Question:
I am the founder and sole owner of a business litigation firm in Orlando, Florida. I am 72 and want to retire and exit the practice within the next year. My office lease expires next year and I am not willing to sign another lease. There is one associate attorney that has been out of law school and with me for two years. He has yet to try any cases. There is also one paralegal in the firm that has been with me for 20 years.
While it would nice to receive some value and monetization for the effort, time, and sweat that I have invested in the firm I have made a good living over the years and have saved adequately for my retirement. So monetary compensation for my practice is not as important to me as finding a home for my clients and employees.
Since my associate does not have the experience to buy or take over my practice I must either find another practitioner or firm that I can hook up with or close the doors next year.
Any advise and thoughts that you may have are appreciated.
Response:
Unless you have a candidate practitioner or firm in mind, one year to your planned retirement/exit may be a problem both from the standpoint of the time it will take to find candidates as well as client transition. Challenges you will face include:
- Limited number of interested firms.
- Candidate firms often prefer firms with multiple attorneys rather than a solo practice.
- Some candidate firms may want only selected clients rather than the entire practice.
- Many firms are having issues staffing the work they have and are not hungry for additional work. They are hungry for talent.
Candidate firms often want a transition period of two or three years whereby the retiring attorney works as “Of Counsel/Senior Counsel” and helps ensure the firm transition client work and relationships. Candidate firms know that clients hire the lawyer—not the firm. So they will be concerned about:
- Whether clients will stay after the you retire.
- How much revenue will disappear.
- Whether your referral sources will continue sending work.
This often results in earn-out structures where your compensation or payment for your practice depends on client retention.
Your best option would be to merge and part of the arrangement would be they would hire your associate and paralegal. To accomplish this you need to start your search for candidate firms right away and see what happens. Be prepared to stick around for awhile to effect client transition. Generally you would be compensated under a eat-what-you kill arrangement. Another option would be to try to hire an experienced lateral attorney that would agree to purchase you practice when you retire. If all else fails you will need to refer out your existing clients and close the doors next year.
Concerning compensation or value from your practice, I find that many sole owners expect the sale of the practice to fund retirement. However, I generally see the following:
- Most value comes from future earnings rather than hard assets.
- Purchase prices are often paid over several years.
- Client retention affects the final purchase price.
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John W. Olmstead, MBA, Ph.D, CMC
