Best Practice tip: Succession planning for your practice

Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. I am the sole owner of a 12-attorney practice. I am 55 years old and am beginning to think about retirement. The other attorneys are associates in the firm. What do I need to be thinking about in order that I can transition out of my practice and have money for retirement? While I have put some money in a 401k, I am not yet financially secure enough to retire. A. You are not alone. As the baby boom generation ages - more and more attorneys are asking this question. Unless you have an appropriate Exit Planning Strategy and put in place a sound Exit Plan, it is doubtful that you will be able to cash in on the full value of the goodwill that you have created. To exit successfully you need:

• A plan - a roadmap - that outlines the process and helps you decide on where you want to go and how you will get there.
• Timeline - a disciplined implementation timetable keyed to your Exit Plan.
• Start Early - Getting ready for exit takes time. Start early 5-8 years before you are ready to retire or exit.
• Decide - When do you want to leave the practice?
• Decide - How much cash do you need when you exit?
• Decide - To whom do you want to transfer the practice?

You will need to consider whether you should consider merger, sale of the practice to an outside buyer, or sale of the firm to the other lawyers in the firm. You need to find ways to institutionalize the firm so that in additional to professional goodwill (your personal reputation and goodwill) you develop practice goodwill (goodwill of the firm that will remain after you have left). Develop your lawyers and create a desire and motivation for them to want to be owners/partners in the firm. Develop your staff and practice systems. Diversify and stabilize your client base. If you decide to sell to attorneys in the firm - begin the process early so that most of the buy-in is completed before you actually leave the firm. The longer the planning horizon - the easier they buy-in burden will be for others. John W. Olmstead, MBA, Ph.D, CMC, is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA General ListServ, which the John and other committee members reviews, or view archived copies of The Bottom Line Newsletters. John may be contacted via e-mail at jolmstead@olmsteadassoc.com.