associated with them against which progress can be monitored.

6. Monitor progress to milestones in a transparent fashion.
a. There is a high degree of correlation between initiative success and the visible accountability for progress towards initiative milestones. Regular monitoring and transparent reporting will drive ever-increasing levels performance.

7. Celebrate successes.
a. Success drives success. Finding opportunities to celebrate the completion of an initiative or possibly even milestones will drive more success. The recognition of the success and those involved in it reinforces strategic activity.

Identifying and effectively managing the most critical strategic initiatives can have a profound impact on a law firm’s success.

Merger Madness-Five Reasons Your Merger Can Go Wrong

Posted in Law Firm Merger, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Transition

It almost seems like a broken record to hear about the popularity of law firm mergers.  Legal industry publications report on the latest mergers and hot market trends.  Indeed, just recently The American Lawyerreviewed the merger opportunities that abound for mid-size firms in its Mid-size Firm Leaders Awash in Big Law Merger Offers.

Despite the popularity of mergers among many firm leaders today, positive outcomes are not assured.  Mergers can fail-depending on how success is measured, the failure rate can exceed 50%.  Even a “successful” merger can be a disaster for some of the parties indirectly involved, like certain partners.  The recent headline Biglaw Lawsuit Drama: Partners Allege Merger Deprived Them of Their Moneyin Above the Lawrepresents anecdotal proof that mergers can go wrong, at least for some of those participating.

Of course, a bad merger for one participant may be a good one for another.  And the list of exact ways a deal might turn out poorly can be long if not endless. Nonetheless, it is possible to identify five circumstances that can lead a firm or some of its owners into a bad deal.

Five paths to unacceptable to a shaky outcome are:

The Marriage Partner is Less Than Forthcoming.  No business transaction is immune from a bad actor on the other side.  Even if outright fraud is not present, an agressive counterparty can use non-disclosure, obfuscation, or confusing nomenclature to extract a deal that a clearer understanding would reject. There can be a wide range of savvy among parties to a deal and it is possible your firm’s opposite possesses greater sophistication.  For that reason, it is a good idea to enlist experienced help, especially if differing levels of experience creates an uneven playing field.

Leadership Leads You into the Abyss.  Your law firm or you can end up in a bad place if your leadership negotiating the deal is ill equipped or too invested in a deal consummation outcome.  Because not all law firm leaders are created equal, the default of the managing partner driving the deal does not guarantee a good outcome.  At a minimum, a firm jumping into the fray should get its best deal lawyers on point. Better yet, hire outside counsel and financial advisors.  But even the best professionals can’t thwart leaders that want the merger too badly. Steps to guard against leaders in love are worth considering.

Business Premise Does Not Compute (2+2=3).  A merger should be the tactic to implement a well thought out business strategy. Consequently, the post-merger business case for the combined firm must not only be compelling, but it must be assessed before agreeing to the merger. Two firms made stronger through merger is the objective.  If that outcome is not apparent during the merger discussions, isn’t it worthwhile to question going forward? A merger that is not additive may not be worth doing.

The Firms Were Never Meant for Each Other.  Even if the business case for combining the two firms is compelling, the firms must be compatible on multiple levels.  Compatibility metrics like financial performance, compensation systems, client similarity, culture and operations must be measured.  If too many of the metrics do not align, it is wise to forego the merger opportunity and look for the next one. “A lack of compatibility” has been the epitaph on many merger headstones.  A critical examination of the “things that bind” is essential.

Salt Water Fish in a Fresh Water Pond.  A merger that hits all the markers for the two institutions getting married may be unsuitable for certain individual lawyers. Mergers inevitably create attrition when lawyers are forced into a new home. As the exciting news of the combination is announced, and the sales job gets rolled out, lawyers will look beyond the company line and take stock from their personal point of view.  For that reason, firms selling their mergers should view the deal through their lawyers’ eyes to realistically project attrition. Too much unanticipated attrition can be highly detrimental on many levels.

Before embarking on a path to merger, many of these five pitfalls can make a deal go wrong.  Will you think about these risks before going forward?

 

What is Your Law Firm Worth?

Posted in Law Firm Merger, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Succession, Law Firm Transition

What is your law firm worth?

This question is paramount when the owners of a firm consider the possibilities related to a merger, a succession plan involving existing firm members, or the outright sale of an established practice.

