young lawyers, senior lawyers, & general practice ......when baby boomers cheerfully sang the lyrics...

2017 NSBA Annual Meeting

Young Lawyers, Senior Lawyers, & General Practice Sections Seminar

Career and Law Firm Transitions: Challenges and Opportunities

Roy Ginsburg ‐ Nationally‐Renowned Lawyer Coach and Attorney

October 11, 2017 Embassy Suites La Vista

EXIT STRATEGIES

FOR

LAWYERS

ExitStrategiesforLawyers

Roy S. Ginsburg 2016

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Chapter1.RETIRINGATTHERIGHTTIME,INTHERIGHTWAY...................................................3WhyLawyersFlunkRetirement...........................................................................................................3SoonerRatherThanLater....................................................................................................................3TimingIsEverything.............................................................................................................................3TakeaTimeOut...................................................................................................................................4WhatAreTheOptions?........................................................................................................................4WhatAreTheNextSteps?...................................................................................................................5

Chapter2.ASECONDBITEOFTHEAPPLE:INCOMEDURINGRETIREMENT.................................7

Chapter3.SOLOANDSMALLFIRMOWNERSTRATEGIES............................................................8RecruitingYourSuccessor(PromisingPremise,PerilousinPractice).....................................................8ABetterStrategy:SellingYourPractice..............................................................................................10

Chapter4.MEDIUMANDLARGELAWFIRMATTORNEYSTRATEGIES........................................22Option#1:OfCounsel,SameLawFirm..............................................................................................22Option#2:OfCounsel,DifferentFirm................................................................................................23

Chapter5.SUCCESSIONPLANNINGFORATTORNEYSINLARGERFIRMS...................................24ObstaclestoPlanning........................................................................................................................24StartingtheDiscussion.......................................................................................................................24NutsandBolts...................................................................................................................................25NeverTooLate...................................................................................................................................26

Chapter6.CONCLUSION..........................................................................................................27

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Chapter1. RETIRINGATTHERIGHTTIME,INTHERIGHTWAYWhenbabyboomerscheerfullysangthelyricsto“WhenI’m64”alongwithPaulMcCartneyandtheBeatles,age64seemedimpossiblyfaraway.Today,notsomuch.Age64(andtheconceptofretirement)nowseemsjusttheopposite—impossiblyclose.

Forthenext19years,about10,000peopleadaywillturn65—includingmanyofthenation’smostexperiencedandrespectedattorneys.TheAmericanBarAssociationestimatesthatthereare400,000babyboomerlawyers—approximatelyone-thirdofthenation’scurrenttotal.

Duringtheiryearsofactivepractice,mostoftheselawyersmadearealdifferenceintheirclients’lives—andwanttocontinuetohavethesameimpactastheyapproachandreachretirement.Afterall,PaulMcCartneyisstilltouringatage72.

Withproperplanningintheyearsleadinguptoretirement,lawyerscanensurethattheirretirementyearsprovidethesamepersonalfulfillmentastheirworkingyears.

WhyLawyersFlunkRetirementAttorneysoftenfindadjustingtoaretirementlifestyleverydifficult.Perhapsthemostfundamentalreasonisthattheydonotplan,oreventhinkabout,whattheyaregoingtodowiththeirtime.Theyplanfortheirfinancialfutures,butrarelyfortheirpractical,day-to-dayfutures.Theynaivelybelievethatwhentheyretire,everythingwillfallintoplace.

Mostoverworkedlawyerseagerlyanticipatehavingmoreleisureintheirlives.However,theysoonlearnthatadailyroutineofgolf,movies,andrestaurantsstartstofeelolderthantheydo.Inaddition,fewlawyershonestlyassesstheirrelationshipwithaspouseorpartner.Theymayhavemadeacommitmentyearsago“forbetterorforworse,”butoftenbegintodoubtthattheycanmakeasimilardailycommitment“forlunch.”

SoonerRatherThanLaterPresidentJohnF.Kennedyoncesaid,“Thetimetorepairtheroofiswhenthesunisshining.”Similarly,whenitcomestoretirement,youshouldstarttheplanningwhileyouarestillengagedinactivepractice.Toooften,lawyersassumethatprofessionaldevelopmentendswhentheystarttowinddowntheirpractice.

Instead,alawyer’sfocusonprofessionaldevelopmentshouldbemaintained—andmaybeevenintensified.Why?Becausewhateveryourgoalforretirement,afewyearsofgroundworkareoftenneededtomakeasuccessfulandpersonallyfulfillingchange.

TimingIsEverythingThefirstconsiderationis“when”toretire.Theanswerisneversimple.Thinkaboutyouranswerstothefollowingquestions:

• Doyoustilllookforwardtogoingtoworkorhaveyouhadenough?• Haveyourlawfirmcolleaguessuggestedyouslowdownorstoppracticing?• Doesyourlawpracticeinterferewithhobbies,volunteerwork,travel,family,orother

activitiesonwhichyouwouldratherspendyourtime?

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• Howisyourphysicalhealth?• Doyoustillhavethementaledgeyourclientsneedanddeserve?• Howhealthyisyourspouseorpartner,orothersignificantrelatives?Istheresomeoneyou

willneedtocarefor?• Canyouaffordtoretire?

There’snomagicformula;thedecisionaboutwhentoretireisalwaysa“guesstimate.”Factorswillberankeddifferentlybyeachindividual.Inaddition,manyofthebestpredictionscouldbeupsetwithlittleadvancenotice.Butitisimportanttoatleastthinkaboutyouranswerstothesequestions—anddoyourbesttodetermineatimethatfeelsright.

TakeaTimeOutOnceyouhaveanideawhenyouwantorneedtoretire,itistimetothinkaboutwhatyouwanttodowhenyouretire.Hereareseveral“digdeep”questionsIusewiththelawyersIcoach:

• Whatexcitesyouthemostaboutretiring?Whatworriesyouthemost?• Whatwillyoumissmostaboutyourlawpractice?• Thinkaboutfamily,friends,andcolleagueswhohaveretired.Whathaveyouadmiredabout

theirapproachtoretirement?Whatwouldyoudodifferently?Why?• Whydidyougotolawschool?Arethereanyas-yet-unaddressedreasonsthatyoucan

accomplishduringyourretirement?• Asalawyerorcommunitymember,whichaccomplishmentshavebeenparticularly• satisfyingandrewardingtoyou?Canyoubuildonthisinretirement?• Whatwouldattendeesatyour90thbirthdaypartysayaboutyou,basedonyourcurrent

accomplishments?Whatcanyoudobetweennowandthentoimprovethatscript?• Whatdoyoumostenjoydoinginyoursparetime?• Whatdoyoumostenjoyaboutyourvacations?• Whatisyouridealwaytospendthedayonaweekend?

Theworkofpracticinglawprovidesmostofuswithmorethanapaycheck;italsoprovidesasenseofpurposeandidentity.Itprovidesmentalstimulation.Itprovidesavastarrayofprofessionalrelationshipsinsideandoutsideoftheoffice.Finally,atitsmostbasic,workprovidesaplacetogoeverydayandgivesstructuretoyourdayonceyougetthere.

Whilesomelawyerscannotwaittobefreefromthedailycommute,environment,schedule,andtasks,othersfeellostwithoutaroutine.Whenplanningthe“what”ofyourretirement,findactivitiestoreplacethestructureandactivitiesthatwereimportanttoyouinlawpractice—aboveandbeyondthemoneythatyouearned.

WhatAreTheOptions?Whetheralawyerworksinafirmorasasolo,heorshedoesnotcloseupshoponedayandrideoffintotheretirementsunsetthenext.Manylawyersgraduallywinddowntheirpractices—overmonthsoryears—andtransitiontopart-timebeforeretiringcompletely.Historically,lawfirmsusethe“ofcounsel”designationforlawyersnearingretirement.

Dependingupontheneedsoftheindividuallawyerandlawfirm,alawyer’sproductivitycanvary

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significantlyasheorsheapproachesretirement.Forsome,“ofcounsel”statusislittlemorethanadestinationforsocializingandregularluncheswithcolleagues.Otherscontinuetobillsomehours,mentoryoungerlawyers,representthefirminthecommunity,andcontinuetomakeasignificantcontributiontothefirmanditsbottomline.

Evensolosusuallywinddownandworkpart-timebeforeretiringcompletely.Somestopacceptingnewcasesandworkuntilalloftheiractivecasesarecompleted.Otherstransferactivefilesorselltheirpracticetoformercompetitors.Eitheroptiontakessomeplanning.

Whetheralawyergoescoldturkeyorslowlyphasesintoretirement,therewillbemanymorehoursofavailabletimeineachday.Afterworkinghardfor30or40years,restandrelaxationisusuallythefirstgoal—sleepingin,rentingandwatchingthemoviesyou’vealwayswantedtosee,andreadingthedailyissuesofTheNewYorkTimesandTheWallStreetJournalfronttoback.

Troublebeginswhenretireesstartexpandingtwoorthreehoursofrelaxationintoregularfulldaysofnothingbutrelaxation.Thatsoonresultsinboredomandalossofprofessionalidentity.

Manyretiredlawyersremainhappilyconnectedtothelegalprofessioninanumberofways—part-time(andsometimesforpay)—inareaslikethese:

• Expertwitnesswork• Alternativedisputeresolution(ADR)—mediationandarbitration• Politics(runningforofficeorworkingonacampaign)• Teachingasadjunctfacultyatalawschoolorcollege• Teachingcontinuinglegaleducationprograms• Probonowork• Rampingupbarassociationactivities• Writingarticlesforprintorelectronicmedia,orblogging

Lawyerscanalsolookoutsidethelegalprofessionforfulfillingactivities.TherearepaidopportunitiesincorporateAmericaandtheentrepreneurialsphere.Basedonyourinterests,youcanalsoconsideranactiveinvolvement(mostlikelyunpaid)inorganizationsinthefollowingareas—anyoneofwhichwouldbethrilledtohaveyouasavolunteer:

• Religious• Socialservices• Hospitals• Civic• Education/youthservicesandsports• Environmental• Culture/arts• Communityagencies

WhatAreTheNextSteps?Giveyourretirementplanningthesameduediligenceyoudevotetoyourlegalwork.Areyourgoalsrealistic?UsetheInternettoconductbasicresearch.Readsomebooksandarticles.Mostimportantly,get

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outandtalktorealpeople—especiallythosewhohavealreadyretiredandcanprovidetheir“real-world”perspective.

