The pandemic underscored the need for solo practitioners and small law firms to plan for the retirement of influential leaders, business disruptions and unforeseen events. Firms without a succession plan run the risk of losing clients and revenue, if not more. As a law firm leader, what should you take into consideration when planning and timing your retirement? Discover essential elements of creating an exit strategy, including how to overcome potential obstacles, selling and valuing your legal practice and other factors to ensure a smooth transition and your firm’s future success.
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Jamy J. Sullivan, JD:Hello everyone and welcome. I’m Jamy Sullivan, executive director of the Legal Practice Group for Robert Half and the host of our program. Our guest is Roy Ginsburg. Roy has practiced law for more than 40 years. He is an attorney coach and a law firm consultant based in Minneapolis. He works with individual lawyers and law firms nationwide in the area of business development, practice management, career development and strategic succession planning. Roy has helped 100 solo and small law firm owners nationwide develop their exit strategies. Roy, welcome to the program. I’m delighted you could join us today.
Roy Ginsburg: Thank you for having me. Appreciate it very much.
Jamy J. Sullivan, JD:Roy and I are going to discuss succession planning and what law firm leaders need to take into consideration when planning and timing retirement. Roy, with the law firm succession planning even more important in the wake of the pandemic, how can law firm owners and senior level partners move past road blocks or mindsets that may have held them back and start planning their exit strategy?
Roy Ginsburg: Before I get to why they’re somewhat paralyzed a lot of law firm owners. First, I want to just comment briefly about COVID and the impact it has on exit strategy. I mean, it taught a lot of lawyers as well as everybody else in the world that life is pretty fragile and that in many ways for a lot of lawyers, life is too short. So for some, it certainly moved up their planned exit. But with that said, lawyers being lawyers there are plenty getting now to your question, Jamy, about why the delay? I think the most common reasons that I see are they’re typically too busy or they’re too scared. I’ve had many potential clients and clients that just don’t want to face the reality and you’re facing your own mortality. It’s just not surprising. In many ways, I faced the same problems that some of you listening in maybe do estate planning. Those are clients that don’t necessarily want to think about what they need to do with their estates and the money that they’ve accumulated in their lives. Well, it’s no different with their law firms. In many ways, they feel like their law firms are their babies and family.
Jamy J. Sullivan, JD:Well, I really have been extremely interested in this topic prior to the pandemic, but it has definitely elevated my interest on succession planning. And we know we can’t predict the future but generally we feel that challenges that are coming our way. We can track those and then we can calibrate and strategically plan accordingly. But I want to ask you this next question. When do you know it’s time to start planning your exit strategy?
Roy Ginsburg: Of course, that’s a good question. I mean it’s a moving target. No one really knows when. I think in many ways all especially if you’re a solo and a small firm owner should have like a disaster policy in place which of course hardly anybody does. But I think once you get to approach your 60s you need to start thinking about it. It doesn’t necessarily mean you have to do anything about it. And depending on the plan that you want to enact for your firm, it’s going to vary about how soon you want to execute it. So it’s never too early to start thinking about it. But I’m going to get on my high horse. The one message if I’m going to get across at this program here today is that if you are a solo and a small firm owner is that a lack of planning you are going to leave a mess to a lot of people. The mess being to your family members are going to have to pick up the pieces.
Especially, if you’re a solo for your staff they’re going to have to pick up the pieces. And your clients, you’re going to leave them hanging high and dry. I have worked with many lawyers who think they’re doing the best thing by working way too long. The consequences they think they’re doing everybody a favor. They continue to make money. They’re serving their clients. Yeah, I can go on and on and on but at the end of the day it’s an accident waiting to happen. And oftentimes it does occur but everyone’s different. A lot of lawyers think they feel physically fine. It’s hard to notice the slowdown whether you’re losing it. So you got to rely on family members, some staff but oftentimes they’re going to tell you what they want to hear. It’s the rare time that I’ve worked with clients who call me up and whenever I get a potential client calling me, I always ask them, why are you calling me now? And I say maybe 5% to 10% of them will tell me “Roy, I know I’m losing it, I’m not sharp enough, I’m just too tired to do that trial again.” Sadly, most lawyers they’re not a reflective lot so sometimes it’s a disaster. Like I mentioned before, it’s an accident waiting to happen.