There are variations by state as to what can and cannot be sold as part of transitioning of ownership of a law practice; and even given the existence of suggested formulas for valuation, when it comes to estimating the value of a given practice, there are often more questions than answers. But in order for a transition to be successful for all involved, it is essential to have a solid idea of what a firm is worth.

To this end, in our experience, here is where the conversation should begin.

Two Broad Considerations

In the typical law firm transition there are two separate areas of value, each of which represents distinct characteristics:

  • Tangible assets – this is in many ways the easy part of the conversation. Examples include furniture, equipment, cash, investments, receivables, and work in process…; and then there is,
  • Good will — this amounts to the equity of the law firm’s name that will be transferred to the new owners, and often represents the significantly more difficult (and typically most valuable) piece of the valuation process.

In the simplest terms, good will is the value associated with the firm’s ability, to generate future income under the newly constituted ownership. That future income generating capability absolutely has economic value; in many cases it may represent the most significant piece of the valuation puzzle.

Think about it. If you could purchase an investment — say an annuity that would guarantee a payment of $2,500 per year for 10 years, what would you pay? $15,000, $18,000 maybe $20,000? The same principle is true in the purchase of a business. The projected future income has value in the context of a present-day transaction.

Unfortunately, the future profits associated with a law firm are not as certain as a guaranteed annuity. Although a firm’s reputation may be outstanding, and the historical revenues may have generated an impressive level of profitability, the continuation of those profits depend on clients choosing to continue to be served by the new firm following a transition in ownership.

Notwithstanding the above uncertainty there are means of estimating future gross revenue and net profit associated with a firm that yield an approximation of the firm’s potential value.  The use of revenue and profit multiples can provide a rough idea of value. That approximation requires further refinement in order to account for the risk associated with projections of future revenue associated with a particular practice.

For Your Consideration

What we are discussing here is what many in the marketplace refer to as the value of a law firm’s brand and the job of valuing that brand is clearly more art than science.  There are more challenges associated with valuing a law firm than most other business types. But these challenges should not get in the way of a focused effort to approximate the value of a firm before beginning a process that will result in a transition to new owners.

What efforts have been made to estimate your firm’s value?

Merger as a Law Firm Succession Plan-Five Steps to Getting it Done Correctly

Posted in Law Firm Leadership, Law Firm Merger, Law Firm Succession, Law Firm Transition

Every year law firms of all sizes merge. For some of the smaller law firms merging, the decision to combine may have been driven by the need for an effective succession plan. In these cases in which long-time management is unenthused about the prospect of turning the keys over the next generation, merger can be pursued in lieu of the more traditional internal succession approach.

From the point of deciding to seek a succession plan merger to getting to the closing table, a lot of things must happen. Indeed, care is essential in any merger but especially when a succession plan merger is pursued. Mistakes along the way can make the plan impossible to achieve or result in the options available being less than desired. An undisciplined approach may yield no merger while leaving the firm weakened. To maximize the outcome in a succession plan merger strategy, there are at least five key considerations.

Establish Your Objectives.   As in any major transaction, a clear set of objectives should be established at the outset. If the succession plan merger is primarily designed to wrap up the smaller law firm’s affairs with dignity, then the approach will be far different than for mergers designed to “cash out” or to leverage the combination into the next achievement for a law firm steeped in a history of success. But if the objectives are not well understood from the beginning, pursuit of a merger will not only be haphazard but also potentially ineffective, or worse yet, harmful.

Objectively Assess Your Attractiveness.   Nothing can waste more time than being unrealistic about your firm’s attractiveness. Conversely, nothing will be more disappointing than to realize that your merger strategy undersold your value. To avoid missing the mark, hire an advisor experienced in law firm mergers that will provide an unbiased assessment of your place in the market. If the advisor concludes that no market exists for your firm, you clearly would want to know in order to avoid pursuing a fool’s errand. If a market exists, geography, legal strengths or specialties, size, financial performance and personnel will be relevant factors to developing a strategy.

Make Your Firm Look Good.   Many times, a home sells more quickly and at a higher price if it is “staged” to look more attractive. The same can be true if proposing to enter the merger market. Deferred maintenance needs to be remedied, lingering problems need to be addressed and contingent liabilities need to be resolved or at least contained. Presenting your firm in the best possible light, with professional assistance, can be very helpful to optimizing your results.