Chancesareverygoodthatyouknowsomeone,directlyorbyassociation,whohadretirementgoalssimilartoyours.Diditwork?Whatwentright?Whatwentwrong?Howmuchgroundworkhadtobelaid?Wasenoughtimedevotedtoplanning?Haveaconversationwiththeseindividuals.Youwillfindthattheywillbemorethanhappytosharetheirexperienceswithyou.

Istronglyrecommendthatmyattorneycoachingclientswhoarestillworking(butthinkingaboutretirement)“practice”forretirement.Activelyengageinsomeofthethingsyouareplanningtodoinretirement,andseeifyouinfactenjoyit.Starttakinglongervacationsandmorethree-orfour-dayweekends.Ifallgoeswellandyouhaveplannedproperly,youwillenjoythistime.Ifyougetrestless,itmaybeagoodideatoamendyourplanandkeeppracticing—oryouruntheriskofanunsatisfyingretirement.

Assumingthatyour“practice”timegoeswell,yourretirementplanningisstillfarfromcomplete.Youmustplantocontinuouslyadjustyourexpectationsandactionsastimegoesby.Whenyoubeganpracticinglawandfinallyfeltyouknewwhatyouweredoing,youdidnothittheautomaticpilotbuttonandcoastfortherestofyourcareer.Youcontinuedtomakeminorandmajoradjustments.Youneededtobeflexible,persistent,andpatient.Thesameistruewithyourretirementactivityplans;tweakswillbeneededascircumstanceschange.Yourcareerwassatisfying,butnotperfect.Noretirementisperfect,either.

Ideally,youwillbeabletolookbackatyourlegalcareerwithasenseofaccomplishment.Withsomethoughtfulplanning(andabitofluck),youcanhavethatsamefeelingofaccomplishmentabouttheproductiveandsatisfyingyearsyouspendinretirement.

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Chapter2. ASECONDBITEOFTHEAPPLE:INCOMEDURINGRETIREMENTTheattorneylookingaheadtoretirementneednotbereconciledtoaprecipitouslossofincomeorofthevaluebuiltupinpractice.Bycarefullyplanningandnegotiatingthetermsoftheirdeparture,retiringlawyerscanbotheasethetransitionandcomeawaywithmoreofthevaluetheyinvestedintheirpractice.

Whenapproachingretirement,mostattorneystakeacarefullookattheirassetstodeterminewhentheycanretire,aswellastogetagoodideaofwhattypeoflifestyletheycanafford.Formost,thatmeansareviewoftheirbrokeragestatementsandappraisalsofwhateverrealestateorothertangibleassetstheyown.Afterall,exceptforgovernmentlawyers,mostattorneysdonothaveadefinedbenefitplantopaythemincomeintheirretirement.

Ordothey?

Insteadofridingintothesunsetandleavingbehindthebooksofbusinessandreferralnetworksthattheyworkedforyears--perhapsdecades--todevelop,lawyersshouldevaluatewhethertheirpracticescangeneratevalueevenastheywindthemdown.

Manylawyers,regardlessofthesizeoftheirlawfirm,failtorecognizethattheirpracticesmayhavesignificantvaluethatcanenhancetheirnesteggs.Dependinguponalawyer'sbookofbusiness,practicearea,geographiclocation,anddegreeofadvanceplanning,itisverypossibletoderivevaluefromone'spracticetoeitherenjoyduringretirementorpassalongtoone'sheirs.

We'veallheardstoriesofthelawyerwhodiedathisdeskwithoutgivinganythoughttotransitioninghispractice.Whenthatoccurs,asapracticalmatter,there'slittlevaluetorecover.Ifthedeceasedwasasolopractitioner,theestatemaycollectoutstandingreceivables,buthasnoclaimonfutureincomegeneratedfromclients.Longstandingclientsorclientswithopenfileswillsimplyfindothercounsel,providingnofinancialbenefitstothedeceasedlawyer'sestate.

Theresultisusuallynodifferentifoneworksinalargelawfirm.Uponalawyer'sretirementordeath,theotherlawyersinthefirmscrambletomaintaintheclientrelationships.Anyfinancialbenefitsfromthebookofbusinessgoonlytothefirm'sotherlawyers.

Eventhoseattorneyswhoconsciouslyplanadeparturedate,moreoftenthannot,makenoattempttoextractanyvaluefromtheirpractice.Thisoccursforavarietyofreasons.Somesimplydonotrealizethattherearemeanstoobtainvalue.Amongthosewhodo,someconcludethatgleaningvaluefromwhatremainsismorebotherthanitisworth.Finally,ofthosepracticinginfirms,someapparentlyprefertogivethevalueawaytotheirpartnersbasedonfeelingsofinstitutionalloyalty.

Thechaptersthatfollowwilldiscussoptionsfortransitioningintoasuccessfulretirementforsolopractitionersandattorneysinsmallfirms,aswellasofferingguidanceforattorneysinlargerfirmsandthepracticesfromwhichtheyareseparating.

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Chapter3. SOLOANDSMALLFIRMOWNERSTRATEGIES

RecruitingYourSuccessor(PromisingPremise,PerilousinPractice)Oneretirementexitstrategyoftenconsideredbysolopractitionersandsmalllawfirmownersisthatofrecruitingasuccessor.Theideabehindthisstrategyistofindayoung,inexperiencedlawyerwhoisthengroomedtotakeoverthepractice.Duringtheinitialstageofthetransition(usuallyoneortwoyears),thesellerandbuyergettoknowoneanother.Ifthefitseemsgood,thepartiesthennegotiatea“buyout”goingforward(usuallyanotheronetothreeyears).

Onpaper,everyoneseemstowin.Theseniorlawyerobtainssomevalueforthepractice.Theyoungerlawyerobtainsanestablishedpracticeinfarlesstimethanitmighttaketobuildone.Inaddition,thesuccessorreceivesafewyearsofvaluabletraining/mentoring.However,ifsellersandbuyersdigabitdeeperintothedetails,avarietyoffundamentalflawswiththe“recruityoursuccessor”strategybecomeapparent.Infact,thisstrategyissofullofholesthatIbelieveoldersolosshouldrarelyconsiderit.

CanYouFindASuccessor?Problemnumberoneinvolvesfindingtheonespecialpersontowhomyoufeelcomfortablehandingdownyourlegacy.Thisiseasiersaidthandone.

Inpracticingemploymentlawmorethan30years,Ihaveseenmanyworkplaceproblemsthatwerethedirectresultofapoorhiringdecision.Nomatterhowcarefulthescreening,employerscanonlygleanonlysomuchfromaresume,interviewandreferences.Inaddition,asanattorneycoach,I’veheardmanystoriesofevenwell-screenednewhiresnotworkingoutquiteasplanned.

Thebottomlineisthatitisdifficulttofindaworthysuccessor.Theremaybeplentyofqualifiedcandidatesinthisterriblejobmarket,butpersonalitiesandotherintangiblesstillneedtomesh.IfIweretolayoddsonthelikelihoodofaseniorlawyerstillbeingpleasedwithahireattheendofthefirstyearofworkingtogether,itwouldbenobetterthan50/50.

Findingasuccessorbecomesevenharderwhenyoucarefullyscrutinizethelikelypoolofcandidates.Chancesareverygoodthatayounglawyerisstillpayingoffsubstantialstudentloans,andwillbedoingsofortheforeseeablefuture.Willthissuccessorhavethefinancialwherewithaltoultimatelydoadealtobuyyourpractice?Probablynot.

Where’stheExtraCashComingFrom?Problemnumbertwoinvolvesfindingthecashtopayapotentialsuccessorduringthe“recruityoursuccessor”process.Thisstrategyisbasedonthepremisethatthesuccessorhasaverysmallbookofbusinessandneedstoobtainone.Thus,addingthenewlawyeraddsnosignificantrevenuetoyourpractice.Atthesametime,younowhavetwolawyersworkingonthesamepooloffilesduringtheearlystageofthetransitionperiod.

Thesuccessorneedstobepaidalivingwage.Wheredoesthatwagecomefrom?Itcomesfromthetake-homepayoftheseniorlawyer.Intheshortterm,theseniorlawyertakesafinancialhitbecausenetincomeisnowbeingsharedwiththesuccessor.

Goingforward,itbecomeslesscertainthattheseniorlawyerwillseeasignificantpaydaywhenitcomes

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timetotransferthebookofbusiness.Whenvaluingthebook,theretiringlawyershouldtrytoaddthesacrificedincometotheoverallvalueofthepractice.Butanticipatethatthesuccessorwillbeunwilling,orfinanciallyunable,togivebackanysalaryheorshehasearned.

DoYouHavethePatience?Problemnumberthreeinvolvestrainingthenewlawyer.Trainingormentoringtakestime,patienceandaskill-setcompletelydifferentfromthepracticeoflaw.Mostsolosbecomesuccessfulbecausetheyknowthemselvesandpurposefullystaysmall.Manysoloshaveintentionallyrejectedtheideaofhiringassociatesbecausetheydon’twanttotrainandmanageothers.Theprocessisnotgoingtobeanyeasierina“recruityoursuccessor”environment.

WillYourClientsWorkwiththeSuccessor?Problemnumberfourinvolvestransferofclientrelationships.Fromthesuccessor’sperspective,doinga“recruityoursuccessor”dealonlymakessenseiftheretiringlawyer’sclientbaseiswillingtocarryovertothesuccessor.Transferringrelationshipsisfraughtwithpotentialissues.

Presumably,mostoftheretiringlawyer’srelationshipsarewithindividualswhoareolderthanthesuccessor.Willtheyfeelcomfortablewithayoungerlawyer?Willtheybewillingtoworkwithaless-experiencedandperhapsless-skilledlawyer,orwilltheytaketheirbusinesselsewhere?

CanYouTrusttheSuccessor?Problemnumberfiveinvolveswhetherornotyoucantrustyourpotentialsuccessor.Couldthesuccessorleaveyourpractice,takingsomeofyourclients?Ethicsrulesprohibityoufromimposingrestraintsonthesuccessor.Areyouwillingtotrustsomeoneyoubarelyknowwithyourlivelihood?Someyoucantrust;someyoucan’t.Canyoudistinguishbetweenthetwo?

WhyDoSomeSuccessorDealsSeemtoWork?Anecdotesyouhearaboutsuccessfulsuccessordealsrarelyinvolveanewhireasanintegralpartoftheseniorlawyer’sexitstrategy.Moreoftenthannot,thesesituationsinvolveasuccessorwhohasalreadybeenworkingforawhilewiththeseniorlawyer.

Problemsarelesslikelytoariseinthissituationbecausethesuccessoris:1)experienced;2)alreadybeingpaidoutofcurrentrevenue;and3)alreadyknowsmanyoftheclientsorisfullycapableofservingthem.Finally,thepartieshaveworkedtogetherlongenoughtodevelopmutualtrust.Theywilltreateachotherfairly.

