Life After Law, What Will You Do For the Next 6000 Days? My soon- to-be-released book is a guide to why aging baby boomer lawyers should be planning for their next career. The ABA has concluded that 400,000 lawyers will retire in the next 10 years. That is equivalent to the entire membership of the ABA, the largest volunteer organization in the world!
According to a different report, without reference to law, 10,000 people retire daily!
Look for a dramatic change in our culture as we seek to learn how to live longer, productive lives in different careers. Of course, the economy will also change as older folks become the dominant consumers in this country.
“I am really tired, and want to retire.” But, retirement is out of reach for many lawyers after their homes and retirement plans took heavy hits over the last few years. “Business purgatory” is how one phrased it.
Delays in retirement are now common, with 38% in one survey saying their retirement will be at least 5 years later than expected. The income stream for many lawyers comes from their law practice. Selling, closing or merging the practice are options, but none are likely to provide the same income stream the lawyer is accustomed to receiving.
Unless the lawyer is willing to adjust one’s life style, he will remain in practice, working to build up the practice further in order to reap the rewards needed to fund retirement.
I have been getting more calls from lawyers wanting to retire, wanting to sell their law practices. As a result, I started writing a new book. I just finished Life After Law: What Will You Do With the Rest of Your Life? It is being edited now and will be available for sale in October.
As a result, I've been giving a lot of thought to the definition of Goodwill, the primary asset a lawyer has to sell. And though it is not consistent with the accounting profession's definition, I have come upon a new definition that I believe is more meaningful to the average lawyer, whether buying or selling:
Goodwill can be defined as legacy ... it’s your legacy that you’re passing along to others ... It’s your reputation, your phone number, your system and way of doing business, all the intangible elements that made you successful and provides you, the selling lawyer, with what to sell ... The better is your reputation, the more value your law practice will have.
A client of mine has just listed his practice for sale.
Established general law practice in a major trade center in the Eastern Sierra Nevada Mountains. Enjoy a sustained revenue stream equal to most major urban areas, yet with a lower cost of living and with access to year around outdoor activities. Situated along California’s highway 395.
Ed continues his discussion of the issues involved in selling a law practice.
Ed discusses the issues in selling a law practice.
More elderly find they cannot afford to retire ... they must continue to work. The recent economic woes have taken a big bite out of the retirement hopes and plans of the Baby Boomers. And this includes lawyers.
Just today, a lawyer in his late 60's called me to talk about selling his practice and retiring. But, he said, he enjoys what he does and financially cannot see his way to retiring. For interesting tax reasons, he turned away from selling his practice. Of course, he didn't consult me before he made this decision.
But, I find it interesting that the prediction made by the ABA only a few years ago that by 2020 (or perhaps sooner), 400,000 lawyers would retire. As evidenced by the phone conversation today, I believe the numbers are correct, but the timing is not. Succession planning, whether a solo or large firm practitioner, will require more thought than we anticipated. And experts should be consulted to determine sales potential, tax planning (both estate and consequences of a sale) and future personal life planning.
Ed Poll continues his discussion of the issues involved in selling a law practice.
Ed Poll discusses the issues in selling a law practice.
My friend and colleague Carolyn Elefant, on her MyShingle.com blog, recently spoke to me about issues in selling a law practice (/). Carolyn raised an excellent point when discussing an advertisement by a 70-year old lawyer in Kansas who sought to sell his practice. The advertisement featured the fact that the firm uses practice management software tools like Amicus, HotDocs and QuickBooks, and has a database with a list of 4000 contacts. As Carolyn observed, such information is ample evidence that the firm has at least made an adequate investment in technology.
This is an important point in two respects. First, if a lawyer contemplating retirement has not kept the practice’s technology up to speed, the value is going to be diminished in negotiations once a potential purchaser realizes that a substantial IT investment will be necessary. The principle is the same as that of a house purchaser who wants $20,000 off the purchase price if the house needs a new roof that the purchaser will have to pay for.
The second important point is more positive. If you have done the right things with your practice – kept technology up to date, invested in new office space with modern infrastructure, maintained strong referral relationships with other firms – be sure to communicate those facts up front. Their value may not be easily quantifiable, but they definitely support the firm’s goodwill: its reputation, client base and client loyalty. The decision to sell a practice is no time to be modest, or to assume that the firm’s virtues are self-evident. Communicate those virtues up front, and make sure potential purchasers know how their worth supports your asking price.
