Law Practice Management Asked and Answered Blog

Category: My

Jul 17, 2019

Law Firm Succession – Pros and Cons of Hiring an Associate as My Succession Plan

Question: 

I am a sole practitioner in San Diego, California. My practice is mostly general practice with some emphasis on commercial real estate. I am 64 years old and am looking for a way to transition and exit my practice in the next three to five years. I am the only attorney in the firm however there are three legal assistants that work for me. I have been considering hiring an associate so that I have someone to sell my interests to in the next three to five years. I have never had an associate so I would appreciate your thoughts concerning the wisdom of hiring an associate at this stage of my career.

Response: 

In general I prefer an internal succession strategy when the firm has an attorney or attorneys in place that are willing to step up to ownership and take over the firm. Often this is easier said than done. Issues you will face will include:

  1. Unless you are loaded with work that you are unable to handle or you hire an attorney that can bring work with him or her you will be increasing your expenses and reducing your income/compensation.  Since you have operated all these years with just one attorney I assume that there is only enough work to support one attorney. If you are ready to slow down to a reduced work schedule and take less compensation that is another matter. If not, you may want to look for an experienced attorney with some business rather than hiring a lawyer fresh out of law school or wait a little longer till you hire someone.
  2. Associates require care and feeding – in other words training, mentoring, etc. A certain amount of training and orientation will be required even with an experienced attorney. Revenues may lag from one to two years and your will be saddled with their compensation and other related expenses. You have no experience with mentoring attorneys and this may be something that you are ill equipped to do or don’t want to do.
  3. You may end up hiring and training in an associate only to have them leave the firm in a year or so to join another firm and possibly take clients with them.
  4. The associate you hire may only be looking for a 9-5 lawyer job and have no interest in owning a law firm.
  5. The associate you hire may expect to have you hand them your practice for free and he or she may be unwilling to pay you for your practice.

Many firms have had positive experiences with transitioning their firm to associates. Just be aware of the possible pitfalls. You may be better off going a different direction.

Click here for our blog on succession

Click here for out articles on various management topics

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

Dec 20, 2016

Law Firm Succession Planning – Selling My Stock to Several Associates

Question:

I am the sole owner of a five attorney personal injury plaintiff firm in the Dallas suburbs. Over the years I have built a sustainable brand through advertising. I have helped my associates develop their reputations, handle substantial cases, and be involved in various areas of firm management. I am planning on retiring in five years and I would like to begin the transition early next year by selling some stock (minority interests) to deserving associates with the remainder of my shares to be purchased upon my retirement. Originally, I had through about selling shares to two associates that have been with the firm for over fifteen years – now I am thinking about selling shares to all four associates. I think it would be easier for the four to come up with the required money. I welcome your thoughts.

Response:

If you are asking for a goodwill value plus cash-based book value as well as a percentage of completion estimated value of your contingency fee cases in process, the amount you are asking for your stock could be considerable. This would indeed be difficult for one or two people to raise and on its face it would make sense to sell your shares to all the associates. If this is not the case if may be possible to the two senior associates to raise the required funds.

Here are my thoughts:

  1. You know your people best but give consideration to the future partner dynamics. You are going from a sole owner structure to a five attorney ownership structure if you bring them in all at the same time. This will require some major adjustments in governance, compensation, etc.
  2. Are the two newer associates deserving of ownership? Have they developed their skills and earned the respect of the other associates in the firm and others outside of the firm?
  3. What do the two senior associates think? Do they want to be future partners with each other? Are they able to come up with the money? Do they initially, after your retirement, want other partners? Do they want the other associates to be their partners – initially or down the road?
  4. Interview your two senior associates and get their thoughts on the above questions. They may want to enjoy the benefits of leverage from having less partners as you have over the years. 
  5. My guess is that your senior associates would prefer to go it alone if they can swing it.

Don't try to force future partners on your two senior associates. I will rather see you initially admit the two senior associates as partners and let them admit other partners after your retirement when they are ready.

Click here for our blog on succession

Click here for out articles on various management topics

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

 

Aug 09, 2016

Law Firm Financial Management – What Reports Should I Give To the Attorneys in My Firm

Question:

I am the firm administrator of a sixteen attorney firm in San Diego, California. We have six equity members, four non-equity members, and six associates. We also have four paralegals and six staff members. We are managed by a three member executive committee. Each month I provide the equity members and the executive committee with the same reports from our software system. They are quite numerous. The equity members and the executive committee complain that they get too many reports and they don't look at them while the non-equity members and the associate complain that they don't get access to any financial information. Do you have any suggestions?

Response:

Less is often more. I would rather see partners receive less reports and read and use the reports they do receive. They can always request additional detail reports if they desire them. Think of a pyramid – at the top are equity members, then non-equity members, associates and then the executive committee and the firm administrator. At the top of the pyramid the information is more summarized and more detail is provided as you work you way down the pyramid. For example, do the equity members need to see journal registers, cash receipts registers, etc.?

I suggest you develop a report distribution guide that outlines who gets what and when and have it approved by the executive committee. Here is an example:

The objective of these guidelines are to provide timely, meaningful reports to firm management, equity and non-equity members, associates, and other timekeepers. Therefore, as few reports as possible should be distributed to reduce bulk and information overload. All other reports not listed for equity member distribution should be available to them on a per request basis.

Daily Reports

 Weekly Reports

 A detailed time report will be generated weekly (by Wednesday of each week for the conclusion of the preceding week) and will be distributed as follows:

Monthly Reports

        Monthly reports should be distributed no later than the 5th of each month according to the         following schedule:

        Equity Members             

        Non-Equity Members

        Executive Committee

        Director of Administration

        Associates

        Paralegals

        Staff (Timekeepers Only)

Quarterly Reports

Annual Reports

Annual reports are generated at the end of the year and maintained in a end of year section of the reports binder for the year (or computer system)

        Equity Members

        Same reports as received monthly.

        Managing Member/Executive Committee

         Same reports as received monthly

        Director of Administration

        Same reports as received monthly

        Note: At year end each of the above reports should be printed and saved to a file to the         reports folder that has been setup on the computer network. This should be done prior to         running the year end close.

        Associates

        Same report as received monthly.

        Paralegals

        Same reports as received monthly.

        Staff (Timekeepers Only)

        Same reports as received monthly.

Click here for our financial management topic blog

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

 

Feb 02, 2016

Law Firm Succession – Should I Close My Doors

Question:

I am a lawyer from Carbondale, Illinois area. Last week I attended you Illinois State Bar Association CLE Webinar – Law Practice Succession and Transition – Ideas for Getting Started. I am 66 years old and I fit the "Sole Owner" model that you discussed. I am the practice. I have one associate and one legal assistant and my associate has neither the desire or the ability to take over my practice. I am tired and want to retire by the end of the year. With no successors in site I am thinking that I should just close the doors at the end of the year. I welcome your thoughts.

Response:

It could come to that if you cannot find someone interested in taking over your practice. However, since you have almost a year before your planned retirement I would at least try to see if you can find another lawyer or law firm to buy or otherwise takeover your practice – preferable "buy". Start now as it often takes a year. Make a short list, make some phone calls, have some lunches, get to know some folks, and see what kind of interest there might me. Keep a continual momentum going. Since you are the practice – this will be a concern to a potential buyer especially if you are unwilling to stay on after the sale in a consultative transition capacity. You might want to rethink your timeline – otherwise you may have to simply close the doors and refer out the work and strike the best arrangement that you can.

Click here for a link to my book – The Lawyers Guide to Succession Planning – published this week by ABA

Click here for our blog on succession

Click here for out articles on various management topics

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

 

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