Law Practice Management Asked and Answered Blog

Category: Candidate

Jun 26, 2019

Law Firm Succession Strategy When Candidate Associate Attorney Says No to Your Proposal

Question:

I am the owner of a law firm in Mesa, Arizona. I started the firm twenty-five years ago. Our focus is exclusively on estate planning and we serve clients throughout the Phoenix metropolitan area. There are three other associate attorneys working in the firm as well as staff. One of the associates has been with the firm for ten years and the other two are right out of law school – one was hired this year and the other one year ago. I am sixty-three years old and I would like to retire and exit the practice within the next three years – the sooner the better as I have other interests that I would like to pursue.

For several years it has been my goal to transition my practice to my senior associate and he and I have discussed this vaguely over the years – just the idea in general – no specifics. Recently, I made a proposal to him where he would gradually buy my shares over the next three years and have all my shares paid for by the time of my retirement which would be three years from now. To my surprise he refused. Where do I go from here?

Response:

Getting a “no” is not unusual. We are experiencing this quite frequently in our succession planning projects. Often this results in the firm exploring external succession strategies and having to merge with another firm or selling the practice. First of there is not the hunger for “equity” that there was thirty years ago. This is due in part to the fact that in many firms – large and small – there is now a non-equity partner status with the recognition of partner status, additional compensation and perks, and none of the risks of equity partnership. In addition, work life balance is important to many attorneys and many are unwilling to give up work life balance in exchange for the stress of equity partnership. Finally, many candidate associate attorneys either don’t have the capital/financial resources often required to obtain equity or don’t see the payback or return on their investment should they buy-in.

Here are a few thoughts concerning your situation:

Reevaluate your proposal. Is the price you are asking for your shares reasonable and affordable for the candidate based upon the actual profits (your earnings) generated by the firm? If the price is not reasonable or affordable for the candidate consider providing an alternative proposal.
Even if the price is reasonable and affordable, three years may not be a long enough period. You may have to settle with getting some of the value say three to five years after your retirement. Consider this as an alternative.
Your associate may be reluctant not because of the terms but because he does not really want to own a law firm – he just wants a job as a lawyer. If this is the case it does not make any difference what you propose and you need to examine other options such as bringing in a lateral that is willing to take over your practice or a merger or sale of the practice.

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John W. Olmstead, MBA, Ph.D, CMC

Mar 10, 2017

Law Firm Merger – Are We a Suitable Candidate

Question:

Our firm is a two partner firm in Columbus, Ohio. We have two staff members. There are no other attorneys in the firm. We have been in practice together for seventeen years. I am sixty two and my partner is in his fifties. My practice is limited to intellectual property and my partner’s practice is limited to medical malpractice defense. Recently, as a result of lack of coverage, our unwillingness to hire associate attorneys, and our frustrations with dealing with management issues we have decided that we would like to merge with a larger firm. However, we are concerned that our numbers may not be satisfactory. Our five year averages are as follows:

Gross Revenue – $500,000
Expenses – $240,000
Net Income – $260,000

Since we split the pot evenly we each made $130,000 on average.

With these numbers are we a suitable candidate or are we just whistling in the wind? We would appreciate your thoughts.

Response:

Obviously these are not great numbers. Depending on firm size and type of practice – most firms (small firms) are looking for revenue per lawyer in the range of $360,000 and up. Many firms are looking for books of business that will keep the candidate and an associate busy – $750,000 plus.

However, law firms are also looking for new sources of business (clients) and lawyer talent. There are firms out there that have the work and need help with the work and might be interested in your talent and skills as well as the clients that you could bring in. You may not be able to join the firm as an equity partner but may be able to join as a non-equity partner. (Depends on firm size) Due to the very different practice areas that each of you have you may not find opportunities in the same firm.

I encourage you to look around, start your search, and see what happens.

I have seen many situations similar to yours that have resulted in successful mergers and lateral or Of Counsel positions.

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