2017 Solo & Small Firm Conference. Succession Planning: Exit Strategies

Transcription

1 Vermont Bar Association Seminar Materials 2017 Solo & Small Firm Conference Succession Planning: Exit Strategies May 18 & 19, 2017 Basin Harbor Club Vergennes, VT Speaker: Julius Ciembroniewicz, Esq.

2 : EXIT STRATEGIES SAFEGUARDING YOUR FUTURE Vermont Bar Association Solo and Small Firm Conference May 18 19, 2017 JULIUS CIEMBRONIEWICZ, ESQ. What is Succession Planning? Subset of Strategic Planning Firm Growth Practice Transitions Management Succession 1

3 Obstacles/Excuses Inertia or aversion to planning Concern over lawyer retention Concern over client retention Lack of viable successor Over reliance on compensation plan Change is Challenging How do you get founding and/or senior partners to relinquish control and power? How do you find younger partners with leadership skills to take on and focus on the role? 2

4 A.G. Lafley, Chairman, President and CEO of Proctor & Gamble, 2000 to 2010, 2013 to Planning for leadership succession is the most important job of a company s board of directors. Harvard Business Review, October What happens if no Succession Planning? NO 3

5 Consequences Loss of senior talent and leadership Loss of key clients Unfunded retirement for owners Inability of firm owners, especially founders, to capitalize on goodwill and sweat equity Defections and firm break ups Conflict Baby Boomers Tsunami No other force is likely to shape the future of national health, public finances and policy making as the irreversible rate at which the world s population is aging. Standard and Poor s Analysis on Aging 1980 lawyer population 55 and older: 25% 2005 lawyer population 55 and older: 34% 2013 lawyer population 55 and older: 65% What are firms doing? Firms (of all sizes) are setting up SPs Founders want to ensure firm: Continues next gen leadership and management Retains existing client and referral relationships Finances buyouts 4

6 Solo Practitioners Hire and Groom Associate Sell Firm to Another Lawyer or Law Firm Merge Of Counsel Turn lights out Small Law Firms Transition Clients Transition Management SUCCESSION/TRANSITION/EXIT PLANNING Create a Phase Down Program Why? To retain and achieve maximum value during transitions Make the plan a win win win Focus on retaining or re creating maximum value for the firm and/or the owner Lead Time Knowledge/Expertise SUCCESSION/TRANSITION/EXIT PLANNING Transition Assets Legal expertise Client relationships, and relationship building skills Business Development skills Firm management and leadership Practice management and leadership Profitability and cash flow 5

7 SUCCESSION/TRANSITION/EXIT PLANNING Client Transitions Fair and equitable compensation that drives good outcomes is certainly a critical aspect of most if not all transitions. Nevertheless, it is even more critical to consider preservation of the firm s transition assets first. The who will dictate the what the actual exit/transition/succession strategy If Hire and Groom Associate: 6

8 Timeline Fiduciary Duties Office Considerations If Close Out the Practice: If Sell to Another Lawyer, Merge or become Of Counsel: Finding Candidates and Opportunities Searching for Candidates Vetting of Candidates Due Diligence Sale of Practice Time to find Buyer Time to Negotiate Transaction Use a Representative (Business Transaction Lawyer, CPA or Broker) 7

9 Sale of a Practice What s being transferred? The Business: Hard assets less outstanding debt The Practice: Sources of immediate revenue and system for generating future revenues; goodwill ABA Model Rules of Conduct at Rule 1.17: Sale of Law Practice Negotiating the Sale of Practice Price Nature of Practice Amount of Recurring Business Number of Clients Client Retention Stability of Revenue Flow Reputation Payout Workout Valuation For the Buyer Get to Know the Seller Value the Business Value the Practice Consider a structure that values retrospectively but pays prospectively. 8

10 Valuation For the Seller assure: Prepare for Sale: Maximize Value Increase Profit Margin Diversify Revenue Stream Continue Business Development and Branding Streamline Operations Organize Office and Files Clients will receive quality services Payment will be received Personal Liability will be protected When to start? NOW Consequences of waiting too long Timing Important How to start? Be Proactive this is Succession Planning SP should be part of practice, part of strategic planning, part of firm culture Start Transition Dialogue 9

11 How to start? Develop a Succession/Transition/Exit Plan Be Flexible Establish Goals and Timelines Outline General Course of Action See where it takes you Key Documents Ethical Considerations Unexpected Departure Scenarios Death or disability Departure to another law firm Judicial appointments No retirement notice Discussion/Questions Northeast Legal Solutions Julius Ciembroniewicz, Esq. juliusc@northeastlegalsolutions.com (207)