Develop a “Sale” Strategy. Law firms are best marketed discretely and without being on the market for too long. For that reason, it is essential that your advisor develop a strategy that presents your firm to good candidates without shoving a “for sale by owner” sign in the front yard. An unfocused marketing strategy can be counter-productive.  And a law firm marketed for too long will become market worn and perceived as rejected by the market.

Communicate Internally. The fact that your firm is seeking a merger partner should be closely contained. But because word has a way of leaking out, it is essential that an internal communication plan exist. A plan serves at least two objectives. First, it keeps key law firm contributors on board and minimizes their premature departures. Second, it can build support for the merger. But because pursuit of a succession plan merger is based on the conclusion that an internal succession plan is not desirable, any communication plan needs to be carefully developed.

A succession plan merger can be a useful strategy for law firms otherwise struggling with succession. Pursuing that strategy requires care and commitment. Has your firm considered a merger as a way to address its succession issues?

 

Law Firm Sale and Outside Perspective

Posted in Law Firm Leadership, Law Firm Succession, Law Firm Transition, Uncategorized

The best way a mentor can prepare another leader is to expose him or her to other great people.    John Maxwell

Quality decision-making has a great deal to do with shaping the ultimate fate of all law firms.  Today’s post focuses on the value of today’s law firm leader engaging the insight and decision-making acumen of seasoned outside business professionals when considering the transition of their practice through a sale.

Think about it. When we engage in a personal activity that is important to us but for which our experience is lacking, we call on the services of a coach, mentor or guide.

  • On vacation, we often employ a guide to help insure we get the most out of the experience;
  • If you hike in an unknown area, you likely tap the knowledge and experience of one who knows the terrain;
  • An advisor is hired to assist with the creation and monitoring of our financial plan.
  • The guidance and direction of a fitness expert insures we get the most out of time invested in the gym, and ultimately realize objectives.

But what about the often new and unfamiliar challenges that come with the responsibilities of leading a law firm through its most critical transition? Unfortunately for most law firms, the senior members of the firm or the leadership body rely solely on their own judgment and relatively limited experience.

In virtually every other business arena, executive leadership has long recognized the value in tapping seasoned and diverse perspectives — especially when facing key decisions related to their organization’s future. That is why so many corporations have a board of directors dominated by professionals from outside their organization.

When you compare the difference in business leadership experience of the typical non-law firm with that of almost every law firm it is startling. And I would argue that the need for outside perspectives for law firms is even greater than other businesses.

Edward Drummond is a UK based executive search firm that recently released the results of a study of the top 100 UK law firms over the last four years. It is telling that this study reports that about a quarter of the UK top 100 use a non-firm member to assist with decision making; and that the firms that utilized this approach realized a growth rate of about a third more than other firms.

The author of the study suggests “To get someone in just for a few days a year often works well for both parties. Having someone with strong commercial experience – sometimes within the FTSE 100 – can really drive growth through commercial experience.”

Tapping the perspective and experience of outside advisors can help design a winning strategy, and accelerate a “leadership orientation” for the law firm management team. The risk is extremely low and the upside is limitless.

Is your firm considering a succession type transition ? Are these  decisions going to benefit from the wisdom of a seasoned business professional(s)?

Five Warning Signs That Your Law Firm is Headed for Uncertain Times

Posted in Law Firm Crisis, Law Firm Growth, Law Firm Leadership, Law Firm Repositioning/Turnaround/Restructuring, Law Firm Succession, Law Firm Transition, Law Firm Warning Signs

As business organizations go, law firms are different because they can face greater stability challenges.  Sure, law firms with iconic names seem to rock along year after year.  But for every bedrock firm there are others that struggle to survive.  And even some of the firms regarded for their steady state are like the proverbial duck bobbing on the pond-calm on the surface but furiously paddling underneath the waterline to stay unruffled.

No matter a firm’s size, or its current state of repose, all face the potential for future rough seas.  Good management, basic blocking and tackling, and a strong culture contribute greatly to protecting a law firm from instability.  Yet even firms with great fundamentals can be headed for struggle if vision is lacking.

Historically, warning signs precede a law firm’s crisis. Unfortunately for some firms, the signs go undetected until too late.  Recognizing the “heads-up” early greatly aids law firms prepare for and combat the crisis that lurks.

