Succession Planning: What is succession planning for solo and small law firms?

Law practice succession planning is the development and implementation of a plan to protect a law practice’s clients and continue its legal legacy. In some ways, it is coming to terms with the fact that our legal careers are finite.

While the need for a plan applies to all sizes of law practices — solo, small, medium and large law firms — the focus of these columns is on solo and small law firms. In 2013, Martindale-Hubbell listed about 83,000 law firms in the U.S., 80 percent of which have fewer than 10 lawyers. While mid-sized and large firms must deal with the continuity of their practices, solo and small firms have the biggest need for help in developing law practice succession plans.

For a small law firm, a law practice succession plan should be clearly addressed in the partnership or operating agreement. Partners and even associate attorneys should have regular, candid conversations about their personal plans and expectations about slowing down and retiring.

Elements of law practice succession planning include business planning, management/leadership planning, personal financial planning, personal estate planning and ownership transition planning. While succession planning is generally thought of as an ending or transition of ownership, many of the elements that go into a successful plan are developed and cultivated during the lifetime of a law practice, even before the day it opens its doors.

Business planning is an ongoing process of planning to build and sustain a law practice. There’s a perception that many attorneys are not very good businesspeople. I’m not sure whether that is true, but I think most of us can learn the business side of practicing law. We can learn from taking law or business seminars and being mentored by an attorney who has a good business mind or by a successful businessperson. Business planning includes serving clients, networking, marketing, serving the community and generating sufficient revenue to support and sustain the law practice.

Management/leadership planning involvescreating a healthy working environment that lives out the shared values of a law practice. It involves managing clients, systems and staff, as well as leading a law practice in a positive direction where clients’ needs are served and others on the team are developed. These are skills and abilities that can be cultivated. I am a firm believer that leaders are made, not born. While some of us may naturally be servant-leaders, most of us grow in this area through mentoring, as well as through life and work experiences.

Each of us has the responsibility to be involved in personal financial planning. While through our law practices we may set up retirement plans (e.g. 401K, IRA), we should work with financial planners to ensure that we have adequately protected our families and provided for our futures, including unexpected disability.

Personal estate planning is necessary to ensure that our loved ones and others will be provided for in the event of our death. Estate planning also addresses issues such as unexpected disability and “end of life” decisions. A typical estate plan includes a last will and testament, power of attorney and appointment of a health care representative. An estate plan could also include a living will and/or a revocable trust. A trust may be needed if one has substantial assets or a disabled or underage child. Estate planning should also consider any ownership interest in a law practice.

Ownership transition is at the core of law practice succession planning. Peter A. Giuli-ani, in “Passing the Torch Without Getting Burned: A Guide to Law Firm Retirement and Succession Planning,” writes:

“Successful retirement and succession planning involves managing a whole integrated array of moving parts to achieve an end result that is humane, fair, affordable, and ethical. Humane, in the sense that it takes into account the emotions of the retiring partner. Fair, in the sense that it balances the interests of the retiree and the continuing partners. Affordable, in the sense that it does not place an undue burden on the continuing firm. Ethical, in the sense that it puts the interests of clients and the continuing firm’s ability to serve them above all other considerations.”

While these comments address a law firm, the same descriptors of the transition process would apply to a solo practitioner as well when transitioning his or her practice to another attorney or law firm.

The goal is to have an orderly transition that protects clients and transfers the ownership interest in a law practice to another attorney or law firm. Depending on the option the attorneys or law firm are able to agree to, this can take place over a few weeks or months, or even a few years. Under the Rules of Professional Conduct an attorney cannot “sell” their clients or their files, but they can plan for an orderly transition for those clients who choose to use the acquiring attorney’s or law firm’s services.

In my next column, I will discuss why a solo practitioner or law firm should have a law practice succession plan.•

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• Don Hopper is founder of Hopper Legal Consulting Services and a partner at Harrison & Moberly LLP. His focus is serving solo and small law firms in developing law practice succession plans that will continue their legal legacies in their Indiana communities. The opinions expressed are those of the author.