SeekExperienceAbettersolutionistofindanexperiencedfellowsolopractitionerwithsomecapacitytogrow,oranotherlawfirmwithanexperiencedpractitionerorpracticegroupthatwouldliketoexpand.Also,ithelpstoplanashortertransitionperiod.Thissolvesanumberofproblems:

• Youaretakinglessofagamblewhenthefieldofcandidatesincludesexperiencedpractitioners;

• The“successor”isalreadyearningasalary,paidbysomeoneelse.Noneedtosubsidizethesuccessorlawyerorlawfirm;

• Withexperiencedpractitioners,nosignificanttrainingormentoringneeded;• Withexperiencedpractitioners,relationshipsshouldtransfermoreeasily;

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• There’snobookofbusinesstosteal,sinceunderthisstructuretheseniorlawyerisoutofthepicturesoonerratherthanlater.

Tosummarize,the“recruityoursuccessor”retirementexitstrategymaylookappealing,butisoftenconsiderablymoretroublethanit’sworth.Instead,inordertoobtainmaximumvalueforyourpractice,transitionyourpracticetomoreexperiencedlawyers.

ABetterStrategy:SellingYourPracticeArelativelynewexitstrategyinvolvessellingyourpracticeandturningitintocashtoeitherenjoyduringretirementorpassalongtoyourheirs.Changesinethicsrulesnowmakethispreviouslyunethicalstrategypossible.

Foryears,sellingalawpracticewasprohibitedbecauseethicsregulatorsbelievedclients,files,andafirm’sgoodwillwerenotsomethingthatcouldbesold.Thisprohibitiondidnotreallyaffectlargerlawfirms,whichwouldjustbuyoutpartners,i.e.thepartnershipwouldreturnthepercentageoftheequityownedbytheretiringpartner.Smallerlawfirmswereableto“sell”themselvesbymergingwithotherfirms.

Soloshadtobemorecreative.Sellingthefirm’sphysicalfixturesandfurnishingsformorethantheirreasonablemarketvaluewasacommonwaytogetaroundtheprohibition.Anotherwaywastocreateashampartnership,inwhichthedepartinglawyerreceived“retirementbenefits”fromthenewpartner.Soloswhowereunwillingorunabletotakeadvantageofoneofthoseoptions,wouldsimplygiveawaytheirclients—orjustcloseupshop.

Allofthisbegantochangeabout25yearsago.In1989,Californiabecamethefirststatetoadoptarulepermittingthesaleofapractice.Thefollowingyear,theABAadoptedModelRule1.17allowingthesaleofanentirepractice.In2002,theModelRulewasamendedtopermitthepartialsaleofapractice.Most,states,thoughnotall,haveadoptedModelRule1.17oramodifiedversion.

Thischangeinpolicywaslargelybasedonadesirefortransparencyandtoleveltheplayingfieldbetweensolosandsmallfirmsandfirmsoflargersizes.Inaddition,regulatorsdecideditwouldbebettertohaveclientmattersplacedinthehandsofa(presumably)pre-screenedlawyerthantoforceclientstofindnewcounselontheirown.

TheDifficultyWithLawFirmValuationItalmostsoundslikeacliché,butyourpracticeisworthwhatsomeoneelsewillpayforit.Ifyouneedamorepreciseanswer,considerthis:theliterature,writtenprimarilybybean-counters,describesawiderangeofvaluationmethods.Manyvaluationmethodsaredifficulttocomprehendunlessyouhaveastrongfinancebackground.Eventhen,inmyopinion,theformulastypicallyhavelittleornobearingonwhatisactuallypaidforalawpractice.

Whydotheusualvaluationmethodsrarelyworkforlawfirms?Primarilybecauseofunpredictability.Otherprofessionalservicebusinessesthatarefrequentlyboughtandsold,likeaccountingpracticesandmedicalordentalpractices,havefairlypredictablebooksofbusiness.Thetransferabilityofanattorney’sbookofbusinessismuchhardertopredict.Inlargepart,thisisbecausemanyservicesthatlawyersperformareone-timeoratbestsporadic.Inaddition,certainclientrelationshipsmaybenotbeaseasytotransferasthesellerandbuyerhope.

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Intheory,comparablescanhelpdetermineafairprice.Inpractice,notsomuch.Themarketplaceforsellinglawfirmsisveryimmature.Therearefewcomparablesales.Furthermore,thereisnostandardizedwaytofindoutwhatotherlawpracticessoldfor.Itisnotlikefindingcomparablesforthehousethatsolddownthestreet.

Youmayknowofalawfirminyourareathathassoldrecently,andmightbethinking,“Thosepartiesmusthavedeterminedavaluesomehow.”Indeedtheymusthave,butitisunlikelythatthisnumberwasbasedonanystrictaccountingvaluationmethod.Mostdealsofthissortareinsiderdeals.Inotherwords,thepartieskneweachotherandhaveworkedtogetherforyears,manytimesinthesamelawfirm.Theactualmethodinsuchcasesis“whatseemsfair.”Forarms’lengthtransactions,thedeterminationof“fair”createsamuchbiggerproblem.

Thereisonecircumstanceinwhichlegalpracticesareregularlyassignedavalue:whenthelawyerisgoingthroughadivorce.However,valuationsinadivorcecontextassumethatthedivorcingattorneyintendstocontinuepracticinglawandmaintainingrelationshipsfull-time.Theyaremeaninglessinamarketplacesettingwhentheattorneywantstosellhisorherpractice.

Inadivorcesituation,thereisrelativecertaintyabouttheamountofbusinessgoingforward.Fewfactorsarechanging.Ifalawyergoingthroughadivorcehasnetted$250,000annuallyforthepastthreeyears,itisveryreasonabletoassumethatthosenumberswillnotchangesignificantlyinthenearfuture.Moreover,thepartiesinadivorcemuststrikeadealorajudgewilldoitforthem.

Incontrast,whenalawpracticeistransitionedtosomeoneelse,manyfactorsarechanging.Youcan’tmakethesameassumptionaboutrevenuesgoingforward.Also,thereisnocourtmandateinabuy/sellsituation.Neitherpartyisrequiredtodoadeal.Eitherpartycanwalk.

HowToDetermineIfYourLawPracticeIsWorthAnythingWillitbeworththeefforttoattempttosellapractice?Themostsignificantdeterminantoftheanswertothisquestioniswhetherandforhowlongthepracticecancontinuetoproducerevenueoncethesellerisgone.

Arefuturerevenuespredictable?

Whenpurchasingalawpractice,thebuyerhopesthatclientswillcontinuetoknockonthedooreventhoughthesellerisnolongerthere.Forsomekindsofpractices,thiswillnothappen.Veryprominentcriminaldefenseattorneysandotherwell-knownlitigatorsaregoodexamplesofpracticeswherefuturerevenueisveryunlikelytobegeneratedifthepracticechangeshands.Thesepracticesaretoocloselylinkedtothereputationsofthesellers.Simplyput,thegoodwilloftheselleristoopersonal.Buyerswilldiscoverthatclientswanttohireonlytheparticularlawyerwhoisselling,nooneelse.Incontrast,somepracticeareasareextremelylikelytogeneratefuturerevenue.Inthosecases,projectedrevenuecanbebasedonavarietyofdifferentfactors.

Oldfilescanbeagiftthatkeepsgiving

Estateplanningisonepracticeareainwhichpracticesoftenproducefuturerevenue,despitethedepartureofthelawyerwhooriginallyopenedthefiles.Whenabuyinglawyertakesoverfilesthatcontainwillsforlivingclients,itisreasonabletoassumethatsomeofthoseclientswillwanttoreviseorupdatethosewills.Inaddition,thedeathofsomeofthoseclientscanlaunchtheprobateprocess,for

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whichit’snaturalforthefamilytoturntotheofficewhichpreparedthewillinthefirstplace.

Whilethereshouldbefuturerevenue,itisvirtuallyimpossible—withoutacrystalball—topredicthowmuch.Youdon’tknowforsurehowmanyclientswillseektohavetheirestateplansrevisedorwilldieandsetintomotiontheprobateprocess.Inaddition,itispossiblethatsomeclientsmayprefertoworkwithcounselotherthanthebuyer.

Keyclientrelationshipsgeneraterevenue

Otherpracticeslikelytogeneratefuturerevenuearethosewheretheretiringlawyer’sbookofbusinessisbasedonrelationshipswithclientsand/orreferralsources.Intheory,whensuchapracticeistransferred,thesellinglawyercanmakeanintroductionandvouchforthebuyinglawyer.Ideally,therelationshipwillindeedtransferandtheflowofbusinesswillcontinue.

Avarietyofpracticeareasfallintothiscategory.Oneexampleanintellectualpropertylawyerwithapatent-prosecutionpracticewhoserelationshipiswiththekeygeneralcounselsofafewcompanies.Othersincludeanimmigrationlawyerwhohelpsemployerswithforeign-workerissues,whoserelationshipiswithkeyhumanresourcesVPs,orasmallbusinessattorneywhohasproductivereferralrelationshipswithahandfulofCPAs.Inthesesituations,asuccessfultransferoftherelationshipshouldleadtofuturebusiness.

Aswouldbethecaseintheestateplanningpracticeexample,however,theamountoffuturerevenueisunpredictable.Ifaretiringlawyer’sbookofbusinessisbasedoneightkeyrelationships,thereisnoguaranteethattherewillbeeightsmoothtransitions.Itisreasonabletoassumethatatleastsomeoftherelationshipswilltransfer,butpreciselyhowmanywilldosoisanyone’sguess.

Contactinformationcangeneraterevenue

Forcertainconsumerpracticeareas,awebsitedomainnameandphonenumbercouldbevaluable.Forexample,awell-traffickedwebsiteforapersonalbankruptcyattorneywithanaddressofwww.nodebts.comandaphonenumberof1-800-NO-DEBTSshouldcontinuetoattractbusinesslongafterthesellerisgone.Manyclientsfindsuchafirmonlybecauseofthefirm’suniquewebsiteandphonenumber.

Brandscangeneraterevenue

Lawyerist.comisarespectedblogonlawpractice,legalmarketing,andlegaltechnology.Shouldtheowner-partnersatLawyeristeverdecidetosell,theblog’snamewouldbeacrucialcomponentoftheultimatevaluation.Why?Becausetheblog’snameiswellknowninthelegalblogosphereandtheblog’sgoodreputationwilllikelycontinueforsomefuturetime.Forthatreasonalone,itwouldcontinuetoattractreaderseveniftheexistingmanagementleaves.

