When we discuss attorney “transitions”, we are generally referencing two types of transactions: growth or exit. Attorneys looking to grow may choose to (a) merge with or into another law firm, or (b) purchase another existing law practice. Attorneys looking to exit the practice of law – often to retire – may choose to either (a) sell their practice to an existing law firm, or (b) wind down by joining another law firm in an of-counsel role. In this post, we discuss four things we have learned recently from our clients.
- You want a neutral third party at the table. Transitioning is do-able, but the journey can be difficult. You may have a great relationship with your partners or your boss, but transitioning involves a lot of emotion, especially for the seller. Accordingly, even though there may be mutual respect around the room, negotiating the details of the transition may be challenging. Through our client experiences, we have learned that it is far easier to rely on the experience of a third party to help you all navigate some of the issues.
- Our clients do not regret transitioning. Whether you want to grow your practice via acquisition or merger, or whether you want to sell as part of your exit strategy, our clients do not regret transitioning. Sellers are maximizing the value of what they built over many years of effort; i.e., client lists, referral sources, branding in the market. Buyers are gaining market share, combining skills sets to increase revenue, and combining operations to improve profit margins.
- Tax Considerations are paramount. We have learned that our seller-clients care very much about the tax consequences of their exit. These consequences vary for each transaction, and depend on factors such as tax basis, capital account value, and sales price. At Fournier Legal Services, we have learned to supplement our in-house tax knowledge by working closely with our clients’ accountants to ensure the best tax results for our clients.
- Execution is not that difficult. As long as you have the right team in place, attorney transitioning is not that difficult. For example, purchasing an existing practice often does not require a significant cash payment upfront. This is especially the case when purchasing a contingency fee practice, where the lifecycle of a typical case is set up nicely for a purchaser to pay a seller at a later point in time (when the cases resolve). Further, most states’ ethics rules allow lawyers to share fees, which allows a purchaser to defer payment until such time as revenues are collected.
If you are an attorney that is interested in transitioning by either growing your firm, or by exiting your practice, then please reach out to us so we can discuss your options, and ways we may be able to help you achieve your transitioning goals.
Joseph E. Fournier is an Attorney and a CPA who has more than twenty years of experience in a variety of business legal matters, including start-ups and company formations, drafting shareholder and operating agreements, contracts, employment law, commercial litigation, tax planning and audit defense, and mergers and acquisitions (M&A). He also handles estate planning matters, such as business succession planning, wills, trusts, and probate.