Law firm succession planning can seem awkward, but it’s important to have a plan for unexpected events. Whatever the reason, there will come a day when you need to put your succession plan into action; it is better to have planned in advance.
What is Law Firm Succession Planning?
Law firm succession planning involves an exit strategy for a number of situations where you must either leave your law firm or close it completely. While the list can get incredibly long, in general, these situations can include:
Having a strategy for the future is just one more way your law firm is prepared for whatever should happen. It gives you and your team a plan of action so that the right steps are taken immediately in the event of an unexpected event.
Hope for the best, plan for the worst
While you want to hope and plan for the best case (usually this is retirement), you should also consider what to do in the event tragedy occurs, such as the unexpected death of a partner. With a succession plan for every imaginable situation, you will never be surprised.
How to create your succession plan
The hardest part of planning your law firm’s exit strategy is figuring out all the options and creating a plan of action for each event. It can be very helpful to start with the most likely event and work your way up to situations that are very unlikely, such as sudden injury or death.
List the pros and cons
For each scenario, write down the pros and cons of each option. You will quickly see which choice you should make for each event. By making a list of pros and cons for every possible reason for your succession, you can prepare yourself for things you might not otherwise think of. It’s also helpful when you have to decide on schedules, transitions, and how you can help your customers and employees evolve.
Set a schedule
Each succession catalyst should have its own schedule. That way, you or your team won’t have to wonder when to implement your plan, and you’ll have a long-term strategy as you near retirement. The schedules should include triggers (e.g. what happens if a sudden health problem arises) as well as the duration of each step (e.g. how long your team should wait before informing your clients, etc.).
Make a list of the obstacles that await you
There will always be trouble when making a business switch, but this is especially true for law firms. These include expected costs, logistical problems and stressful situations. Plan the best way to bypass any roadblock so your team knows exactly what to do if something should happen to you.
Law firm succession options
Selling your law firm
Selling your law firm is a great option if you are about to retire. If you’ve already chosen a successor, you can pass the torch on, and if not, you can raise funds for your retirement. Selling your law firm can be a stressful or exciting process, but the most important part of the ordeal is making sure you have properly valued your law firm’s price. It is highly recommended that you consult your law firm’s pricing professional.
Choice of a successor
If you already have an employee or partner looking to buy your stake in the law firm, you may not need to look for a successor or buyer for your company. However, if you plan well in advance, you will likely have plenty of time to find a successor to mentor. When you bring in someone with the intent of eventually taking over the law firm, you can make sure they know all of the information they need to be successful.
Over time, give them more and more responsibilities so they can prepare to take over the firm while making sure they know exactly what they are doing in all areas of the business.
Dissolution of a law firm
When liquidating your law firm, you need to make sure that your plan includes all of the steps necessary to keep you, your clients, and your employees safe. There are more steps in this process than can be covered in a single article, but there are some basic points that are important to keep in mind:
Make sure that your professional indemnity insurance still covers you
Don’t take any more cases
Notify your customers and return customer files
Account for all unearned fees
Notify the Board of Bar Overseers (BBO)
You want to make sure that your team is well prepared mentally and financially, but you also need to be aware of the legal ramifications if you fail to protect those associated with your law firm. Informing the BBO, holding malpractice insurance (often referred to as “tail” insurance), and paying back customer fees are all incredibly important steps that shouldn’t be ignored.
How long should I wait before creating a succession plan for my law firm?
It is never too early to be prepared and to protect yourself and your law firm. Whether you’re already established or just starting out, your law firm succession planning is an important step in growing your business. The best protection for yourself, your family and your employees is to continuously update your succession plan and to ensure that all of your instructions and compensation plans are in order. The ABA offers helpful tools and resources to help your law firm get started with succession planning.