Law firms have a problem. There are too many owners that want to retire and too few people that are interested in taking over their business or share of their business and paying them out, so that they can do so.
If you are a partner or owner looking to retire soon, then you need a plan to ensure that you have a successor or two ready, willing and able to take over the reins.
That all sounds very simple but if you drill deeper into the problem, there are many issues to address in passing on your business. Most owners focus upon the clients and the files. They are important – critically important. But there are many other areas around the business that can create difficulties for the retiring owner and are often overlooked when retirement beckons. This can lead to a failure to successfully pass the business on and a failure to realise the capital value in the firm – or their share of it.
There are many firms, with older partners, perhaps sole traders, with capital tied up in their business, who eventually decide it is time to retire, look up from their desk and then look around vainly for someone to pay them out: only to find that no one is prepared to do so.
We refer to a sole trader to illustrate the point but it can apply to any firm where there has not been any new blood into the business for several years.
For some firms, especially the larger ones, perhaps those in the top 200 by turnover, there are sufficient people coming through to provide a pool of talent, that can take on the challenges of equity: but those firms must still manage the process and get those people ready if there is to be a successful handover.
In recent years, the sole trader and partnership models have steadily declined and largely been replaced by the Limited Company structure, as illustrated in the table below.