Succession planning for law firms can seem unpleasant, but it’s important to have a plan in place for when unexpected events occur. No matter what the reason, eventually the day will come when you will need to put your succession plan into action; it’s better to have planned ahead.
What is succession planning for law firms?
Succession planning for law firms means having an exit strategy for a number of situations where you may need to either leave or completely close your law firm. While the list can get incredibly long, generally these situations may include:
- Transitioning into a less active role
- A sudden health issue or death in the family
- A family emergency
- Unexpected death
Having a strategy in place for what will happen in the future is just one more way your law firm can be prepared for anything that should happen. It gives you and your team a plan of action so that should an unexpected event occur, the right steps will be taken immediately.
Hope for the best, plan for the worst
Although you will want to hope and plan for the best case scenario (usually, this is retirement), also take into consideration what needs to be done should a tragedy occur, such as the unexpected death of a partner. By having a succession plan in place for every conceivable situation, you are never left caught off guard.
How to create your succession plan
The most difficult part of planning your law firm’s exit strategy is figuring out all of the possibilities, and making a plan of action for each event. It can be very helpful to start with the most likely event, and work your way down to situations that would be very unlikely to happen, such as a sudden injury or death.
List the pros and cons
For each scenario, write out the pros and cons for each option. You will quickly see which choice is the one you should go with for each particular event. Creating a list of pros and cons for each possible cause of your succession lets you prepare for things that you may not think of otherwise. It also is helpful when you need to decide on timelines, transitions, and how to assist your clients and employees in moving forward.
Establish a timeline
Every catalyst for a succession plan should have its own timeline. This way, you or your team aren’t left wondering when your plan should be implemented, and it gives you a long-term strategy when you get closer to retirement. Timelines should include triggers (such as what happens if there is a sudden health issue) as well as how long each step should take (such as how long your team should wait before informing your clients, etc).
Make a list of roadblocks you anticipate
There are always going to be difficulties when you make any sort of business transition, but this is especially true for law firms. These should include expected costs, logistical issues, and stressful situations. Map out the best way to navigate each roadblock, so that your team knows exactly what to do, should anything happen to you.
Options for law firm succession plans
Selling your law firm
Selling your law firm is a great option as you near retirement. If you have already selected a successor, you are able to pass the torch, and if you haven’t you will be able to increase the funds available 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 priced your law firm correctly. It is highly recommended to consult with a professional for pricing your law firm.
Choosing a successor
If you already have an associate or partner who wants to buy your portion of the law firm, you may not need to search for a successor or buyer for your business. However, if you are planning far in advance, you probably have plenty of time to recruit a successor you can mentor. Bringing someone in with the intent of having them take over the law firm at some point allows you to ensure they know all of the information they need to be successful.
Slowly give them more and more responsibility over time, which allows them to get ready to take over the law firm, while also making sure they know exactly what they’re doing in every aspect of the business.
Dissolving a law firm
When you are dissolving your law firm, you need to make sure that your plan includes all the necessary steps to protect you, your clients, and your employees. There are more steps in this process than can be covered in a single article, but there are some basic points that you should be sure to include:
- Ensure your malpractice insurance will continue to cover you
- Stop accepting new cases
- Notify your clients and return client files
- Account for any unearned fees
- Inform 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 keep in mind the legal ramifications if you don’t protect the people connected to your law firm. Informing the BBO, keeping malpractice insurance (often called “tail” insurance), and returning client fees are all incredibly important steps that should not be ignored.
How long should I wait before creating a succession plan for my law firm?
Every law firm should have a succession plan in place and accessible! PracticePanther is an intuitive practice management software that can safely store documents, like a succession plan, in one accessible place.
It is never too early to be prepared, and to protect yourself and your law firm. Whether you’re well established or just starting out, your succession plan for your law firm is an important step in growing your business. The best way to protect yourself, your family, and your employees is to continually update your succession plan and make sure that all of your documents are in order regarding instructions and plans for compensation. The ABA offers helpful tools and resources to get your law firm started with succession planning.