Jamy J. Sullivan, JD:Well, you did mention not many of us have disaster policies in place. And Roy, maybe I’ll just ask a follow up question as you talked about different levels of when people decide to retire or do their exit strategy, has that greatly changed since the pandemic? Meaning are people more likely to retire or do their exit strategy sooner. Have you noticed that gap change?
Roy Ginsburg: I think it’s a wash. I’ve been asked that question many times. I think it accelerated it for many people who recognize that. Again, as I mentioned earlier, life is fragile. They want to make sure they have enough time to visit their grandkids. They’re somewhat like me in a way that they’re frustrated by the technology. They said they’ve been able to fake it for the last 5-10-15 years and then once the pandemic hit, they realized they couldn’t fake it any longer so that drove them out.
But on the other hand, I hear because this is all anecdotal, mind you, but as good as what everybody else has out there as far as evidence. Some people realize that they really enjoy the practice more than they actually realize that they do when they were during lockdown and they had a lot of things that that they couldn’t do anymore including doing certain things within their practice. So I think for some they realized that they want to continue as is if and when it got back to normal. And for some they took a financial hit and needed to and needed to work longer because of the pandemic and what it did to their retirement savings. So I don’t actually think it had a huge impact one way or the other.
Jamy J. Sullivan, JD:Well, I think this guidance is really helpful for our listeners to set things in motion and really start to plan their exit strategy. Take a lot more into consideration so this is great and I’ve kind of talked about this a little bit but I guess I’m going to reverse it now. How do you know when it’s the right time and then you actually do need to leave? Do you have some qualifiers or some questions that our listeners could maybe assess to really make them know if they’re on the right journey?
Roy Ginsburg: The first thing I think you need to recognize is that it’s going to be a moving target and you’re never going to know when. It’s important to be flexible. Certainly, as I mentioned earlier ask family try to have family members talk to you about if you seem to still have that hedge. But another thing you need to do is ask yourself, do I still have the fire in the belly to do what I want to do? Nothing amazes me more when I talk to some of my clients who’ve been practicing 40-50 years and you can still love going to court. They still love getting the deal done. So of course, you also need to look and see how much your assets you’ve heard everyone have heard the expression what’s your number? I mean, I’ve talked to clients who think half a million is enough. And I’ve talked to clients where they think five million is not enough or even ten. There is no magic number. It’s what you feel comfortable with. So that’s obviously going to have an impact on when you retire.
When you retire is also going to have an impact about the spouse. There’s the expression to joke for worse but not for lunch. So the spouse’s retirement plans will definitely have an impact on the timing. What you shouldn’t really have an impact and I’ve written about this on the blog post. There are two reasons why people call me. I always ask what’s driving this? Why now? And the two most popular reasons. And there are no close third are health reasons which I suspect many of you will would have guessed. But the second one is my lease is running out. Now, I’m not suggesting that the lease is not going to be an important factor but I just think there are so many other considerations family, more personal types of things, the nature of the practice, the clients you’re doing, where you are in certain matters that should drive the date.
Now, so what I do urge people though is once you hit 70, be careful about signing long term leases. I have worked with people who at 75 somehow think that signing a five-year lease is a good business decision. And if you do sign a five-year lease, make sure there’s a lot of flexibility. And of course, people now stuck with long term leases needless to say, are really, really stuck because given the marketplace for office rentals. So, like I say factor it in but don’t let that drive. If you think about other considerations usually more personal things that should be driving the timing.
Jamy J. Sullivan, JD:I’d like the series of questions that you provided to ask yourself as well as just a real picture, especially as it relates to the lease. Sounds like that could be a big mistake if people don’t assess that appropriately. You started to mention you’ve written about this so I wanted to follow-up with you. In your book “Exit Strategies for Lawyers”, you also recommend taking a time out to think about what it is that you want to do when you retire. So can you expand a bit more on that concept?
Roy Ginsburg: Well, but people plan lawyers. We’ve been thinking about going to law school, of course, as early as undergrad, some many more than that and we plan and get our careers going. Then of course, when it comes to retirement, we don’t plan at all, and we don’t even know what really we’re going to do, which in some ways is somewhat counterintuitive because most lawyers do the planning, but when it comes to personal stuff, they don’t. So the important thing is just take a step back and ask some real questions. What do I want to do during the retirement? Studies show that you’re going to need to have a routine. Do you need a person? Oftentimes people are tied up in their identity as a lawyer. That’s all they can imagine. Ask yourself, how are you going to feel when you go to a happy hour and meeting new people, when you tell people that you’re a retired lawyer as opposed to I have a practice and this is what I do. I mean, some people don’t care and are proud of the fact that they’re no longer a lawyer. Others can’t imagine doing anything else.