I met with an attorney today ... he's 61 ... who is terrified that he now is solo and has never had to do anything in his career to attract clients. He was always part of a firm that delivered litigation clients to his doorstep. Now, he doesn't have that ... What can/should he do?
No matter what he does, the ultimate challenge for him will be on retirement, not that far away. Will he have developed any goodwill to be able to add more wealth to his capital for his heirs? The answer is: Maybe, but more likely not. That will be a crime after having been a very good lawyer for his entire career.
What are you doing to enhance the value of your practice? Do you have a succession plan? Does your law practice have an "estate plan?"
More than 60% of the Bar is made up of lawyer firms ranging in size from solo to 9. In any business, one would think that paying attention to a demographic that provides such a high percentage of your revenue would be wise. Of course, that presupposes that your customer base has an alternative.
In the case of integrated (mandatory!) bar associations, lawyers must be members, must pay their dues no matter how they disagree with the policies of the staff or of its Board of Governors! Therefore, their views can be disregarded. Such was the case recently when sole practitioners objected to the new rule of professional conduct that requires lawyers to tell clients in writing when they do not carry E & O insurance (malpractice) coverage.
Today, in California, there was a hearing on the rule regarding the sale of a law practice. The proposed new rule will make the lawyers (both buyers and sellers) jump through more hoops and cause further delay to get a deal done, thus jeopardizing the entire deal. Who does this target? The sole and small firm practitioner. Only they are involved, to the extent this happens, in the sale of their practice. Large firms don't sell their practice. They can break up, they can merge, they can combine ... they can move entire practice groups from one firm to another ... but they don't "sell" their practice ... at least they don't call it that and thus side step rule 1.17 regarding the sale of a law practice. (I will discuss the details of the new proposal in later posts.)
So why should the Bar care? Why should they fix something that isn't broke? Good question. I might attribute nefarious motives to the actors, but that would be unkind ... and generally untrue. Because the folks on the commission are honest, hard-working and capable lawyers. But, in their zeal to do right, they are not doing good. They are like the law school professor who puts forth hypothetical situations that, if ever, happen rarely and can be dealt with on a case by case basis. The California rule ain't broke; therefore don't fix it.
When the ABA commission looked at the rule, they backed away from the precipice of considerable change ... ultimately because they realized that there was no need to alter the rule. They made one change ... and I'm proud to say I was the catalyst for this discussion. They now allow a lawyer to sell a practice area and still remain in practice, but not in the area sold. For example, a probate and estate planning lawyer may want to sell the estate planning segment, but retain the probate segment. This will allow him to work less, reduce marketing and still make a contribution to the law. Any other course would require him to sell/close the entire practice and wait for death ... or continue his practice while serving his clients with less vigor because of aging ... to the detriment of the clients. It is a shame that younger attorneys on the commission have little or no sympathy for this aging process.
I've seen it in my clients; I've seen it in my family. That was why I recommended that the ABA make the one change it did accept. Clients are better served, both those whose estate plans are handled by other lawyers interested in the segment they purchased, and those who are probating estates of decedents ...
One example after another in recent years demonstrates the Bar focuses on its perception of public protection -- I say its perception because I don't think the public is truly protected by a number of its recent actions, two of which are mentioned above. It is also very clear, however, that the interests of the Bar's largest demographic is either disregarded or adversely impacted by the Bar's new rules. I have come to the conclusion that the Bar should be a voluntary organization ... as is the American Bar Association ... needing to justify its value each year in order to maintain its member participation and dues revenue. The "mandatory" Bar as we know it should only be a licensing agency ....
Do you know of other examples in the organized Bar that defiles the sole practitioner? Do you know other industries where such monopoly power gives them the right to disregard the interests of its customers/patrons/members? How about the health insurance industry? How about the increase in premium rates that recently went up 39% to people who literally had no choice of carriers, only the choice of paying the increased premium or dropping insurance coverage ... How about the airline industry who, in response to recent "fliers' bill of rights" announced a decrease in flight schedules and increase in fare prices? Other examples abound.
Unless the Bar is able and willing to enhance the value and contributions to lawyers from whom it receives dues, it should not exist in its present form.
