Question:
I am the owner of a small estate planning firm in Columbus, Ohio. Besides myself there are two associates working in the firm. I am 67 and the associates are in their early-fifties. I am planning on retiring in the next couple of years and moving to Florida. I would like the practice to continue after my retirement and I would like to (in order of priority):
- Provide a home for my employees and for their future employment.
- Provide ongoing and future services for my clients.
- Receive some value for the goodwill for my practice.
What is my best option – sale or merger with another law firm or sale of the practice to the two associates working in the firm? Please share any thoughts that you may have.
Response:
I always suggest in situations such as yours that internal sale/transfer be the default option – the option that you consider first. However, this assumes the following:
- That your associates want to own a law firm – either as partners with each other or individually. I am finding that many associate candidates do not want to take on the responsibilities and risk of law firm ownership.
- That your associates would be willing and able to be partners with each other.
- That your associates have the experience and legal skills to serve clients in your absence.
- That your associates will be able to retain your clients and referral sources.
- That your associates will be able to effectively run and manage your practice after you are no longer there.
If the above listed assumptions are not the case you may have no choice but to sell or merge your practice with another practitioner or law firm.
If you don’t wait too long you may have time to develop your associates if the interest is there.
Developmental and transitional work typically falls into three general categories:
- Legal (lawyering) skills
- Client and Referral Sources
- Firm Management
Legal Skills
Frequently this is a major issue that requires attention in small sole owner/founder firms. There are no other lawyers in the firm with the legal skills that the owner has and will be required for the firm to be successful in the future. For example, I have worked with some litigation firms where the other attorneys in the firm (associates and non-equity partners) have not ever tried a case. In such situations several years of training and development in this area will be required and seasoned laterals may have to be hired or the firm sold or merged with another firm. In your case since you have two associates on board I assume that they are seasoned lawyers and this is not an issue at your firm. If this is the case there be no to little transitional time needed in this area. If not, you have work to do.
Client and Referral Sources
This is an area of concern for most firms. Typically, the firm owner/founder has brought in most, if not all, of the client business into the firm and he or she controls the clients and the relationships with clients and referral sources. In these firms if the owner/founder were to leave the firm abruptly it is questionable whether the firm could survive after the owner/founder is no longer there. If this is your situation you will need to begin a focused and planned transition with specific clients and referral sources, tasks, timelines, and assigned lawyers. How long this will take will be dependent upon the number of clients, number of relationships that you have within the client organization for institutional clients, and the number of referral sources that you have that send the firm business.
Law Firm Management
Law schools do not train lawyers in management. Highly competent attorneys do not necessarily make good managing partners or lawyer managers. Some of the best lawyers are the worst managers. It has been my experience that lawyers who are “loners” have traditionally been poor managers. You are going to have to decide who will be a good manager, or managers, and begin training and transitioning appropriate functions over to them.
The following are recommended areas in which the management skills should be developed:
- Client relations, including origination, development and retention.
- Acceptance of new clients and matters and the management of performance of legal work in substantive practice areas and sub-specialties.
- Associate recruitment, training and development of a personal and professional nature, promotion, evaluation and compensation and termination.
- Administrative staff organization, relationships and utilization.
- Financial management including budgeting for revenue, expenses, capital expenditures; billings and collections; financial and variance reporting and utilization of resultant financial data and management information to manage and run the firm.
- Technology including computers, software, other equipment and technical support from non-lawyer specialists.
- Leases, space utilization, negotiations and construction.
Techniques for Developing Skills
On-the-job-training is the most effective technique for developing and refining the management skills that will be required.
I suggest that your develop a transition project plan in Excel with a breakout of tasks, responsibility for accomplishment, start date, and end date under the following broad categories:
Legal skills
Client and Referral Source
Firm Management
Under the client and referral source category each client/referral source contact should be listed.
You should also begin bringing other lawyers into your matters in order the your clients can experience working with them. Assign them as co-responsible attorneys on cases and gradually have them be responsible for billing and communications with your clients.
I have recently completed engagements with two estate planning firms where two associates bought out the equity interest of the founders. In both firms, the results turned out exceptionally well.
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John W. Olmstead, MBA, Ph.D, CMC
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