Futureproofing: preparing your legal firm for succession
In larger law firms, the changing of the guard is a well-practised art. In smaller firms, however, succession planning is often not seen as a priority. The call to action tends to be the retirement of a partner, an inevitable event, which is often disregarded until it confronts the partnership. But, it is never too soon to start weighing up the options for this unavoidable occurrence.
What succession options are available?
In terms of a (relatively) straightforward succession, it can only be advised to consider who will eventually inherit responsibilities very early on. This allows plenty of time for hand over to occur incrementally.
However, a straightforward succession is not the only exit strategy to deliberate. There is no “one size fits all” in terms of small practice progression. Mergers, for example, have been increasingly more prevalent in recent years. These bring with them their own challenges, not least of which the issue of partner integration. Problems can vary from cultural differences to financial issues such as profit sharing arrangements. It’s important to ensure you know all the details prior to a merger taking place to avoid problems down the line.
One final option not to be disregarded is shutting up shop altogether. Although, it is understandable why many smaller firms are deterred from this as an exit strategy. A controlled closure still requires run-off cover, and the premiums can range from anywhere from 2, to 4 times the annual premium.
Both the succession process and transition itself need careful thought.The departing partner needs to hand over the reins in a way that passes on wisdom, goodwill and trust. A manageable method is to pass on responsibilities gradually to the successor, and therefore focus on long term aims like maintaining the brand, culture, and reputation of the firm.
Moreover, a straight transfer of all responsibilities from one person to another is not always the answer. It’s rare that someone in their 60s can be effectively and instantly replaced by someone 20 years their junior. Finding one person to replace the partner who is leaving is, more often than not, hard to achieve. A more fitting method can be to assess the different roles the exiting partner fulfils, and find how each of those roles can be occupied effectively. Put the right people in the right roles.
Furthermore, it’s important that, while internal changes are hugely distracting, clients still remain at the forefront of your mind. It’s recommended that you only let clients know about upcoming events once the solution has been agreed. If a departing partner is remaining in the firm through a consultancy role, this will keep clients at ease, and enable a seamless transition, but that consultancy role should be clearly defined with a timescale for full handover in mind.
Never underestimate the value of the young talent growing and developing in the firm. If their wants and needs are not addressed or their expectations managed, then you run the risk of losing them, which can dent the succession plan.
Aspiring equity partners are no longer a given in the younger generation. There are multiple risks in owning a business, and firms planning for succession should acknowledge that uncertainty over the future of the profession can stop the younger salaried partners and associates from stepping into those roles. They may not want the risks and responsibilities that come with being an equity partner. You should also consider generational differences when it comes to attitudes towards work. Work-life balance is becoming increasingly important and firms that cannot adapt risk losing bright, young talent.
Clearer thinking is needed when considering the future of a business, and the aim of succession should not be forgotten: to ensure that the business keeps running, and that staff are happy and fully informed about what’s coming next.
The cost of change
Valuation is a difficult matter for small businesses, especially in professional services. When it comes to external financial advice, a fresh and objective pair of eyes to look over accounts can ensure that the best decisions for the firm can be made, and any potential problems can be dealt with before they emerge. An external adviser can, and will safeguard your sights for the future, alongside bringing perspective to the situation the firm is facing.