PRESS RELEASE – NEW PRODUCTS
FOR IMMEDIATE RELEASE
Contact: Derek McIver
Public Relations, Ictus Initiative
NEW PRODUCTS FOR ATTORNEYS LOOKING TO LEAVE THE PRACTICE OF LAW
VENICE, CA. September 8, 2009 – LawBiz® Management, a leading provider of seminars and products on the Business of Law®, today announces the release of two new products. “Law Firm for Sale,” a 4-disc CD set and “Exit Strategy: Selling & Other Strategies to Leave the Practice of Law,” a 3-disc DVD set, are the latest offerings from LawBiz® Management and Ed Poll, JD, MBA, CMC that will help lawyers leave the legal profession, whether retiring, selling their firm, or otherwise moving on.
“Law Firm for Sale” and “Exit Strategy” present strategies that have been developed by Ed Poll over two decades of working in business and law as an executive, an attorney, and a consultant. These products will help attorneys make the best decisions that will maximize profitability and keep the best interests of clients in mind. In each, Poll discusses strategies to value and price a firm, to market its sale, and to consider ethical issues that might arise in the process.
“Over the next ten years over 400,000 lawyers are expected to retire,” comments Poll. “These attorneys need to have a succession plan that works not only for them, but for their clients and their firm. If they don’t, their life’s work might suffer once they’re gone.”
The new CD and DVD sets will be available exclusively on LawBiz® for $247. However, until October 31 each will be available for an introductory price of $197. For more information on all of LawBiz® Management's products, please visit LawBiz®.
About LawBiz® Management
In 1990, Ed Poll, J.D., M.B.A., CMC founded LawBiz® Management Company. A nationally recognized expert in law practice management, Poll is now committed to coaching, speaking, and training law firms across the country. He helps attorneys and law firms increase their profitability consulting with them on issues of internal operations, business development, and financial matters. Poll brings his clients a solid background in both law and business. He has 25 years experience as a practicing attorney and has served as CEO and COO for several manufacturing businesses.
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One of the objectives in creating LawBiz® Forum was to provide an alternative method of buying and selling a law practice. There is no opporunities broker of whom I'm aware that focuses on law practices. Some lawyers prefer to save their cash, not engage an expert in advance, but yet want an outlet to sell their practice on their own. Sort of like selling your house on your own. Some can do this while others prefer to continue practicing law without the distractions of dealing directly with prospective buyers. Now, there is an option open … see LawBiz® Forum and join the segment on buying and selling a law practice … and best wishes.
I've just returned from a presentation by accountants on valuing a law practice. They talked about "excess earnings," "discounted cash flow," and "market value." They essentially discussed the valuation of a law practice from the perspective of the divorce court which fails to recognize market value as an appropriate standard of valuation, ostensibly because they can't find enough data points to make the information reliable.
However, with all due respect to the courts (and the accountants who parroted the courts' standards, the reality is that the courts will use any logic (or lack thereof) to "do equity" as between the two spouses before the court. That does not reflect market reality.
In my experience, every law practice has value ... what it may be is a subject of further discussion, but it has value! And to use formulae that are created to perpetuate a fiction does an injustice to the lawyers who have spent a full career building their goodwill and now want to retire and realize benefits from that goodwill ... We are not in the divorce court!
Lawyers, ready to retire, must consider the value of their law practice as an asset that can be sold ... With 401 Ks becoming 101 Ks (or less), the revenue from the sale of one's law practice may provide the revenue stream needed for retirement.
In discussing the value of his law practice, my client mentioned the figure given to him by his financial planner, a number designed to assure his standard of living. This was the number he wants for the purchase price of his practice. I suggested that the two numbers were unrelated ... and that the value of the practice may be more or less than the number his financial planner wanted for his style of life.
This caused us to return to the reason he wants to sell his practice and the time frame for achieving a sale. The more urgent is the desire to sell, the lower will be the price; the less urgency, the greater will be the price. Neither number has much to do with what it will take to reach and maintain your desired standard of living. Such a number may impact your decision to complete a transaction, but really has nothing to do with an objective valuation of the practice.
Many surveys that I've received in the past had a one dollar bill in the envelope as an inducement to respond. I can't do that here, yet I'm still asking for your assistance.
The idea for our new adventure to help those who want to buy or sell or merge a practice is expanded at my website. A simple yes or no check mark is all I'm asking for at this time. If you want to make further suggestions, please email me.
Again, thanks for your guidance.
