Into The Sunset — How Will You Transition Your Practice?
by Edward Poll
Few lawyers actually believe that their practices represent something of value they can sell or otherwise transition to another lawyer. They don't believe they have goodwill that can be transferred and are unwilling to share the current value of their attorney-client relationship, even with others in their own firm.
Yet lawyers are not immortal, and at some point they must confront the issue of transitioning their practice to others. A recent article in The Seattle Times about the "graying of the bar" was noticed by blawgers around the country. The article stated that 66 percent of the members of the Washington State Bar are 41 or older, and that 10 percent are over 60. Of course, aging does not automatically require exiting practice. But it does suggest that you should give thought to how you will do it when the time comes. Here are three potential scenarios to consider.
Plan for Succession
Most law firm attorneys live in a system in which they "eat what they kill" and therefore don't want to share information on clients or prospects with the next-generation lawyer who might "steal" business before the first attorney is ready to step away from active practice. A law firm can create a huge competitive advantage for itself by proactively encouraging succession of clients from older to younger lawyers. One way is to offer a buyout or capital payout in exchange for sharing clients with younger lawyers. Senior lawyers would remain engaged in the firm, continuing to bring in new business, but without the fear of financial loss from losing a book of business. The firm and clients benefit from a planned transition.
When rainmakers hit 65, they slow down, and their referral sources retire. Meanwhile, the next generation of partners has been accustomed to inheriting business and has no marketing skills. This is usually when I get a call, and I emphasize that clients belong to the firm, not to a partner. I recommend that firms service their top 20 clients with teams (not just a single rainmaker), and cross-sell between teams according to a strategic plan. Train lawyers to go after target businesses according to a personal marketing plan and give bonuses to those who get results. Hire associates with business development skills and don't make them partners unless they have a book of business. Require management committee members to be rainmakers. Steps like these institutionalize the process of marketing so that the firm doesn't face sudden disaster when rainmaker partners retire.
Selling a Practice
Selling a law practice to a qualified attorney (or attorneys, or portions of the practice) no longer violates the code of professional ethics in most states. Even so, you shouldn't do it until you're serious about getting out. Remember that 99 percent of potential business buyers invariably get cold feet and back out before closing. Anticipate this and deal logically, reasonably and unemotionally with it. I recommend that sellers retain a professional business consultant or broker who is involved in selling law practices and knows how to find the few potential buyers with the proper means and motivation. Even after culling out unqualified potential buyers only about 50 percent of serious prospects eventually buy a law practice.
Once you do have a buyer, realize that you can't have a change of heart and decide to resume practice. This would violate both contract law and the rules of professional conduct. A number of state bar associations require that in such situations you either resign from the bar or adopt inactive status. Choosing to remain an active member continues your obligations to pay dues, comply with mandatory continuing education requirements and remain subject to the bar's other requirements. Also, if you remain attorney of record in any matter, you remain in active practice so far as most state bar associations are concerned. Your intent in selling, or in transitioning your practice by any other means, should be to retire from the practice of law, head into the sunset, and begin the next chapter of your life.
Reprinted from June 2006 issue of Law Practice Today.