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SUCCESSION PLANNING

Don’t leave succession planning on your law firm’s back burner

Having a discussion about selling your law firm as you approach retirement isn’t always easy, because it can get you thinking about uncomfortable issues such as whether you’ll be able to adjust to not working, and even your own mortality.

Tempting as it is to put off such decisions for as long as possible, it’s best to start succession planning several months or even several years before you plan to sell your law practice, according to Ron Seigneur, a partner with Seigneur Gustafson Certified Public Accountants in Lakewood, CO.

“Succession and exit planning is not something where you get together in a room for a day or a weekend and figure out,” says Seigneur, who notes that it’s a continual process because people are coming and going, today’s economy can be unpredictable, and lawyers as a whole tend to be older than the population they serve.

It’s also becoming harder and harder for law firms to achieve the same economic returns that they once did.

“The current law firm landscape is littered with a number of well-respected firms that are essentially being forced to consider liquidation due to the lack of a thoughtful, well-articulated and understood succession plan,” warns Seigneur.

He says there are four basic ways to transfer an ownership interest in a professional practice:

  1. A sale to other owners or employees.
  2. A merger with or acquisition by another firm.
  3. A qualifying sale of the practice to another firm.
  4. A liquidation of the practice.

“Quite often there is a need to reconcile expectations between relatively older and younger professionals where, in one context or another, a suitable exit plan is desperately needed to ensure the continuity of the enterprise or, at a minimum, maximize the value proposition for the departing attorneys.

“In order for a succession plan to be successfully implemented and executed as time rolls forward, it is essential that it is embraced by all affected parties, both those departing and those who will remain behind,” says Seigneur.

Key questions for law practice owners

Five key questions law practice owners need to ask themselves are:

  1. Am I ready to share authority and power (with others)?
  2. Do I have a vision for my future, once retired?
  3. Will I share increased profits (that my key people will produce) to facilitate the buyout?
  4. How will I fulfill my economic objectives and needs as they relate to the transfer/exit from my practice?
  5. Am I willing to lose a key employee if attitude and fit are an issue (between that person and the new owner(s)?

Other questions you should consider include:

  • Do you have the right person or people to succeed you?
  • Are you psychologically prepared to let go?
  • Does your law firm have a brand that can transcend you, or are you the firm?
  • Are there one or more extraordinary attorneys in your firm who are superstars capable of selling work, leading with strong personalities, motivating others, and with a strong entrepreneurial mindset?
  • What would happen if you had a health issue that sidelined you or another senior partner from work for three to six months?
  • If the main person is hit by a bus and dies, is your business going to survive? Seigneur warns against waiting for a triggering event and being rushed into making succession decisions.

If law firm owners are struggling with the issue of retiring, Seigneur suggests that they take a one-month sabbatical well in advance to see how it feels to not be working.

“As the founder, the superstar, the entrepreneur, you’ve got to start letting go (if you intend to sell your practice). You need to think about how to move from the superstar model to more of a process-grounded practice with a stronger infrastructure.

“A lot of it has to do with delegating and empowering people to make decisions and letting them run with the ball even though they may be doing this differently than you might,” he says.

Assessing your business culture

One tool that Seigneur says can help you in your succession discussions is the Denison Model developed by Dr. Daniel Denison, a professor of organization development at the International Institute of Management Development in Lausanne, Switzerland.

The Denison Model focuses on the link between your organization’s culture and bottom-line performance measures such as profitability, growth, quality, innovation, and customer and employee satisfaction.

Seigneur says using it allows you and other senior partners to assess their strengths and weaknesses in four key areas, namely:

Mission: Do you know where you are going as a firm?

Adaptability: Are we listening to the marketplace?

Involvement: Are our people aligned, engaged, and capable?

Consistency: Do we have the systems, values, and processes in place to execute?

By utilizing the model, your law firm can move beyond the numbers side of the succession equation.

Conclusion

“Give adequate consideration to the planning horizon needed to fully implement a successful exit plan,” says Seigneur, “as it can take up to five years of thoughtful planning, positioning, and negotiation to get the right deal done.”


Editor’s picks:

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