You may have heard me talk about the 400,000 lawyers who will be retiring from the practice of law in the next 10 years. When the financial crisis first hit, I began to doubt that we will face so many retirements. But, my phone continues to ring with people wanting to know how to sell their practice, how to value it (a requirement before selling) and then how to transition into the "second season" of their life. Thus, there must still be a market ...
I still battle lawyers who are surprised to learn that they have anything of value to sell. But, yes Joe, "there is goodwill in them thar hills."
So, one night when I couldn't sleep, I came up with an idea ... and I need your help to test out the idea, to know whether to go forward. The following is the outline of the concept. Much is yet to be added to it if we go forward. But, I want your ideas and your expression of interest to confirm my belief that this is a viable concept.
Idea: My web site, devoted exclusively to a community of lawyers interested in buying, selling or merging their law practice. Each lawyer would be entitled to create and post a listing describing the nature of his / her practice that is available for sale, or the nature of the practice desired to purchase or with which to merge.
There would also be a discussion "board" that I would monitor and participate in ... giving suggestions and commentary as I think appropriate. And I would post articles and other resources, including portions of my books and audio materials, for the further education and assistance of the members of this community.
In effect, this would be a multiple listing service ... better than a listing like Craig's List because of the substantive content and focus by and for lawyers ... The monthly fee would be modest and would continue automatically on a credit card only so long as you wanted to continue to participate. Termination is at your discretion.
I would be available to help on an individual basis such as reviewing the description of the practice, etc. ... My services in this field such as valuation and consulting to sell a practice would be available but not to be considered as part of the low monthly rate offered to the community ... They would be negotiated separately, though at a reduced fee to any member of the community.
Please respond by email (email@example.com) with your thoughts on this ... Thank you for your help and guidance.
On Friday, I coached a client about selling his practice. Our conversation was far-ranging. I started with several questions of my client that, in my opinion, set the stage for all further deliberations. How do these questions resonate with you? What additional questions might you ask yourself?
- Why do you want to leave your practice?
- What do you want to do in the "second season of your life?"
- Do you want to retire, or start a new adventure?
- Can you achieve the same objective without selling your practice?
It's a good summary of factors to consider, though certainly not complete. And, since the date of this opinion/white paper, the Supreme Court of NH has approved a new set of Rules of Professional Conduct which include Rule 1.17 explicitly permitting the sale of a law practice in NH for the first time.
If lawyers' names must be used in the title of a firm, as seems to be the case under the new advertising rules in NY, any lawyer that would be interested in purchasing the law firm (permitted in New York) would either have to "retire" the selling lawyer (and keep the name in the firm "trade name" since the rule enables the name of a deceased or retired member of the firm to be retained) or change the firm name.
In addition to mentioning our book, Selling Your Law Practice: The Profitable Exit Strategy, the author cites several articles and ethics opinions that provide a broader perspective on the topic, including the ethical responsibilities of retiring lawyers and departing lawyers
Both Tom Collins and Ed Wesemann support my contention that law firms do have goodwill! See my book, Selling Your Law Practice: The Profitable Exit Strategy.Continue Reading...
The case of Baker v Dorfman, 03 Civ 1168, as reported in the New York Law Journal of March 21, 2006, was interesting.
As I read the article, the case confirmed what I've been saying for years about the sale of law practices.Continue Reading...
Alan Nye writes a review of our book on selling a law practice.
FOR IMMEDIATE RELEASE
Poll suggested that the revised ABA Model Rule 1.17 currently in place achieves the appropriate compromise between the lawyer's and the client's interests and avoids the drafting difficulties currently being examined by the Commission.
This year, Illinois joined the list of states permitting the sale of a law practice. Oregon is the most recent state to modify its rule, following the ABA revised Model rule.
Question: Are there ethical rules pertaining to the use of "associates" and "affiliates" in a law firm name; it's my understanding that "associates" refers to associate attorneys within the firm and "affiliates" indicates a firm which outsources or refers some of its cases to independent law firms.
In the case at hand, the primary attorney (the firm is currently called "The Law Firm of 'John Doe', Esq.") is planning to retire in a few years and wants to increase the good will value of the firm name; he's concerned that a practice in the name of a sole practitioner will not yield a high sale price.Continue Reading...
In the process of buying a law firm, some lawyers do so in the context of leaving their present firm.