While warning signs can take many forms, five common indicators worth watching for are:

Inadequate Succession Plans.  The importance of succession at law firms is recognized.  Some firms are wholly unprepared for the future because virtually nothing has been done.  Without question, these firms face a cloudy future.  Yet even firms that have dedicated some time to succession may suffer from an insidious case of overconfidence.  A firm whose succession has received inadequate attention is highly susceptible to risk.  An underdeveloped succession strategy can be as bad as no strategy at all. If your firm’s succession planning is lacking, take heed.

Reactive Operations.  In today’s dynamic legal services market, well-prepared law firms are proactive towards client needs, market forces, and industry trends.  These firms take nothing for granted and prepare for a future that will be ever changing.  A firm that is comfortable with “business as usual” has taken a different approach and is at a disadvantage.  As the industry moves further and faster, the reaction time for the complacent firm slows comparatively-it is positioned for an uncertain future. When you realize that your firm is reactive, not proactive, it may be time to worry.

Unclear Retirement Plans. As firms age, how are the old warriors going to ease into retirement?  If a firm has no retirement strategy for its lawyers (whether 401(k)-like or traditional pension plan), the senior lawyers may be compelled to work long after their worth begins to wane.  For multiple reasons, that is not healthy. Conversely, a firm’s pension plan may solve that problem, but the plan may be woefully underfunded.  Either way, a firm without an effective handle on retirement for its lawyers should have concerns.

Non-rationalized Real Estate.  A big expense for firms relates to its real estate obligations.  More than a few firms have too much space in relation to productive lawyers.  Unrationalized real estate puts significant pressure on a firm’s bottom line.  For that reason, a firm whose real estate obligation exceeds its needs signals that all is not well. Noticing your firm’s real estate commitment being out-of-whack with its needs should set off alarm bells.

Growth or Non-growth That Follows No Plan.  Firms grow, get smaller, or maintain their size with each passing year.  Any firm whose size fluctuates uncontrollably has not adequately planned for its growth (or non-growth).  A firm whose growth ebbs and flows without it being the result of a well-designed strategy is risking its future. Unguided growth is like a monkey with a gun.

To succeed long-term, law firm leaders must remain ever vigilant.  Staying attuned to problems on the horizon is a hallmark of alert firms.  Do your firm’s leaders have the vision to see what lies ahead and react?

Part 2- Succession and Selling Your Law Practice

Posted in Law Firm Repositioning/Turnaround/Restructuring, Law Firm Succession, Law Firm Transition

This is the second in a two part series addressing the idea of selling your law practice as part of a succession plan. Part one addressed
issues related to defining personal objectives, compliance with local bar rules, and practice valuation.

In this post we will look at three remaining considerations:

  • Finding a buyer,
  • Negotiating the transaction; and
  • Transitioning client relationships

Finding a buyer

There are a number of approaches to identifying the right buyer for your practice. At the outset we should emphasize that your local bar rules may influence your choice; so be certain to thoroughly explore them before proceeding.

Classic Advertising 

A simple advertisement in any of the bar journals or practice specific publications is a reasonably cost effective means of reaching potential targets. If you go down this road it pays to be aware that this is a bit of a shot-gun approach. Your plan will need to include an initial vetting process. Otherwise, depending on the size of your market and the practice you wish to sell, you could find yourself spending a lot of time fielding unproductive inquiries. The more targeted your advertising can be, the better.

Competitors Direct Approach

As is the case with most marketing efforts, the sooner you get face-to-face with a qualified target, the better. So your most fertile ground may be competitors, or those engaged in a complementary practice. Approaching these individuals or firms directly can expedite the process if interests and objectives are aligned. So some homework here can prove beneficial.

Search Firms

Just like in lateral attorney recruiting, search firms are a possible means of reaching potential buyers. Once again, you can streamline the process if you have clear objectives outlined.

Firm Members

Maybe the most overlooked and very frequently the best target for the sale of your practice is someone within your own firm. This greatly simplifies relationship transition.

Negotiating the Transaction

There a three keys to negotiating the transaction.

  • Valuing the practice in a fair and understandable manner.
  • Structuring a payout that is affordable for the buyer and acceptable to the seller and
  • Minimizing buyer risk through facilitating client retention

Like so many things, experience in negotiating these types of transactions is very valuable to both the buyer and seller. If you haven’t personally been involved in a law firm sale, get some experienced help.

Transitioning Client Relationships

The absolute key to making a sale transaction successful for both parties is the movement of client relationships to the new owner for the long term. A well thought out approach that begins with an introduction and eases the clients into working with the new owner is often most successful.

What are you doing to prepare for the ultimate transition of your practice?

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