Thesameholdstrueforthenamesofcertainlawfirms.Let’sgobacktoourfriendsatnodebts.com.IfthenameofthefirmistheNoDebtsLawFirm,andifthatnamehasbeenheavilyadvertisedonbillboards,radio,TVandtheweb,therewillbeconsumerswhoseekbankruptcyassistancesimplybecausetheyrememberthenameandthencontactthelawfirm.Thebrandstandsonitsown.Thepresenceorabsenceoftheowner-sellerisnegligibleindeterminingthefirm’sfuturerevenue.

Systems

Thereareahandfulofpracticesthatoftentimesrequirelittleindividualattentiontoclientsandinvolve

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lotsofpaperpushingbylegalassistants.Theseownerlawyersmaketheirmoneybyprocessingthepaperworkefficiently.Personalbankruptcypracticessuchasnodebts.comthatrelyheavilyonadvertisingwillusuallyemploymanywell-trainednon-lawyerstaffthatgetclientsinandoutofthedoorfast.Inshort,thesellershavea“system”thatbuyerswillneedinordertokeepthebusinessoperatingandprofitable.Theexistenceofasystemshouldincreasethevalueofthelawfirm.

Othervariables

Evenwhenabuyerisconvincedthatthephonecankeepringingwithoutthepresenceoftheseller,otherfactorsmayimpacthowfrequentlythephoneactuallyrings.Buyersshouldcarefullyassessthecompetitioninthepracticeareainthelocality.Inaddition,buyersandsellersshouldbeattunedtotrendswhennegotiatingprice.Forexample,apersonalinjurypracticewillbeworthlessifitislocatedinastatewheretortreformmayseemlikelyinthenearfuture.Shouldthereeverbeimmigrationreform,onewouldexpectthevalueofimmigrationpracticestoincreasesignificantly.

Attheendoftheday,twofactorswillultimatelydeterminethevalueofapractice:1)supplyanddemandand2)theparties’next-bestalternativetodoingthedeal.Ifyouaretheonlyinterestedbuyer,alow-balloffermightwork.Ifyourofferistoolow,however,thesellermaysimplywalk—thinkingit’stoomuchbothertodoadealforsolittle.

HowMuchIsMyPracticeWorthLet’sassumeyouhaveapracticethathaspredictablerevenue.Thenasktwoquestions.

• Howmuchrevenuedoyourealisticallythinkwouldcontinuewithyoursuccessorfromyourformerclients/filesforthefirstfewyearsafterthetransition?

• Ifyouwerestillactivelypracticingandhadreferredallofthatworkouttoanotherattorney,howmuchwouldyouwanttobepaidforthatintheformofareferralfee?

Thendothemath(apercentageofpredictablerevenueoveratimeframe)and,voilà!There’sanumbertostartwithtodetermineareasonablevaluerangeforalawpractice.

Hypothetical

Thereisnobetterwaytoexplainmymethodthantoworkthroughitwithanexample:Assumeyourlawfirmhasconsistentlygrossed$500Kannuallyforthepastfewyears.Yourealisticallybelievethatforthenext4years,itshouldgross$400K,$300K,$200Kand$100K,respectively,fromyouroldclients/files.Youshouldprobablyassumethattherevenueattributabletoyouwilllikelydecreasethelongeryouhavebeenawayfromthepractice.

Inessence,you’re“referringout”$1millionworthofbusiness.Now,whatwouldbeafairreferralfeeinthattypeofscenarioifyouwerestillactivelypracticing?Or,phrasedinavaluationcontext,whatpercentageoffuturefeesdoyouthinkyouareentitledtoasthesellinglawyer?

No,thereisnomagicpercentage,ifthat’swhatyouarehopingtosee.Here’swhy.Thinkaboutwhypersonalinjurylawyershavehistoricallyreliedonthe“third-of-a-third”referralfee.Basedonmyresearch,thereisnorhymeorreason.IfIhadtomakeaneducatedguess,however,about50yearsagosomelawyerdecidedtodojustthat.Thenanotherlawyeracrosstownheardaboutitandthought,“ThatsoundsOKtome.IthinkI’lldothat,too.”

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Beforeyouknowit,theconceptspreadsomuchthatifyouaskedsomeone,“whyathirdofathird?,”theansweryouhearisthesameonethatlawyershaveusedtojustifyjustaboutanything:“That’sthewaywe’vealwaysdoneit.”Inshort,thereisnorationaletosupportthethird-of-a-thirdformula,butwestilldoit.

Withthatsaid,Idon’tthinkthat33%isnecessarilythepercentageoneshouldusewhencalculatinglawpracticevalues.Ido,however,thinkitisthehighestitshouldeverbe.Don’tforgetthatthebuyinglawyerstillhasoverheadtocover.Iftoomuchrevenuegoestoyou,theretiringlawyer,therewillbeinsufficientprofittogenerateinterestfrompotentialbuyers.

Lookingtotheotherendofthespectrum,Ibelievethatthelowestacceptablepercentageisinthefivetotenpercentrange.Anythinglessthanthatisprobablynotworththeefforttomakeadeal.

Sowheredoesthatleaveus?

Tome,15%to25%“soundsOK.”I’llbethefirsttoadmitthereisabsolutelynosciencetosupportthisrange.Instead,Ibaseitentirelyonexperience.

InmanyofdealsthatIhavebeeninvolvedin(aswellasdealswhereIhaven’t),thepartiesusedapercentagewithinthatrange.Soitapparentlysounded“OK”tothem,too.I,therefore,seelittlereasonwhyitshouldn’t“soundOK”topotentialsellersandbuyersasastartingpointtocalculateapractice’svalue.

Let’sapplythisthinkingtotheexampleabove.Ifyouassumea20%shareofthe$1millionfuturerevenue,yougeta$200Kvalue.

Ofcourse,thisnumberisaverysoftone.Thepercentagefigureissubjecttotheparties’negotiations.Further,the$1milliongrossrevenueis,atbest,aneducatedguessoffuturerevenue.

Ifthepartiesagreeto15%ofpredictedrevenueofonly$500K,thevaluequicklyreducesto$75K.Ontheotherhand,ifthepartiesmoveforwardwith25%and$1.5millionofrevenue,allofasuddenthesamepracticeis“worth”$375K.

WhymymethodIsbetter

Evenwiththeadmittedlackofprecision,Iprefermymethodologytoanybeancounter’sfancyformulafortworeasons.

Asaninitialmatter,itissimpleenoughforboththebuyerandsellertounderstand.Haveyourecentlyreadexplanationsofthecapitalizedexcessearningsorthediscountedfutureearningsapproachesasmethodstovalueapractice?

Second,bothpartiesshouldbeabletocometothetablewithagutfeelingthatthevaluationmethodusedisreasonable.Fewinourprofessionquestionthelogicandfairnessofreferralfees.It’sanacceptedprofessionalcustomwhenthereferringlawyerstillpractices.Shouldn'tthesamefairnessperceptioncarryoverwhenthe“referring”lawyeror,moreaccurately,thetransitioninglawyer,nolongerpractices?Whyshouldthecostofobtaininga“referral”bevieweddifferentlythansecuringfuturerevenuefromthesellinglawyer’sclients?

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Referralfeesvs.compensationoriginationfees

Iwanttobeclearthatmymethodshouldnotbeinterpretedinanyway,shapeorformthatactualreferralsaretakingplace.Butthinkingaboutfuturerevenuefromaretiringattorney’sbookofbusinessinthereferralcontextisaconceptthatlawyerscangettheirheadsaroundtodeterminewhatmightbeafairvalueforalawpractice.

Analternativeandjustasvalidwaytothinkaboutvaluationisinthecontextoflawfirmcompensationoriginationpercentages.Alllawyersknowthat,invaryingdegrees,lawfirmsrewardorigination.Lawyersareusedtothis;theybelievethattheyshouldbe“rewarded”forsimplybringinginbusiness.

Accordingly,aretiringlawyercouldbe“rewarded”forthefutureworkfromformerclients/files.But,hereagain,thereisnomagicpercentage.Anecdotally,therangeatmanylawfirmsisfifteentothirtypercentfororigination.Whyshouldn’tthatbetherangeforapracticethatisbeingsold?

Admittedly,therangeisaverywideone.Butifnoconsensusexistsamonglawfirms(orevenlawyersatthesamefirm)aboutwhatafairpercentageshouldbetorewardlawyersfororigination,whywouldtherebeaconsensusinthemarketplaceaboutwhatapracticeisworth?

“Ruleofthumb”valuation

Thereisevenawaytoturnmymethodintoa“ruleofthumb.”The“ruleofthumb”methodassignsamultipletoannualgrossrevenuetoarriveatavalue.Usingmyearlierexamplewheretheannualgrossrevenuewashalfamilliondollars,amultipleof1.0yieldsahalfamilliondollarvalue;a0.5multiple;aquarterofamilliondollarvalue.

Ifyouusemymethod,youcanbackyourwayintoamultiplebyplayingwithtwofigures:theestimatedpredictablerevenueoveraperiodoftimeandtheagreeduponpercentageofthatrevenuethatgoestotheseller.

Thus,ifthepredictablerevenueisonemilliondollarsoverfouryearsandoneassumesa25%payouttotheseller,thepracticeisthenworthaquarterofamilliondollars.Sincethefirm’sannualgrossrevenuewashalfamillionsdollars,yougetamultipleof0.5afterthefact.Changethepercentagetofifteenthatproducesavalueof150K,themultiplethenbecomes0.3.

Ready.Aim.Fire.

Ifyouwanta“gutcheck”ofwhatyourlawpracticemaybeworth,maketwoassumptions.First,determinehowmuchpredictablerevenuetherewillrealisticallybeforyoursuccessorfromyourclients/files.Second,considerwhatwouldbeafair“pieceoftheaction”percentageforyoutoreceiveforthatfuturerevenue.Bothnumbersaremovingtargets,butatleastnowyouknowwheretoaim.

Dealstructure

Inthevastmajorityofsales,thedealsarestructuredinoneoftwoways.Thepartieseitheragreetoafixedsum(whichmayincludeapaymentplan)ortheamountpaidiscontingentonfuturerevenue.Thislattermethodisoftenreferredtoasan“earn-out.”Theamountoftheearn-outisdependentuponthenegotiatedearn-outpercentage,aswellasthelengthoftimeoverwhichrevenueiscalculated.

Asisthecasewithallbusinessdeals,thereisriskinvolved.Whenthereisanagreed-uponfixedprice,thebuyermaypaysomethingfornothingifthehoped-forfuturerevenuedoesnotmaterialize.However,if

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thereisanextraordinaryamountoffuturerevenue,thesellermayhaveleftsomemoneyonthetablebyagreeingtoafixedprice.