There are caveats or ethical considerations, both from the perspective of morality and rules of professional conduct.
See a collection of resources on the ethics side before taking the leap of faith.
Stop the presses!
Illinois, one of the last major States to oppose the selling of a law practice has finally succumbed! You can now sell a law practice in Illinois. The Supreme Court, effective in May 2005 (I just learned of the new rule last Thursday at a meeting of the ABA in Chicago)adopted its own version of Rule 1.17 permitting the sale.
The Court did not adopt the recent modification from the ABA, but rather adopted a modification of the original rule.
Finally! Now lawyers no longer have to play games and create sham partnerships wherein one partner can buy-out the other partner under a retirment plan, this approach having been accepted. Form vs substance. Now lawyers can be above board. And, if the buying lawyer defaults on a pay-out arrangement, the selling lawyer will have standing in court to enforce the agreement.
Congratulations to John Phipps, one of the ardent supporters of the new professional rule. And thanks to Don Rikkli, an Illinois lawyer now deceased, who pushed so hard for this rule but whose widow could not sell Don's practice when he died several years ago. And, in the background (often the foreground), congratulations to Alan DeWoskin, an attorney in St. Louis who was one of the significant movers to get the ABA to adopt its rule in 1991.
Can you sell your City #1 law practice, move to City #2, approximately 150 miles away, and then work for a third party in City #2?
Answer: Yes, providing you don't directly compete with the purchaser.
Can you sell your City #1 practice and go to work for somebody else in the same city with the same kind of practice that you're selling.
Answer: Aside from the fact that that probably would be a violation of contract law (especially with a covenant not to compete), I believe this probably would be OK under the rules of professional conduct since you're selling substantially all your practice. The issue might come up under the guise of retiring from the practice. One's particular jurisdiction would have to be consulted for the definitive answer to this.
But, if you sell your current practice and then, 10 days later, decide to start back in your own practice, solicit previous clients, I believe this would be violation of both contract law and the rules of professional conduct. The code is relatively clear in that the intent is that you must retire from the practice of law.
Jungle Law #12: After Buying A Business, Do Not Change Anything (At First)!
In general, if the law practice you are buying is profitable, leave it alone while you learn how to manage it in accordance with the status quo. Then, slowly, make changes. Years ago, when I was observing the retail food industry, I saw major East Coast chains buy West Coast chains, until there were no more home-grown chains left. But, many of those folks failed and had to sell the chains back to their original owners or to third parties because they didn't understand that the Eastern and Western business cultures, even though both American, were different. They didn't allow themselves sufficient time to acclimate themselves to the new environment and then slowly change that which could/should be changed.
(Taken and adapted from "Strategies for Successfully Buying or Selling a Business" written by Russell L. Brown, a business broker.)
In another context, Russell Brown, a business opportunities broker, suggested several
In another context, Russell Brown, a business opportunities broker, suggested several
In South Africa, banking group Nedcor purchased a law firm, ostensibly for the purpose of growing its business advisory services available for customers of the bank. However, the law firm didn't perform as expected and lost money for the bank.
Now, the bank is selling the law firm back to its principals at a substantial loss to the bank; the sale price is estimated to be one-fourth of the purchase price, all told.
Nedcor CEO Tom Boardman said yesterday the deal was "fundamentally flawed" because as a Nedcor subsidiary the firm struggled to attract legal talent as it only paid lawyers a set salary not a percentage of profits like other firms.
In addition, the non-compete clause was about to expire, thus leaving many of the firm's top lawyers free to leave and start up a new, competitive law firm.
The bank, in South Africa, was merely doing what the large accounting firms did (until that profession imploded) by purchasing a law firm to add to its stable of services in an effort to become a "one-stop shop."
The principle is not dead, just delayed in the United States! It makes sense.
Today, a majority of the States now permit the sale of a law practice though the buyer still must be a lawyer. But, take a look at the insurance industry and its "captive" law firms; they have found a way around this challenge. Where the economics justify the solution, lawyers and third parties will find a way to "merge" their talents and services to offer clients.
In another context, Russell Brown, a business opportunities broker, suggested several
Selling a law practice has been prohibited for decades. Times are changing! California has permitted such sales since 1989. The American Bar Association altered its opposition in 1991. Since then, other states have changed their prohibitions. The legal profession is taking one more step toward recognizing the economic realities of modern professional life.Continue Reading...