Succession Planning for Law firms

The law firm world has changed without many of us noticing it. Many of the Partners who now wish to retire, bought into their firms in the 60’s, 70’s or 80’s when it seemed good business to buy equity for departing Partners and, more often than not, also agree to pay an annuity to them and their spouses.

In those days this seemed only reasonable. Track forward to 2017 and this is no longer the case. The rug has been pulled out from under their feet. Retiring Partners need to put themselves in the shoes of the next generation and ask, if you had your time again, would you buy in now? If the answer is yes, fantastic, you have clearly got a good firm and you should have no problem retiring, if it is no, then how can you expect anyone else to do so. To take each of these in turn:

If you would buy in again, then you have choices. You are clearly doing most things right so I would imagine you have thought about succession and have lined up salaried Partners who are happy and ready to take over. Or, if they are not ready to take over but are good fee-earners then you have a good vehicle to be acquired by another firm.

If the answer was no I would not buy in, and be honest here, then your choices are more limited. No doubt you have been an excellent lawyer for your clients but you have probably neglected your firm. This is the more common situation and not attractive to any junior Partner.

The most practical solution is to approach other local firms, or the national consolidators looking to open in your locality, and essentially hand them the keys to the firm, work for a few months to ensure the clients transfer over and leave. This is an undignified end to a professional career and entirely avoidable with a little planning but at least is saves run-off.

We are often asked when partners should start looking at succession and the answer is broadly when their ages start with a 5. If your age starts with a 4 you are probably someone else’s succession and have plenty of time to plan how to improve the firm. If you age starts with a 6 however, your options are more limited and becoming worse every year so start work on this immediately and aggressively.

The ideal time is mid 50’s. At this point, if you decide the right route is to bring on junior partners you are still going to be around for 5-10 years to mentor them, hand over relationships and ensure the firm is in a good place. Alternatively, if you decide a merger makes best sense, your firm is an attractive proposition and you will have 5 -10  years to enjoy the benefits of being in a larger firm and the enhanced profitability the merger has produced.

If we can help with your firm, please get in touch.

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