Withanearn-out,thebuyerassumesabsolutelynoriskoflosingmoneyotherthanperhapsanegotiateddown-payment.Ifthere’snofuturerevenue,thebuyerpaysthesellernothingmore.Inexchangeforthis,however,thebuyerassumesadifferentkindofrisk.Shouldfuturerevenuesexceedtheanticipatedamount,thebuyerpaysmore.

Giventhegeneralrisk-aversenatureofattorneys,mostbuyersprefertheearn-outmethod,wheretheypayonlyiftheanticipatedbusinessactuallymaterializes.Mostsellers,ontheotherhand,wouldratherhavethecertaintyoffixedpayments,avoidingtheriskofanearn-outwherefuturepaymentscouldbeminimal.

EthicsIssuesSurroundingtheSaleaLawPractice

Beforethedealisdone:confidentialityandcompetence

Generallyspeaking,ModelRule1.6prohibitslawyersfromdisclosingconfidentialinformation.However,Comment7toRule1.17statesthatthedisclosurespursuanttoasalearetreatedinthesamemannerasdisclosureswhenattorneysswitchlawfirmsorlawfirmsmerge.Thereleaseofgeneralizedinformationaboutclientsandfilesispermissible—andtoacertainextentisindeedrequired—inordertoidentifypossibleconflictsofinterests.

Disclosureofinformationbeyondthegeneralrequiresactualclientconsent.And,ofcourse,prospectivebuyershaveadutytomaintaintheconfidentialityofanyinformationtheylearnduringthesalesprocess.

ModelRule1.1statesthatalawyershallprovidecompetentrepresentationtoclients.Comment11toRule1.17providesthatthedutyofcompetencealsoappliesinasale.Sellersareobligatedtoexercisecompetenceinidentifyingpurchasersqualifiedtotakeoverthepractice,andbuyersareobligatedtoundertakeitsfuturerepresentationscompetently.

Whatmustbesold

Topreventlawyersfromsellingonlythoseclientswhoarelessvaluable,alawyermustputtheentirepracticeoranentireareaofpracticeupforsale.Nocherry-pickingallowed.Rule1.17(b).

Permissibleterms:covenantsnottocompete

UnderModelRule5.6,lawyersareprohibitedfromenteringintoanyagreementthatrestrictstherightofalawyertopractice.However,Comment3tothesamerulespecificallystatesthatRule5.6doesnotapplytoprohibitrestrictionscontainedinasale.Suchrestrictionswouldstillhavetocomplywiththeapplicablestate’slawoncovenantsnottocompete,ofcourse.

Asapracticalmatter,suchcovenantsarepresumablyunnecessarysincethesellinglawyerisusuallyretiringandhasnodesirecontinuingtopractice.Withthatsaid,itisbettertobesafethansorry.Lawyershavebeenknowntochangetheirminds.Moreover,therearetimeswhensellinglawyersaremiddle-aged.Inthoseinstances,covenantsnottocompeteareverymuchneededtoprotectsellers.

Ethicsconcernsinpricingthedeal

Asdescribedintheearlierexample,dealsareusuallystructuredwithafixedfeeorearnout.

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Therearenoethicsissueswithafixedsum.However,whentheamountpaidtotheselleriscontingentuponthefuturerevenueofthebuyer,ethicsrulesinvolvingfeesharingcouldbeproblematicbecausethebuyinglawyerwouldbesharingclientfeeswiththesellinglawyer.

ThefirstissueiswhetherlawyershavetojumpthroughthevarioushoopsofModelRule1.5(e)thatgovernsfeesharingbetweenlawyers.Thatrulebasicallyrequireswrittenindividualclientconsenttothesharingarrangement.Thedivisionmustalsobeeitherproportionatetotheworkperformedoreachlawyermustassumejointresponsibility.

Asecondissuearisesinthosesituationswherethesellinglawyerrelinquishesherlicense.Here,futurepaymentsarearguablyanimproperreferralfeesincethefeeisbeingsharedwithanon-lawyer,asaddressedinRule5.4.

TheNewYorkStateBarAssociation’sCommitteeonProfessionalEthicsconsideredtheseissuesinanopinionissuedin2013.AlthoughtheopiniononlyappliestoNewYork,itswell-reasonedanalysiswilllikelybepersuasiveinotherstates.

Inanutshell,thecommitteeopinedthatsinceapurchaseprice,whetherfixedorcontingent,containsacomponentforgoodwill,itmakeslittlesensetopermitthatcomponentinfixedsumdealsinwhichthepartiesattempttoplaceapresentvalueonanticipatedrevenuewhennegotiatingapurchaseprice,butnotfordealswherethepurchasepriceisbasedonactualfuturerevenue.

Thecommitteeprovidedthegroundrulesforpaymentoffuturefees.Itnotedthattheextentoffeesharingmustbearareasonableandbonafiderelationshiptothevalueofthe“goodwill”involved.Eventhemostwell-knownlawyer’sreputationandconnectionsfadeovertime.Anyprovisionforfeesharingmustthereforebelimitedinamountandtime.

Twentypercentofseller’snetincomefor3yearswasusedasanexampleofreasonablenessbythecommittee.

Afterthedealisdone:clientnotificationsandfees

Oncesold,thelawyermustnotifyhisorherclients,inwriting,thatthepracticewillbesold,thattheycanhirealawyerotherthanthebuyerandhavetheirfilereturned,andthatconsentwillbepresumediftheclientdoesnottakeactionorobjectwithin90daysofreceivingthenotice.

Withoutthisnotice(ifaclientcannotbefound,forexample),acourtorderisnecessarytotransfertherepresentationtothebuyer.Thesalecannotincreasethecostofrepresentation.Inotherwords,thebuyercannotincreasefeesinordertorecoupthepurchaseprice.

Whatcansellersethicallydo?

Rule1.17statesthatafterasale,sellersmust“ceasetoengageintheprivatepracticeoflaw.”Doesthatmeanyoumusthandoverthekeys,walkoutthedoor,andimmediatelyrideoffintoretirementsunset?Andiftheanswerisyes,howisthatrealisticallypossible?

Thebuyermightwantyoutostayinvolvedonsomeoftheopenfiles,especiallywhenyourknowledgeofthefilecouldbeimportant.Thebuyermightnotunderstandthenuancesofalawsuit,forexample,orgraspthehistoryofanongoingdeal.However,helpingthebuyerwouldstillbepracticinglaw.

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WhatthecommentstoRule1.17say

Nothing.Anduntilrecently,therewerenoreportedethicsordisciplinarydecisionsabouttransitioningapracticetoanewowner.Thatmeantyoucouldbedisciplinedforhelpingabuyerafteradealcloses.Anyhelpyoumightgiveafterthesalecouldbesubjecttodiscipline.ArecentABAethicsopinion(FormalOpinion468)nowofferssomeguidanceregardingthetypeofactivitiessellerscanperform.

TheRule’spurpose

Effectively,Rule1.17levelstheplayingfieldforsolopractitioners.Sinceretiringlawyersfromfirmshavealwaysbeenpermittedtoassistformercolleaguestransitionclientmatters,whyshouldsolosbeprohibited?Inaddition,allowingpost-saleactivitiesisconsistentwithRule1.16(d)’soverridingphilosophythatlawyerscontinuallyhaveadutyto“takestepstotheextentreasonablypracticabletoprotectaclient’sinterest.”

Stayinginvolved

AccordingtotheABAopinion,youcanonlyperformtransitioningactivitiesthatare“reasonablynecessarytoaccomplishtheorderlytransitionofactiveclientmatters.”Youmustalsostopacceptingnewmatters.Howlongyoucanstayinvolvedwill“dependonthecircumstances,includingtherulesandrulingsofcourtsorothertribunalsinpendingmatters.”

Accordingly,itwouldprobablybefineforyoutoconductadepositionorhelpnegotiatethedealtwoweeksormaybetwomonthsafteryousellyourfirm.However,itishighlyunlikelythatthoseactivitieswouldbeallowedtwoyearsafterthesale.

Chargingtheclient

Rule1.17iscrystalclearthatclientsmustnotexperienceanyadverseeconomicimpactfromthesaleofyourpractice.Feescannot“beincreasedbyreasonofthesale…[and]existingarrangements…mustbehonoredbythepurchaser.”Therefore,billingfortransitioningactivitieswouldbeanincreasethatisnotallowed.Ifyouwanttobecompensatedfortransitioningtime,youwillhavetonegotiateyourfeewiththebuyer.

ABAopinionsarenotbindingonthestates.Nonetheless,thepurposeofRule1.17andthepersuasivenessoftheopinionmeansstateswilllikelyfollowit,butyoushoulddoyourownresearchinyourjurisdiction.

OtherMethodsofDoinga“Sale”

“Ofcounsel”relationship

Thereare,ofcourse,alternativestoanoutrightsaleofapractice.OnewaytoavoidanyRule1.17issuesistomaketheretiringlawyer“ofcounsel”withthesuccessor’sfirm.Bydoingso,thereisnoactualsale;thusRule1.17doesnotapply.Whentheretiringsellinglawyerjoinsanothersmallfirm,manythinkofthesearrangementsasmergers.

TheABAhasdefinedan“ofcounsel”relationshipasa“close,regular,personalrelationship”withthelawfirm.The“ofcounsel”alternativecanbeaveryattractivemeanstostructureasuccessionarrangementforthoseretiringlawyerswhostillwanttopracticeonalimitedbasisduringtheirlastyearsofpractice.

Whateverthelabel,thelawfirmis“buying”apractice.Unlikeasale,wheretherewouldtypicallybeasetpriceorearnout,theretiring/sellinglawyerinan“ofcounsel”arrangementgetspaidforthepracticeviathelawfirm’scompensationstructure.Mostfirmswillusuallytweaktheirexistingformulaand

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compensatethe“ofcounsel”sellinglawyerforselleroriginatedfiles.Somefirmswillalsocompensatenon-billabletimefortransitioningclientsandanynecessarytrainingandmentoring.

Createanewentity

Anotheralternativetoasaleor“ofcounsel”arrangementisthecreationofanewlawfirm.Buyerandsellercreateapartnershiporotherlegalentitywithacompensationarrangementwheretheretiringlawyerispaidoveraperiodoftimewhileworkingandslowingdownatthenewfirm.