And study upon study suggests that if you want to have a long and mentally and physically healthy retirement life, it is important to be social. So as many as you and believe me, I’m well aware that many lawyers have a DNA that they’re introverts and they don’t necessarily light up the room and don’t enjoy necessarily interacting with people as much as a lot of others do. But all the studies are in, and they all say that you got to stay engaged, you got to meet with people, you got to do things and talk and just staying home watching movies or reading books or whatever, you think, “Oh, now’s the time to do that.” I’m not saying if that’s what you want to do, but you’re putting your mental and physical health at risk.
Even when you retire, let’s say you retire at a nice age of 70. At that point, with the mortality rate, you still probably have another good 10 to 15, some 20 years. I’m a father in law who’s 93, so that 20 years is a long time to have to be doing stuff. So again, it’s important to think about what you may want to do. Of course, a lot of lawyers, some do pro bono, some do volunteer work. And if you want to have fun for 20 years, that’s also I’m not going to begrudge you for doing that, but recognize that at some point in time, you’re going to lose the excitement of checking out the new restaurant and trying the new movies. Again, you’re going to have a purpose to get up in the morning, and a lot of people have a tough time with that.
Think about how you did during the lockdown, where for many of you, you weren’t sure what you were going to do that day. Well, for many, retirement may not be all that different for you. And what I tell people is, there’s still plenty of time to do things, assuming your health is good, even in retiring at 70, to accomplish things that life got in the way that you couldn’t do while you’re doing, while practicing or because of family reasons. So you do have a second chance.
Jamy J. Sullivan, JD: Well, I’m a very social bird, if you will, so maybe that’s why I didn’t practice law after law school. So you’ve kind of incited me there and I definitely keep very busy between watching sports, but my new thing is picking up pickleball, so maybe some of our listeners could look at that if they’re looking to retire.
Roy Ginsburg: No, I’ve actually picked it up myself, as I’m sure you know this, there are a ton of injuries in the game that people lunge for shots that they shouldn’t lunge for, and it’s easy to trip. You don’t have the balance you have.
Jamy J. Sullivan, JD: It could be dangerous. It could be dangerous. Yes.
Roy Ginsburg: A lot of people underestimate this and you look at the game, it seems so simple. And, yeah, it is fun. And, yes, it’s very, very popular among the older crown, but I think it comes with I guess that’s the lawyer and me talking, all I do is mention risks.
Jamy J. Sullivan, JD: Well. Very good, Roy. This has all been very insightful and great advice thus far. We have lots more to talk about. But first, a quick break.
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Jamy J. Sullivan, JD: Welcome back to the legal report from Robert Half. I’m pleased to have Roy Ginsburg with me. Roy is an attorney coach and a law firm consultant based in Minneapolis. Now, let’s shift the discussion a bit and focus more specifically on succession planning for solo and small law firm owners. Roy, what are their choices when selecting a strategy?
Roy Ginsburg: Well, of course, the simple way of looking at it is you can just close down the firm or you somehow look for a successor. But first I’m going to address the closing versus you doing something and we’ll deal with the options of those something in a few minutes. If you Google how should I close my law firm? The first thing that lawyers will notice is that they are written by regulators who’ve never run off practice at all. It’s a real pain. The biggest pain is probably what to do with all those old files. I won’t bore you the details of what you’re supposed to do, but in any event, people think that’s not a good idea. But on the other hand, I’ll get explained in a minute about selling. That’s not necessarily that easy either for a variety of reasons, which I’ll get into in a few moments. Bottom line, no matter what you do, if you’re a sole and a small firm owner is going to take time and effort and money, nothing is simple. The only way it’s going to be simple, at least for you as the practicing lawyer, is if you die at your desk and don’t have a plan that people can execute as far as a disaster contingency plan.
