A Practice Smart(TM) Feature
By Michael Blum
As a lawyer, anticipating challenges is not only critical to a case, but essential to running a practice. When it comes to succession planning, most lawyers prefer to stick their heads in the sand, declaring they’ll work till they’re buried—and maybe even after that. The fear of not knowing how to plan succession creates one stumbling block, but the fear of facing the inevitable or of raising the issue to a partner years ahead of retirement lays the foundation for disaster. Whether you’re a solo practitioner or a member of a large firm, the decision to plan for succession is crucial to your financial future, the practice’s future, and the success of your clients. It may even be a legal obligation under your state law and ABA rules.
To prevent an abyss opening beneath your practice, there are essential steps to take to successful succession planning. These apply to both solo and large firms, and the very first one is to recognize there will come a time when you will either be forced to let go of the reins or will choose to do so on your own accord. You may retire, suffer a setback that prevents you from working, or simply wish to sell. All of these inciting incidents can either create a mess or a boon for you and those affected by your decision to plan.
So how do you plan? The most important item to develop is a policy that defines procedures for transitions. This article will serve as your platform for clarifying and answering the main questions that arise in any practice environment affected by succession:
Who will be affected?
Who is transitioning out; who will be taking over and who does this affect?—Clients, support staff, financial and legal advisors (accountants, those who monitor articles of incorporation and legal structure of practice, estate planner, insurance agent), other attorneys in the firm if it is a group practice, and one’s own family. Delineating this will help you prep each subset (i.e. clients vs. the practice accountant).
When (under what circumstances and what date) will it occur?
This not only includes categories of transition—retirement, death, sickness, inability to work, or sale of the practice—but also when it has become clear, on the calendar date on which the transition will occur? This allows for all necessary internal and external communications as well as forecasting enough time (if possible) to ensure successful preparation and transition. This should include for group practices establishing a multi-year compensation and responsibility fade out plan that clearly defines the decrease in compensation with decrease in involvement—as well as provisions for income to cover the retiring partner’s operating expenses.
What will the practice do leading up to the change and what will happen after?
- Staff: this will involve mentoring and/or introducing a successor; having a back-up attorney to handle loads (in case of death or sickness); selecting an individual or committee who will ferry the sale or bequeathing process; and preparing support staff long ahead of time (identifying which employees would stay or leave). For practice sales, you will also need to identify potential buyers or classes of potential buyers.
- Clients: Identifying which clients are likely to stay with the practice affects succession whether through sale or retirement. Different clients will be more open to a new attorney; some will want a similar style of attorney while others will be more concerned with niche expertise, case familiarity or an established relationship. It is imperative that you help create a strong relationship between the successor and the client and involve the successor in the case load in order to increase the likelihood that the client remains with the firm .
- Tertiary Support: Keep your accountant, estate planner, attorney, and selling agent in the loop by discussing the succession planning with them. You may need to grant power of attorney in case of death, have the articles of incorporation changed, provide access codes to all information critical to the practice operations (including banking information) and determine if the practice will retain your name after your departure.
- The Replacement. Group practices must assess attorneys within their practices who have management potential and mentor them in everything from budgeting to rainmaking to specific client management. Solo practices, for situations that don’t involve a sale, must identify a replacement or assistant attorney who can quickly establish a rapport with your clients and be made familiar with the ongoing cases (or at least know the procedure and support staff for doing so).
The policy you develop should address all these situations and have procedures in place to manage them—at the very least, your attorney and accountant should be made aware of what to do when the triggering event occurs. Finally, it is vital in large firms to get attorneys to recognize the value of participating in the success process—how it affects future earnings and their clients—and for solo practitioners to recognize how much they stand to gain or lose depending on their desire to plan or not.
Michael Blum is a trial attorney and CEO of Appeal Funding Partners, LLC with over 17 years experience providing risk mitigation services and non-recourse funding to attorneys and plaintiffs with money judgments on appeal. He has served on the Board of Directors of the Consumer Attorneys of California and of the Marin Trial Lawyers Association and regularly speaks to trial-lawyer groups and has written for TLA magazines on the financial management of a contingency-fee law firm. He may be contacted at 415-729-4214 or firstname.lastname@example.org.
The information in this article is provided for informational purposes only and with the understanding that the author is not engaged in rendering legal, accounting, tax or other professional advice or services.
© copyright 2011 Michael Blum
http://www.appealfundingpartners.com, or call 1-866-667-1237.
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