PotentialBuyers

Bestbuyers

Thebestbuyersareusuallygoingtolawyerswhoareexperienced.Withthatsaid,therearetimeswherearelativelyinexperiencedlawyermaybeagoodcandidate.Forexample,forthosepracticeareaswherethelearningcurveisnotparticularlysteep(e.g.basisestateplanning),alessexperiencedlawyercanfilltheshoesofthesellerwithoutanysignificanttraining.

Themostlikelycandidatesforpotentialbuyersaregoingtobecompetitorsorfirmsthatwanttoexpandintoanewpracticeareaorgeographicarea.Whenconsideringlawfirmsseekingpracticeorgeographicdiversification,makesurethelawfirmhassomeonecapableoftakingoverthepractice.Ifnot,youmayfacethetraining/mentoringproblemsofthe“recruitthesuccessor”strategy.

Findingbuyers

Thereareavarietyofwaystofindbuyers,manyofwhicharenotmutuallyexclusive.Someattorneystrytodoitontheirown.Usuallythebestwaystogetthewordoutthatyou’relookingforabuyerisbynetworkingandadvertising.

Otherswhodon’twanttotakethetimeandefforttofindbuyers,relyonconsultantsandbrokers.Besidessavingtime,usingoutsidesexpertsprovidesotheradvantagesfromtheDIYmethod.Theyinclude:

• Confidentiality.Somelawyersprefertoremainanonymous.Doyouwanttheentirelegalcommunitytoknowaboutyourplannedretirement?

• Broaderreachofpotentialbuyers• Bettervettingofpotentialbuyers• Moreexpertiseinvaluingandstructuringdealsandgettingthemdone

Findingoutsideassistanceisnotallthatdifferentthanfindingalawyer.Thebestwayswillusuallybebyreferralandtheinternet.

Onewordofcaution:Bewaryofretainingaconsultantorbrokerwhoisnotfamiliarwiththelegalindustry.Eventhosewithexperienceassistingotherprofessionalservice-typefirmssuchasaccountants,doctorsanddentists,usuallydonotunderstandthatlawpracticesaredifferent,andfailtograspthenuancesofalawpractice.

DownsizingAsdiscussedabove,theoptionsforsolosandsmalllawfirmownersfortransitioningoutoflawpracticeincluderecruitingasuccessororsellingthepractice.Bothhaveadvantagesanddisadvantages.

However,there’sonestrategythatisrarelyconsidered,thoughitmaymakethemostsenseintermsof

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theretiringlawyer’sfinancialandpersonalwell-being.Thatstrategyisdownsizing.It’sarathersimpleconcept,andworkswellforbothsolopractitionersandsmalllawfirmowners.Inanutshell,theattorneytakesfewercasesandworkslesswhilereducingoverheadexpenses.

Downsizingworkswellforanumberofreasons.First,Irarelymeetalawyerwho,whencontemplatingretirement,wantstoquitthepracticeoflawcoldturkey.It’sdifficulttogostraightfrombeingafull-timepracticinglawyertosomeonewhoseprimaryfocusistheirgolfhandicap.Manyattorneyswanttowinddownoverafewyearsandgraduallyeaseintofull-timeretirement.Graduallyreducingone’scaseloadaccomplishesthisobjective.

Second,whencontemplatingretirement,manylawyersgetnervousaboutdependingupononlySocialSecuritybenefitsandtheirIRAstofundtheirretirementlifestyles.Downsizingcanfreeuptimetotakethosevacationsyoualwayswantedtogoon,whilestillbringinginincometofundthem.Here’showitworks:

Takefewercases,orbetterones

Howdoyoudothat?Forexample,ifyou’reapersonalinjuryattorney,youbecomeevenmoreselectivewhenscreeningcases.Inthepastyoumayhavetakenrisksacceptingcasesthatwere“closecalls.”Whendownsizing,declinethosecasesattheoutset,andrefertheprospectiveclientstootherattorneys.Ifyou’reafamilylawattorney,youscreenoutcasesthatarelikelytobeoverlycontentiousifyou’retiredofdoingthose,orthelower-assetcaseswhereyouwereneversureyouweregoingtogetpaidanyway.Inestateplanning,setahigherassetthresholdforclientsorstopdoingprobateworkifyouprefertoventureoutoftheofficelessandhaveamorepredictableschedule.

Raiseyourfees

Anothereffectivewaytoreduceyourcaseloadistoincreaseyourfees.Thisweedsoutpotentialorexistingclientswhoarewaytoopricesensitiveandareoftendifficultclientstobeginwith.Iftheydon'twanttopaythehigherfees,letthemtaketheirbusinesselsewhere.I’mhardlysuggestingthatyougougeyourclients,butwhynotpriceyourhourlyrateorfixedfeesatthehigherendofyourmarket?Yourextensiveexperiencejustifiesthehigherfees.Afterall,manyexperiencedlawyersaremoreefficientandexercisebetterjudgmentthanyounger,lessexperiencedones.Clientsshouldbewillingtopayforthatbenefit.

Willyoulosesomebusinessbyraisingyourrates?Ofcourse;that’sthewholepoint.Butnotasmuchasyoumayfear.Someclientsmayactuallybeimpressedbylawyerswhochargeatthetopofthemarket.Toacertaindegree,there’sacachettobeingoneofthehighestbillinglawyersintownorinyourpracticearea.

Reduceyouroverhead

Reducingoverheadcanbeaccomplishedinanumberofdifferentways.Ifyourfirmhasstaff,perhapssomecanworkfewerhours.Somemaynotbeevenneededatall.Ifthisisthecase,youmayneedlessspace.Anotherwaytoreduceoverheadisbyreducingyourmarketingbudget,sincebuildingacaseloadisn’tasimportantasitwasinthepast.Admittedly,somepracticeswillbeabletosavemorethanothers.Itwillbehardertocutexpensesforsolopractitionerswhohavenostaffthanforsmallfirmsthatdo.Regardlessofyoursituation,though,youcanfindsomesavingsifyoulookhardenough.

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CanIstillsellafterdownsizing?

Itdependsonthenatureofthepractice,aswellashowmuchoverheadcanbereduced.Whenyou’rereadytocompletelyretire,theremaynotbemuchofapracticelefttosell.Ifthat’sthecase,don’tlosetoomuchsleepworryingthatyouleftmoneyonthetablebynotgettingoutearlyenough.Whilethatmaybethecase,youlikelyrecoupedthatmoneyandperhapsmorebyhavingworkedafewmoreyears.

Inshort,forthosewhostillenjoypracticinglawandarenotsurewhattheywilldoiftheyretirecompletely,downsizingisanexitstrategythatallowsforaneasiertransitionwhilestillenhancingaretirementnestegg.

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Chapter4. MEDIUMANDLARGELAWFIRMATTORNEYSTRATEGIESSofar,we’vetalkedaboutwaysthatsolopractitionersandsmall-firmattorneyscantransitiontoretirement.Now,let’stakealookattheoptionsavailabletolarger-firmlawyersusingthesituationofhypotheticallawyer,SaraSage:

SarahasbeenwithDewey,Cheatem,&Howefor30years.At62,she'searnedacomfortableliving,butisthinkingshe'dliketowinddown.Sarawouldliketoearnsomeincomeatleastthroughherlate60s,butshewantstospendafewmonthsayeartravelingtoseehergrandkids,wholiveinotherstates.Shewantstoworkpart-timeandbedoneinaboutfiveyears.Sara'sbookofbusinessisbetterthanthatofmostofherpartners.Herfirmdoesn'thaveamandatoryretirementdate,butthere'snoformalretirementplaneither.

Whenpartnersaredone,thefirmthrowsaparty,andtheretiringpartnersendspostcardsfromFlorida.

Sarahasanumberofoptionstoconsiderthatwillenablehertocontinuetobenefitfromherinvestmentinherfirm.

Option#1:OfCounsel,SameLawFirmAfirstoptionforSaraistogo"ofcounsel"withherfirm.Historically,theprofessionhasacknowledgedthenotionofolderlawyerswindingdowntheirpractices.Especiallyatlargerlawfirms,attorneyswouldbecome"ofcounsel"andnegotiateanarrangementthatsuitedtheneedsofthelawfirmandthe"ofcounsel"attorney.Thiscanbeawin-winsituation:the"ofcounsel"lawyermayworkfewerhoursandacceptlowercompensation,butkeepanoffice,somesupportstaff,andmostimportantly,hisreputationasanexperiencedpractitionerandroleasarainmakerandmentor.

Thefirmisrelievedofsomefinancialobligationsandcontinuestoreceivebusinessandthebenefitsoftheattorney'sinstitutionalknowledgeorsubstantiveexpertise.Mostimportantly,awell-thought-out"ofcounsel"arrangementprovidesatimeframeandblueprinttoproperlytransitionclientsofthe"ofcounsel"attorneytoothersatthefirm.

AsdefinedbytheABA,theterm"ofcounsel"signifiesthatthelawyerhasa"close,regular,personalrelationship"withthefirm.Fromanethicsperspective,therelationshipprovidesthefirmandthelawyergreaterflexibilityinsharingfeesthatmaybegeneratedbythelawyercontinuingtoworkonfilesorfromnewbusinessoriginatedbythelawyer.Indeed,theadvantageofthe"ofcounsel"modelisthatthetermsandconditionsofthefinancialarrangementareusuallylimitedonlytothecreativityofthelawyerandthelawfirm.Whennegotiatingitsterms,lawyerslikeSarawitharespectablebookofbusinessmayhavemoreleveragethantheythink.

Transitioningclientstakestimeandeffort,andoneshouldbecompensatedforwhatis,forallintentsandpurposes,asaleofthelawyer'sgoodwilltothelawfirm.Inlargerfirms,managementmaywronglyassumethatsomeclientsfeelloyaltytotheentity.Inanincreasinglycompetitivelegalmarketplace,thatassumptioncouldprovetohavedisastrousconsequencesforthefirmwhenthe"ofcounsel's"clientrelationshipsturnouttobefarmorepersonalthaninstitutional.

Ontheflipside,though,Sarashouldnotoverplayherhand.Someofherrelationshipsmayverywellbewithcorporateconstituentswhoarealsoretiringandmaynotbesoeasytotransition.

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Thereisnotypicalorstandardcompensationarrangementforan"ofcounsel"lawyer.Muchlikepartnersinanysizefirm,attorneys"ofcounsel"typicallyarecompensatedbasedonrevenuecollected,hoursworked,andbusinessbroughtin.Theonlyrealdifferenceisthattheformulamayrecognizethetimeandeffortspenttransitioningtheattorney'sbookofbusinesstoothersatthefirm.Afterall,someonelikeSarawillbetransferringhergoodwilltothebenefitofherpartnersanditsworthshouldbetakenintoaccount.Hence,itmaybeappropriatetopaytheretiringlawyerapercentageofthefeesgeneratedbyotherlawyers'workdoneonbehalfofclientsformerlyhandledprincipallybytheretiringlawyer.

