Regular readers of this column know that I consider it essential for sole practitioners to undertake succession planning for retirement or a practice sale. No matter what the state of the economy or oneís retirement investments, working until death is an unnecessary concession to fear of the unknown.
Every lawyer who has built his or her own practice can and should follow rational steps to plan for whether they want to turn their practice over to a chosen successor or sell it outright. Choose whichever are most appropriate from among these 10 steps to define such a plan:
- Bring in an associate or lateral partner who can be groomed as a successor. Ideally, this can be done over a period of several years, as client responsibilities transition to the new lawyer.
- Seek a buyer if you prefer to sell your practice. Business brokers, law firm management consultants, accountants, valuation firms and appraisers all are excellent resources to spread the word.
- Value your practice to define what the stream of income would be worth to a prospective buyer to create a lump sum for retirement. A general multiplier would be in the range of 50 to 300 percent of annual gross receipts, depending on practice specifics.
- Include the value of goodwill attributable to the firmís reputation, client base and client loyalty that you have created over the life of the practice.
- Negotiate sale terms to reflect a fixed, certain sum. There can be bonuses and payment terms that reflect appropriate involvement of the selling attorney during a transition period.
- Follow the requirements of ABA Rule 1.17 on the ethical viability of buying or selling all or an area of the practice. The rules of each jurisdiction dictate what must be followed, and there are additional ethical concerns that apply to client notification.
- Tell everyone who needs to know about your departure when you leave, but not before. Some on this list are obvious — family, staff and clients — but also communicate to financial institutions and insurance carriers, bar associations and courts, taxing authorities and the local legal news media.
- Review the details of the business responsibilities you have as owner of a professional services firm. These involve, but are not limited to, tax obligations, financial obligations to utilities, landlords and vendors, bank obligations and notice of business entity change.
- Allow enough time. Grooming a successor may take up to five years. Selling a practice could easily take a year or more. Establishing a timeline at the beginning of the process and keeping it up to date as events unfold will give you a tool to help you focus your efforts and track the various elements of the sale closing.
- Prepare to move on. State bar associations may require you to resign from the bar or adopt inactive status after a practice sale. Your intent in selling or in transitioning your practice should be to end the practice of law and begin the next chapter of your life.
© Copyright 2011. Edward Poll. All rights reserved. Reprinted with permission from Edward Poll.
About The Author
Ed Poll principal of LawBiz Management Company, is a nationally recognized coach, law firm management consultant, and author who has coached and consulted with lawyers and law firms in strategic planning, profitability analysis, and practice development. Mr. Poll has practiced law on all sides of the table for 25 years-- as a corporate general counsel, government prosecutor, sole practitioner, partner, and law firm chief operating officer and been a consultant to small and large law firms for 20 years.
The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.
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