So that’s the first thing you can consider then if you’re a solo or small firm owner, I’ll talk about basically there are three options. The first option is the one that a lot of law firm owners try and inevitably fail. That’s what I call the hire to retire strategy. In other words, you’re going to go out, recruit your successor and they are going to somehow buy you out a few years down the road. You date, you get married after a few years and then of course, they subsidize your retirement. A few flaws in that strategy. Number one, it’s hard to find these people, as though some of you know now in this job market especially, it’s not hard to find talented lawyers. If a lot of people engage in that strategy and essentially, they don’t necessarily need another warm body billing or creating revenue. So the profits that are now going to the solo or small firm owner are somehow now going now into overhead. So the strategy for a lot of firms is short term. You’re going to take somewhat of an economic hit in the hopes that later you’ll get your own money back. In many ways for a lot of owners, even when it does work, is that in effect you’re subsidizing your own retirement.
Then finally, because there are no non-competes in our profession, it’s not unusual when you hear about the associate who leaves and opens up shop across the street or across town. I would say about 5% to 10% of the people who call me for my services when I ask why, well, they said my successor strategy didn’t work. Now I don’t know what to do. So that’s the one that I would strongly, strongly, strongly recommend you do not do, because it’s a very frustrating waste of time and a lot of waste of money. So that’s the first choice.
The second choice is for those of you who are not a solo and you have internal people you strongly consider doing buyout with them. In other words, have them buy the practice from you. But even that is not necessarily so easy or a lot of the owners are very hesitant. And the primary reason for that hesitancy is they say to themselves, or they tell me, they go, “Roy, no one’s going to be as good as me. They don’t understand business development. They can’t do this. They can’t do that.” And I’m going to agree with them. They’re not as good as you, but if they were as good as you, they wouldn’t be working for you. They would probably have their own successful firm. So recognize that. So in other words, lower your standards. Lower your standards. And will the firm be as successful with those underlings running the firm? Yeah, probably not, but it may be successful enough. So you lead at least you get something out of your law firm.
The big advantage of doing the internal buyout, even when you know they don’t, in your opinion, have the right stuff, is that you know what you’re getting yourself into. I’m a strong believer, better the devil you know than the devil you don’t. So at least you know walking in what you’re looking at, as opposed to doing with a third party who you may or may not know very well at all. And the other thing that’s why I strongly recommend it at least as the first option to seriously consider is that you’re going to have a lot more control, as a practical matter, on how it goes. You need to be flexible of how things happen, the timing, when the transitions actually start with clients and the administrative responsibilities. These people have worked for you. So even if it technically becomes their firm, they’re still going to listen to you. You still probably still have a seat at the table. If you join, depending on the firm you join or merge with or sell to, they’re going to do things their way and they don’t really care what you think much. As a practical matter, you’re going to have far more control and they’ll be more flexible with what you need. Then the final thing is actually go out and look for third parties. I sometimes help my clients do that, and I just want to say that oftentimes that’s not as easy as it looks.
The marketplace for law firms is a very immature and underdeveloped one and buyers tend to have three things in their DNA that make it — I can hardly say it’s impossible to do, but at times, it can be a challenge. Typically, well, this is the time to DNA. They don’t have the money. This is in their DNA. They don’t have the risk appetite. I mean, there’s a reason why a lot of lawyers became lawyers and as many of you know, lawyers tend not to have the best business acumen. So, I tell people that a lot of buyers would know a good deal if they hit him over the head and I describe to some. When I do my CLEs on this topic, he was lined up 10 lawyers in a room explained with the charts and the graphs and numbers why you should buy a law firm and why it makes perfect economic sense. One or two will say, “Hey, Roy, that’s a great idea.” Seven or eight will scratch their head and say, “Why would I ever want to do that?” Jamy, those are the three options that lawyers have.
Jamy J. Sullivan, JD: Yeah. Well understanding, it’s not simple. It’s not an easy decision, but those are definitely helpful strategies for our audience to understand. So, what are some key considerations though for attorneys when they’re thinking of selling their practice and how do they address valuation?
Roy Ginsburg: Yeah. Well, the first thing you got to take a step back and say, is my firm worth anything to somebody. And for some practices, there’s no value. Think about the most prominent criminal defense lawyer in town. Potential clients wanted to hire that person. The anecdote I use is imagine it’s Friday afternoon, you’re right off into retire and sunset. Monday, the phone rings and the person you sold the law firm is sitting at the desk and he answers the phone, “May I help you?” They asked for Joe and Joe retired. You say, “No, I’m Roy. I bought the law firm over the weekend. Can I help you?” At the end, the $64,000 question is will they hire me and the two-word answer that I tell people such as yourself listening it, the two-word answer you sometimes to get to your clients when they ask you a tough legal question. It depends on the nature of the practice. Now, if I buy a prominent criminal defense lawyer firm on Friday over the weekend, they’re not going to work with me.
