Best Practice: Debt and other liabilities can kill future growth options

By John W. Olmstead, MBA, Ph.D, CMC

Q. I am part of a three member management committee of a 16-lawyer firm located in Akron, Ohio. We have 10 partners and 6 associates. Several of our partners are in their 50s and 60s. We have had recent discussions with a couple of potential merger partners and laterals and in all cases they have backed out because they were uncomfortable with our balance sheet. What can we do to better position ourselves? We desperately need to bring in new talent with books of business.

A. First there are the obvious balance sheet items - bank debt, large tapped out credit lines, equipment leases and other liabilities. Then there are the items that are not recorded on the balance sheet - namely unfunded partner retirement buyouts and long-term real estate leases. These are often major deal breakers in mergers and scare away laterals. If you have bank and other debt on the balance sheet, work at cleaning it up. If you have unfunded partner buyouts, rethink the desirability of these programs or begin funding this liability now with a goal of the liability being totally funded over the next five to seven years. Then shift to a retirement program that is totally funded. Unfunded partner retirement programs are becoming a thing of the past.

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John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) 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 listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.