One of the first questions we always ask anybody getting in touch with us who is thinking of retiring and disposing of the practice, is whether or not they have spoken to their partners or some of their fee earners to ascertain if anybody is interested in acquiring equity.
Making the wrong assumption about existing staff
Very often, and quite surprisingly, the answer is either no they haven’t spoken to anybody in the firm about it, or they have assumed that someone in the business who may be interested, isn’t interested without even asking them.
I often get the impression that owners of firms automatically assume that everyone working in the business does not want to take equity, and the evidence with this is that they are working within a business rather than owning their own business. Quite often this is not correct and in some cases we actually work on both sides of the business, having candidates listed with us who are quite clearly looking for progression but finding no route into the partnership or work at a higher level.
Conversation with fee earners
It is almost always worth a conversation with fee earners about their long term plans, but make sure you do it in a way the fee earners feel comfortable talking to you and don’t just reel off an answer they think you want to hear. It is an incredibly difficult conversation to have for both sides, but a useful one nevertheless. Partners coming in to take over a practice are really the holy grail of law firm sales, because they are halfway there in any event, working in the business, dealing with your clients, your caseload and their fellow staff, rather than having to come straight from the outside into something afresh.
Planning future succession
So, what should the planning look like when thinking about taking on partners with a view to future succession?
First of all, do not put too onerous obligations on any future partners from the outset. We have come across people being made up to partner level at one year PQE and being given all kinds of different roles within the business that are well beyond their capabilities. Some firms almost seem to punish future partners/owners! Unsurprisingly quite a few of these will move on to other things and not actually stop with the practice.
Do not treat any future partners with the same approach as you would treat employees. These people are going to be the future of your business and are going to need to learn leadership skills pretty rapidly. If you don’t ever allow them to do this and keep them at junior level forever and a day with the same levels of responsibility, then chances are they are never going to be in a position to take over the practice and run it effectively. You need to start giving them managerial responsibilities fairly early on, but do it in a gentle way rather than something that launches them straight into the deep end.
Do not put pressure on them to contribute financially from the outset, and encourage them to take separate advice. Be open about the finances – let them see the turnover and profit margins and have a conversation with your accountants.
Do not assume that junior members of staff on low salaries will not have aspirations to acquire a firm and may not be in a position to do so. There are plenty of business advisers out there able to assist with sourcing finance for acquisitions and you never know individual circumstances – for example we can put you in touch with a business finance adviser who will be able to assist.
Finding partners to carry on a business is incredibly hard to do. Setting up and running a law firm in theory could not be easier at the moment and junior solicitors thinking about this as a career path will always investigate it. You need to make it simple for them to join your partnership and not put obstacles in their way.. It benefits you as well as them in the long run.