TheformulashouldprovideincentivesforbothSaraandthelawyersonthereceivingendoftheclienttransitiontocooperatewithoneanother.Thatcansometimesbeachallengeforboththelawfirmandtheretiringlawyer.Firmsunderstandablypreferformulasthatemphasizeapercentageoffuturefeesexpectedtobegenerated;retiringlawyerswillusuallywantsomethingmorefixed.

Option#2:OfCounsel,DifferentFirmNowlet'ssupposeSara'slawfirmoffersheran"ofcounsel"agreementthatinhermindundervaluesthebookofbusinessthatshecouldtransfertoothersatthefirm.Dependingupontheportabilityofherbook,shemightwanttoconsidergoing"ofcounsel"somewhereelse.Mostlawfirms,smallandlarge,arewillingtotalkto30-,40-,or50-something-year-oldpartnerswithabookofbusinesswhoarethinkingofswitchingfirms.Smartlawfirmswillsimilarlywanttotalktoa62-year-oldpartnerwithawell-thought-outclient-transitionplan.Thatplanwouldincludeadescriptionofthelawyer'skeyclients,ahistoryoffeesbilledandcollected,hoursworked,andanindicationofhowmanyyearsandhowmanyhourseachyeartheattorneyplanstowork.

Changinglawfirmsinan"ofcounsel"roleiseasiersaidthandone.Aswouldbetrueanytimealawyerwantstoleaveonelawfirmforanother,thelawyerneedsto"shop"thepracticetootherfirms;themarketmaynotbeasrobustorpredictableasonewouldhope.Furthermore,switchingfirmscanbeproblematicforallofthefamiliarreasons,includingconflicts,culture,andgovernance.Mostimportantly,therearenoguaranteesthatone'sbookofbusinesswillfollowtothenewfirm.

Thosewhoarethinkingofmovingtheirpracticeelsewhereneedtobeawarethattheirfirm'sretirementplanmayrestricttheirabilitytopracticelawwhilereceivingretirementbenefits.AlthoughRule5.6oftheModelRulesofProfessionalConductprohibitsnon-competeagreementsforlawyersbecausetheylimitclients'freedomtochoosetheirattorneys,therulespecificallyexemptsagreements"concerningbenefitsuponretirement."TheABAhasrecentlyopinedthataslongasalawyerisgenuinelyretiring,alawfirmmayimposegeographic,temporal,orsubjectmatterrestrictionsonthedepartinglawyer'spractice,orprohibitthelawyerfrompracticinglawentirely,asaconditionofreceivingtheretirementbenefits.Therefore,ifSaradecidestopursuetheoptionofbecomingof-counselatafirmotherthanDewey,CheatemandHowe,sheneedstoconsidertheseissuesbeforemakingthechange.

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Chapter5. SUCCESSIONPLANNINGFORATTORNEYSINLARGERFIRMSTransitioningoutofpracticehasitschallengesnotonlyforretiringattorneys,butforthefirmsthatemploythem.Whilecertaintransitionsmaybemadesimplerbythestructureofthelargefirm,justasinasmallfirm,failuretoplanforchangecanleadtoalossofrevenue.

Takeacarefullookatyourlawfirm’smost-influentialleadersandbiggestrainmakers.Chancesaregoodthattheseindividualswillberetiringoverthenexttwodecades.Isyourlawfirmpreparedfortheimpactofthisseismicgenerationaltransition?

Theimpactwillbefeltwellbeyondthelawfirmitself.Clientswhohavebeenwell-servedforyearswillfindthemselvesbereftofthelawyerwithwhomtheyhavebuiltandmaintainedapersonalandprofessionalrelationshipovertheyears.Whoatyourlawfirmispreparedtosteptotheplateandkeeptheseclientsequallysatisfied?

Thefuturehealthofyourlawfirmdependsuponhowtoday’sleadershipplansforthefirm’spost-boomerviability.Thisimportanteffortiscalledsuccessionplanning.Youmayhavedoneitforyourclients’businesses.What’sstoppingyourlawfirmfromdoingeffectivetransitionplanning?

ObstaclestoPlanningAfraidtoPlan.Inordertoplanforthefutureofyourlawfirm,youneedtoknowtheretirementplansofthefirm’sseniorlawyers.Obtainingthisknowledgeiseasiersaidthandone.Itcanbeproblematictosimplystartaconversationaboutthesubject.Manyseniorlawyersavoidraisingtheissueontheirownduetoavarietyofrealorperceivedfears,includingpotentialreductionofcompensationorlossofcloutamongpartners.Othersresistanyconversationthatinvolvesthinkingabouttheendoftheirprofessionalcareer,withitshintsoftheireventualmortality.

Juniorlawyerswhosefutureisatstakehavetheirownfearsaboutstartingtheconversation.Ifhandledincorrectly,broachingthetopicofsuccessioncould,insomefirms,bepoliticalsuicide.Youngerlawyersfearbeingperceivedbytheireldersasputtingtheirself-interestaheadofthefirm’s.

TooBusytoPlan.Lawyersarenotoriousforcontemplatingeverypossiblewayinwhichaclientdealortransactioncangowrong—evenifitwouldnotoccurforyears.Paradoxically,whenitcomestothefutureofthelawfirm,thinkingaheadishardlyablipontheirradarscreens.Eachlawyer’sfocusisonday-to-dayissuessuchashandlingclientcrises,billingandcollectionmatters,ordividingupfirmprofits.Theycannotseetheforestforthetrees.

TooSelfishtoPlan.Therearealsosomepartnerswho,quitefrankly,careaboutthemselvesmorethantheycareaboutthefirm.Iftheyhaveabigbookofbusiness,theyareusuallytolerated.Theselawyerswilldisruptthelawfirmbyleavingontheirowntermsplanningonlyforthemselvesandnottheircolleagues.

StartingtheDiscussionIntheory,anydiscussionaboutsuccessionplanningshouldbestartedbythefirm’smanagingpartnerormanagementcommittee.Alternatively,influentialandwell-respectedpartnerscanraisetheissue.

Inreality,manyoftheseindividualssufferfromthefearsmentionedabove.Inthatcase,oneeffectivetacticistocamouflagethefirm’ssuccessionplanningwithinitsstrategicplanningprocess.Thiscanbe

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particularlyeffectivewhenthestrategicplanningprocessisfacilitatedbyanoutsideconsultant.Unlikethelawyersinthefirm,outsideconsultantshavenovestedinterestintheoutcomesofsuccessionplanning.Theobjectivityoftheconsultantinspiresmorecandorfromattorneyswhomightotherwisebeterritorialorsuspiciousoftheprocess.Thisinturnmakestheprocessmoreefficient,andtheconsultant’sfeesaninvestmentratherthananexpense.

Thebestwaytoengageselfishpartnersintheprocessistofocusontheclientsideofsuccessionplanning.Evenpartnerswhodonotparticularlycareabouttheircolleaguestypicallycareverymuchabouttheirclients.Whentheemphasisisplacedonmeetingclientneeds,andnotonthefirm,thechancesofgettingtheirattentionimprovessubstantially.

NutsandBoltsTheobjectiveofcreatingandexecutingasuccessionplanistoensurecontinuityinfirmmanagementandclientrelationships.Thisobjectiveshouldguidethefirminthepracticaltasks,the“nutsandbolts,”ofsuccessionplanning.

Management.Responsibilityfortransitioningfirmleadershipfallstothemanagingpartnerormanagementcommitteeand,atlargerfirms,thepracticegroupheads.Firmsledbymanagingpartnersshouldelectorselectasuccessortobe“assistantmanagingpartner”toworkwiththeincumbentmanagingpartnerformonths,orevenyears.Thisallowstimeforthenewleadertobementoredandgraduallyassumemanagementresponsibilities.Firmsledbycommitteeshouldadoptarotationprocessthatmaintainscontinuitywhileprovidingasteadyinfusionoffreshbloodandfutureleaders.

ClientRelationships.Transitioningtheclientsofaseniorattorneytothenextgenerationisthemostchallengingcomponentofanysuccession-planningequation.Clientinputisessential.Successrequiresmanagingandfinessinghumanrelationships,ataskthat—evenwiththebestofintentions—isnevereasy.Itcantakeyearstosuccessfullytransitionaclientrelationship.

Thesuccessorlawyerneedstimetoobtainthenecessaryexpertiseandclient/industryknowledge.Moreimportantly,ittakestimeforclientstofeeltherequisite“comfortandchemistry”thatissocrucialforasuccessfullawyer-clientrelationship.Finally,timeshouldbesetasidetoaccommodateanyadjustmentstotheplan.Therewillbeinevitablebumpsintheroadthatwillrequiresometimetoabsorbshocksandmakeanynecessaryrepairs.

Furthermore,acomprehensiveclient-transitionsuccessionplanisactuallymultipleplans.Eachseniorlawyerneedsaplanand,withinthatplan,theremustbeaplanforeachsignificantclient.Remember,however,thatallclientsarenotcreatedequal.Allocatethebulkofyourtimeandeffortstotheclientsthataremostcrucialtothefirm’sbottomline.Inordertoputtogetheraclienttransitionplan,askthefollowingquestions:

• Whichfirmclientsarebeingservedbyseniorlawyers?• Howlongdotheseseniorlawyersintendtowork?• Areanyjuniorlawyersservingthoseclients?Ifnot,whocanbeintroducedtothe

relationship?• Whattypesoftrainingandmentoringdothesejuniorlawyersneed?Howlongwillthattake?• Whataretheclients’concernsaboutthepotentiallossofthefirm’sseniorlawyers?

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• Dotheyhavesuccessorpreferences?• Areanyofyourkeyclientsgoingthroughtheirowntransitionprocess?Doyouhavea

relationshipwiththeclient’spost-boomergeneration?• Howwillsuccessorlawyersbeintroducedtoclients—bothsociallyandinaworking

relationship?

Theanswerstothesequestionswillhelpyourfirmdevelopaplantotransitionclients.Willyourplanwork?Onlyifyourfirmhasaskedandansweredoneadditionalcrucialquestion:Whatwillmotivatetheseniorattorneytobegintoletgo?Moreoftenthannot,theanswerismoney.Withouttheproperfinancialincentives,theclient-transitionplanisdestinedtofail.

