Law Practice Management News
Ideas for Lawyers and Managers That Dare To Be Different August 2013

in this issue

Law Firm Succession - Client Transition

Solo/Small Firm Question of the Month - Law Firm Succession Strategy for An Owner That Wants to Keeping Working

Download Our Profitability Checklist

Looking to Sell or Merge Your Practice - Let Us Know

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John W. Olmstead


Welcome to Olmstead & Associates Law Practice News, a law practice management resource for practicing attorneys, managing partners, administrators, and others that must keep updated on all aspects of law firm management.

Our Law Practice Management E-Newsletter is distributed on the first Wednesday of each month. Look for it and send us your emails with your ideas for topics that you would like covered. I wish to thank those who take the time to email me with their thoughts and comments. I encourage our readers to do so.

We represent a law firm in Central Kentucy that is interested in selling its tax preparation practice to a accounting or law firm. Practice generates $300,000+ a year in fee revenue. Interested parties should contact John Olmstead via e-mail at jolmstead@olmsteadassoc.com.

  • Law Firm Succession - Client Transition
  • Client transition involves different challenges that have to be overcome in order to successfully transition client relationships. Consider the following challenges and hurdles:

    1. Relationships take an investment of time and must be nurtured on behalf of the parties making the introductions and connections as well as the parties trying to form the new relationship. Attorneys often want immediate gratification and the "quick fix" and are unwilling to invest time needed for longer term results. More than a "one-shot" simple introduction is required.
    2. Clients hire lawyers not law firms.
    3. Client transition requires trust on the part of all parties (introducers and new players). A high level of trust must exist within the law firm organization between the attorneys involved and within the client organization between the parties there as well.
    4. There is potential risk of embarrassment for all concerned. The transitioning attorney in the law firm could risk losing the client if the other attorney does poor work for the client. Another issue is the loss of control over the client. The individuals in the client organization could also risk criticism (or even their jobs) if the new relationship does not pan out.
    5. Many law firms are "lone ranger" rather than "firm first" or "team based" firms. As a result there is no inclination or incentive to invest the time and effort nor take the risk to refer work to others in the firm.
    6. Lack of knowledge regarding other partners' practices.
    7. Fear of losing clients.
    8. Fear of losing client control.
    9. Compensation systems in many law firms encourage hoarding of work and discourage the referring of work to others.
    10. Communication systems in some law firms do not facilitate relationship building among attorneys. Effective client transition is simply not possible without strong relationships and high levels of trust among attorneys in the law firm.

    Effective client transition is not a one-time lunch or introduction event - it most go deeper to bind the new relationship. This takes time. Start early and allow ample time for an effective partner winddown.

    I generally suggest five year client transition programs.

  • Solo/Small Firm Question of the Month - Law Firm Succession Strategy for An Owner That Wants to Keeping Working
  • QuestionI am the founder and solo owner of a small firm in Memphis. Besides myself there is one non-equity partner and four associates. We handle the transactional and litigation work for small and large business concerns in the Memphis area. I am 60 now and would like to begin slowing down over the next five years - but I want to continue working - I don't want to retire completely. Over the past few years I have focused more on client development as opposed to serving clients and have turned over much of the client service work over to other attorneys in the firm. While I would like to receive some compensation from my sweat equity - I also do not want to place an unreasonable financial burden (large cash buy-in/buy-out) on others in the firm. Legacy of the firm is important as is a place to continue to work and contribute - so I really would like to transition the firm internally to deserving attorneys employed by the firm. What are your suggestions concerning how I might accomplish this?

    Answer:I often ask attorneys - are you more a lawyer that wants to lawyer or a business person that enjoys and wants to focus on the business of law. It sounds like you, as you approach retirement, would like to spend more of your time "finding" rather than "minding" or "grinding". You might want to consider the following:

    1. Get a feel for the value of your firm. If you have been taking home say $400,000 per year - using that as a starting point for your rough value figure if you were to sell your practice to outsiders. Would you be willing to discount to transition the members of your current team? If so, maybe that figure might be $200,000 - $300,000.
    2. Establish a date when you want to start to wind down.
    3. Decide on your future role, institutionalize the role and write a job description for it. You might want to consider a role such as Business Development Director or Manager. Establish specific goals and expected outcomes for the role.
    4. Then plan a gradual wind down with gradual draw reduction but at a level that in essence is greater than the ratio of time reduced providing you with say - $200,000 over a five year period of time.
    5. Put in place a commission arrangement where you would receive a commission on fees (say 20%) from new clients that you bring into the firm after the date that a program is put in place. I would suggest a 5 year sunset provision whereby after five years the commission decreases to zero - requiring you to continue to develop new relationship and bring new clients into the firm.

  • Download Our Profitability Checklist
  • Are you looking for a quick and dirty checklist to use to review the profitability of your practice. Click below for a copy of our Law Practice Profitability Checkup.

    Click here to download ...
  • Looking to Sell or Merge Your Practice - Let Us Know
  • We frequently consult and work with law firm clients working on implementing succession strategies that involve the sale of a law practice, merging with another firm, or hiring lateral talent. If you are looking to join up with another firm keep us in mind. We will be posting confidential listings on our website in the near future.

  • FREE Guide to Law Firm Management Best Practices
  • Download a FREE copy of our Guide to Law Firm Management Best Practices.

    To learn more about Olmstead & Associates visit their web site at www.olmsteadassoc.com

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