They want to hire Joe and Joe is not there. So, they’re going to go to the second person on their referral list. Now, contrast that with I think is that the easiest firm to explain to people that has value is an estate planning firm. Why do I think it has value? Like people who have done wills and they may come back in a few years and get them revised. They may pass and need a state probated, the states that need administering. Some of those it’s just not theoretical about. Will they be future business? And what I call predictable revenue and the good news at least in the estate planning practice, for example, is that the lawyer doesn’t have such a deep relationship with the clients that pay. If Joe sold the firm to Roy over the weekend, Joe must take Roy knows what he’s doing. I’ll work with him to revise my will or to probate. I mean, some people think even that you got to well he have to work with the same firm that drafted the wills. So, there’s a good chance that at least some of that revenue will be there going forward. So, in my mind that will definitely have revenue and is worth something theoretically in the open market.
Jamy J. Sullivan, JD: For sure and the comment, it depends. I’ve definitely use that quite a few times in my career. So obviously, Roy, you’ve worked with many law firms over the years. So, in your opinion, what are the key components to the best secession plans?
Roy Ginsburg: We got to make sure that you have someone confident to take over and when I say confident to take over, they have good client relationship skills and they understand how to — when they’re good practitioners. Unfortunately, it may not be easy to find the third parties of the internal people again who have the types of qualifications and skills and abilities that you have, but the toughest thing is to actually find the successor. I always tell people don’t worry about the necessarily terms as much. Don’t get greedy about what will you think it’s going to be worth. The most important thing is finding someone you’re compatible with. It’s no different than why clients hire you. They hired some people they like and trust. So, it’s really important to find a successor who like and trust and they may not be like I say as good as you are, but it’s really hard to find people. The marketplace is just too immature for that. But I do want to say that as some of you may be aware that Arizona and Utah are experimenting with non-lawyer ownership and if that ever takes off which I think may happen in my lifetime, but it just as well may not abandon the all bets are off, there’s going to be a vibrant market. You can have a state plan that’s working for fidelity left and right. So, they’ll be a fundamental change. It’s probably certainly not going to happen to my work life, maybe in my lifetime. But for now, the marketplace is going to be very, very immature and underdeveloped and will continue to be.
Jamy J. Sullivan, JD: Well, all very good insights that you’ve given us today and a lot for us to think about. So, a final thought, any final advice for our listeners?
Roy Ginsburg: Don’t just plan to retire, plan your retirement.
Jamy J. Sullivan, JD: Well said and maybe you can help me just start planning my retirement even though I’m not selling a practice. So well, Roy, I really have immensely enjoyed the conversation today and I’m sure our listeners did as well and, sadly, we’ve come to the end of our program. But before we close, how can our listeners reach you and obtain more information?
Roy Ginsburg: First of all, I have a website sellyourlawpractice.com. So, there’s a bunch of information on that. Again, that’s sellyourlawpractice.com. There’s information there about a lot of the things I’ve talked about here today. And then, my email address is [email protected]. That’s R-O-Y-@-R-O-Y-G-I-N-S-B-U-R-G dot com and if you tell me that you tuned into this program, I will send you a complimentary copy of my e-book that Jamy mentioned earlier. Basically, a lot of it is a compilation of a lot of my posts that I’ve written over the years about this topic and its really good summary of virtually every topic I talked about here today.
Jamy J. Sullivan, JD: Excellent. Again, thank you, Roy. I again truly enjoyed the conversation today and for our listeners, you can reach me at [email protected]. Thanks to our audience for listening today. If you liked what you heard, please rate us in your favorite podcasting app and follow Robert Half and the Legal Talk Network on Twitter and Facebook and please visit roberthalf.com for more information and resources including our latest salary guide and demand for skilled talent research. Join us again for the next edition of the Legal Report from Robert Half here on the Legal Talk Network as we discuss important trends impacting the legal field and legal careers. Until next time, be well.
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