Inmostlawfirms,thefirm’scompensationpolicymustbeadjustedforthoseimpactedbytheplan.Ifthefirm’spolicyisheavilyweightedtowardsbillablehours,seniorlawyersareunlikelytodelegatetojuniorlawyers.Ifthefirmwantsseniorlawyerstodelegatework,theseniorlawyerneedstoberewardedfortakingthataction.Additionaladjustmentswillmostlikelybenecessaryincompensatingfororiginationandnon-billabletime(e.g.,mentoring).Foranyclient-successionplantowork,theseniorlawyermustbeprovidedwithsomelevelofincomeprotectionthatrewardsthelawyerforfurtheringthegoalsoftheplan.

Flexibility,communication,andaccountabilityarealsocriticaltothesuccessofanysuccessionplan.Sinceeachlawyermaywantorneedadifferenttime-framefortransitions—toaddresspersonalaswellasclientneeds—plansmustbeflexible.Firmmanagement,seniorlawyers,juniorlawyers,andclientsmustcommunicateregularlytoensurethattheexpectationsofeachpartyarebeingsatisfied.Ifnot,individualsmustbeheldaccountabletogetthembackontrack.

Finally,anysuccessionplanshouldtakeintoaccounttheroleofaretiringlawyeraftertheclienttransitionhasbeencompleted.Canthelawyeraddmentoringormarketingvaluetothefirminan“ofcounsel”role?Ifthecordistobecutcompletely,hasthefirmprovidedresourcestoeasetheindividual’schangetoaretirementlifestyle?

NeverTooLateWithone-thirdofthenation’slawyerscontemplatingretirement,itistimetostartorramp-upyourfirm’sdiscussionofsuccessionplanning.Itisnevertoolate.Evenafewmonthsorayearofplanningispreferabletoacrisissituationgeneratedbytheprecipitousretirementofacriticalpartnerwhoridesoffintothesunset,nevertobeheardfromagain.Icanguaranteethatthisunhappyscenariooccursmoreoftenthanyouwouldexpect!

Ifyourlawfirmwantsitsbestclientstostaywhenyourbabyboomerlawyersleave,successionplanningisthemosteffectiveinsurancepolicytoaccomplishthatgoal.

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Chapter6. CONCLUSIONThoughlargelawfirmsandsmallpracticesfacedifferentchallengeswhenfacedwithanattorney’sretirement,thesameoldadageremainstrueforboth:Failuretoplanisplanningtofail.The“failure”maybeafailuretogleantheincomethatcouldberealizedfromalawpracticeyou’vespentyourcareerbuilding.Itmaybeincreatingacrisisforclientswhoarenotsurewheretoturnwhenatrustedattorneysuddenlyretires.

Ifyou’vereadthisbook,you’vetakenthefirststepincreatingasuccessfulretirementplanforyourself.Themoretimeyouhavetoimplementthatplan,thebetter.Butasnotedearlier,anyplanningisbetterthannone.

InkeepingwiththeJohnF.Kennedyquoteatthebeginningofthisbook,thetimetodesignyourretirementiswellbeforeyouactuallyneedorwanttoretire.Alloftheretirementstrategiesdiscussedinthisbookrequiretime--timetodeterminethebeststrategy,andthentimetoimplementit.Transferringclientrelationshipsandone'scaseloadrequireseffort;itwillnotjusthappenovernight.Thebareminimumamountoftimerequiredisprobablyoneyear.Anddependinguponthepaceatwhichtheretiringattorneywantstowinddown,thecompletetransfermaylastaslongasfiveyears.Inanyevent,itwillbetimewell-spenttoensurethatyoucanspendwellduringretirement.

NSBA Annual Meeting Wednesday, October 11, 2017

Young Lawyers, Senior Lawyers and General Practice Sections

Roy Ginsburg’s Blog Posts

https://www.royginsburg.com/blog/legal-careers/2014/02/06/small-town-lawyer/

https://www.royginsburg.com/blog/practice-management/2013/08/16/busy-hire-help/

https://www.royginsburg.com/blog/practice-management/2012/12/17/solos-really-want-partner/

https://www.royginsburg.com/blog/retirementsuccession/2012/06/07/buying-law-practice-makes-

sense/

https://www.royginsburg.com/blog/selling-your-practice/2017/06/05/preparing-practice-sale-dont-

stupid-st/

https://www.royginsburg.com/blog/legal-careers/2014/02/06/small-town-lawyer/https://www.royginsburg.com/blog/practice-management/2013/08/16/busy-hire-help/https://www.royginsburg.com/blog/practice-management/2012/12/17/solos-really-want-partner/https://www.royginsburg.com/blog/retirementsuccession/2012/06/07/buying-law-practice-makes-sense/https://www.royginsburg.com/blog/retirementsuccession/2012/06/07/buying-law-practice-makes-sense/https://www.royginsburg.com/blog/selling-your-practice/2017/06/05/preparing-practice-sale-dont-stupid-st/https://www.royginsburg.com/blog/selling-your-practice/2017/06/05/preparing-practice-sale-dont-stupid-st/

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February 6th, 2014

No one needs to remind law students and recent law school graduates about the dismal job market. Only 85

percent of the class of 2012 found a job of any kind post-graduation — and only 64 percent of those jobs

required bar passage, which is an all-time low. This is the fifth consecutive year of decline and the lowest rate

in 18 years, according to the National Association for Law Placement.

Continue reading this post at www.attorneyatwork.com

Categories: Legal CareersI hired Roy while transitioning between law firms. He provided great practical adviceregarding numerous issues surrounding my departure from my former firm. Moreimportantly, his counsel was crucial once I joined the new firm, especially when itcam…" Read the rest– Partner, medium Chicago, IL law firmRead more from our clients

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Succession Planning Scenarios for Solos & Small Law Firm OwnersHow to Retain Clients When a Lawyer Retires: Plan for the Skill GapThe ‘Keep It Simple, Stupid’ Marketing PlanPreparing Your Practice for Sale? Don’t Do Stupid S**t.10 Questions to Answer When Creating Your Law Firm Strategic Marketing PlanWant to Avoid Ethics Complaints? Follow These Three Service Tenets for SatisfiedClientsSuccession Planning: Don’t Delay Identifying New LeadersAppraising a Law Firm for a Buy-In: CPA’s Need Not ApplyRevenue v. Profits: Don’t Forget the Bottom LineEmail Networking Invitations: What Should You Say?A Rule of Thumb for Valuing a Law Practice Is Not to Use the Rule of ThumbShould Your Career Expire When Your Lease Does?Lawyers Must Make Room for the FutureSuccessful Networkers Follow UpPut Networking into Perspective

See our complete Blog Index.

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August 16th, 2013

Most solos are all-to-familiar with the "feast or famine" roller coaster. Either you have too much work to

comfortably handle on your own, or you are wondering how you are going to pay the bills. Today, I'd like to talk

a little bit about a number of ways to successfully deal with the "feast" option.

Continue reading this post at www.lawyerist.com

Categories: Practice ManagementI loved Roy’s enthusiasm, spontaneity, and even his east coast bluntness. I admired theway that he dug in his heels to learn more about my business and practice area nicheso that he could converse with me intelligently and thoughtfully abou…" Read the rest– Owner, small Detroit, MI law firmRead more from our clients


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December 17th, 2012

In the legal profession, there are many solo practitioners. The ABA estimates that half of the country's lawyers

"hang out their own shingles." Over the course of a career, most of these solos occasionally give serious

thought to the idea of joining forces with another lawyer. Such a decision should never be rushed. It should

always be well-thought-through.


Categories: Legal Careers, Practice ManagementI loved Roy’s enthusiasm, spontaneity, and even his east coast bluntness. I admired theway that he dug in his heels to learn more about my business and practice area nicheso that he could converse with me intelligently and thoughtfully abou…" Read the rest– Owner, small Detroit, MI law firmRead more from our clients


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June 7th, 2012

As baby boomers age and start to think about retirement, these lawyers begin to think about selling their legal

practices. At the same time, younger lawyers are looking for ways to expand or diversify their practices. They

are also thinking about buying a law practice.


Categories: Retirement/Succession, Selling Your PracticeRoy’s feedback about my resume, our mock interview, as well as his direction regardingmy networking strategy, was extremely helpful. Our telephone conversationsreenergized, refocused me, and brought back my confidence during my job search at…"Read the rest– Associate, small Philadelphia, PA law firmRead more from our clients


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June 5th, 2017

Soon-to-be retired solo practitioners and small law firm owners who are thinking of selling their law firms

frequently ask, “Is there anything special or unique that I should do now to maximize my practice’s value?”

Whenever I hear that question, I can’t help but think of President Obama’s remark about how to best manage

world affairs: “Don’t do stupid s**t.” That advice holds true for lawyers contemplating selling their practice.

So what passes as “stupid s**t” when you are considering selling your practice? While one could stipulate

over a laundry list of items, I’m going to keep this very simple. Here are the two stupid things to avoid.

There is nothing magical about 65. The point here is once you reach your mid-sixties, all bets are off about the

likelihood of your or your spouse’s continued excellent health. The odds that one of you will have a serious

medical issue increases substantially at this time. As a result, significant changes to your practice may be

required.

Health issues will give you enough to worry about. Why add the stress of a big lease obligation?

In addition to health, there is another reason to stay away from longer leases. When you least expect it, you

may uncover an opportunity to sell your practice sooner than you anticipated. A long lease could prove to be a

major obstacle to a deal. You should never assume a buyer would want to take over your lease obligations.

Some will, some won’t; it will all depend on the situation at hand. Don’t make your life more difficult than it has

to be.

It is more critical than ever to have a complete, thorough and updated contingency plan in case your health

begins to fails. (Note to younger lawyers reading this: You should have one too!) Don’t have one yet and aren’t

sure where to start? Look to the myriad resources available from your bar association, malpractice carrier, and

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the Internet.

Yes! I am well aware that other consultants frequently advise solos and small firm owners to enhance

marketing efforts, systematize operations, clean up financial records, and go paperless, among other things.

But let’s get real. You know you should have been doing all of that stuff years ago. Do you really think you’re

going to do it now? I doubt it.

Save yourself the trouble of thinking about reinventing how you operate your firm. You made a nice living

doing it your way. Smart buyers will still see plenty of value and will come ready to make a deal. Just be sure

not to get in your own way by doing stupid s**t.

Categories: Selling Your PracticeI’m a junior partner at a large firm. I have finally cracked six figures in bringing inrevenue, but I have a long way to go to build it to the size that I want. I’m also unsurewhether private practice is what I want to do for the rest o…" Read the rest– Partner, large Washington D.C. law firmRead more from our clients


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young lawyers, senior lawyers, & general practice ......when baby boomers cheerfully sang the lyrics...

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