Winding Down Your Practice or Selling It?
Every lawyer needs a plan for retirement. If you own a firm and are retiring, are you considering closing down or selling the practice you worked so hard to build? There are many ways to wind down your practice and eventually close up shop or sell the firm.
Regardless of whether you plan to close your firm or sell it for retirement, you should have a succession plan. A written succession plan is important because it provides security not only for you as counsel, but also for the clients you serve. Failure to have a plan raises ethical issues and possibly missed deadlines and uncompleted tasks snowballing into a malpractice problem. If you are thinking of retiring, first make sure you have a succession plan in case of your early demise. Don’t assume your clients will be taken care of. Think of your succession plan as a form of risk management. Not having one can cause immense stress for your clients, law partners, and loved ones in the event of your untimely death. Having a plan can reduce the confusion, cover court dates, statutes of limitations, and deadlines, and avoid stress and problems. Find another lawyer who can step in and protect the client’s interests if you are no longer able to do so. An up to date client list with all current contact information and status of cases should be included in the plan. Create file memos with case strategy, outcome planned and tactics anticipated.
Closing your firm
Start with a timeline and plan milestones to begin closing your firm. When done appropriately closing your firm should occur gradually over time (years not months) leading up to a definitive retirement date. A good plan to implement would be to cut back your billable hours and/or work less than the normal five business days per week. Other methods would be to slowly become more selective in the quality of cases you choose to handle or raise your billable rate so that the number of cases you accept decreases. Likewise, expenses can be gradually reduced.
If you are thinking about closing your law practice you should consult with your malpractice carrier. Most carriers have the expertise to assist in the closing of your practice and have helpful written instructions on the best way to accomplish the closing. Checklists for closing a law practice are also readily available from malpractice insurance carriers. Minnesota Lawyers Mutual is one of many malpractice carriers and their published checklist for closing a law practice is summarized below. However, each carrier has their own unique checklist and consultation with your carrier is highly recommended.
- Close as many files as possible prior to the final close date.
- Communicate with your clients far in advance of the final close date advising them that they may need to retain new counsel if their case is not resolved prior to your close date. Your letter should inform them about the statute of limitations and other pertinent deadlines in their case. Give them a deadline to pick up copies of their files and location.
- Explain to your clients how they can proceed if their case has pending court dates, depositions, and hearings. Don’t forget to request for an extension of time with the court regarding any discovery, pretrial or other trial matters. Send written communications and confirmations of extensions of time to your client.
- Seek permission from your client and the Court to file a motion and withdraw as attorney of record.
- If the client has chosen a new attorney, make sure that a Substitution of Counsel is filed and granted by the Court before your closing date.
- Mark your calendars and select an appropriate date to see if all cases have a motion to withdraw or substitution of counsel filed with the Court and determine whether the Court has granted the motions.
- Make copies of the client’s file and give the original to the client if the client is picking up the file. All clients should either pick up their files and sign a receipt, acknowledge receipt or sign an authorization allowing you to release the files to their new counsel.
- All clients should be told where their closed files will be stored and whom they should contact in order to retrieve them. Obtain all clients’ permission to destroy the files after the acceptable guidelines set forth in your jurisdiction.
- If you are a sole practitioner, ask the telephone company for a new phone number to be given out when your old number is called. This eliminates the problem created when clients call your phone number, get a recording stating the number is disconnected, and do not know where else to turn for information.
- Call the membership department at your state and local Bar Association and update all membership records as to status and contact information.
Sell your practice
There are other alternatives to simply closing your practice. Careful thought should be spent on whether you should sell your practice or merge with a larger firm. The ABA Model Rule (1.17) provides that subject to certain conditions a lawyer may sell his or her practice. The corresponding Maryland Rule is Rule 19-301.17, “Sale of Law Practice.” Certain conditions must be met in Maryland including that the practice be sold as an “entirety to another attorney or law firm,” as opposed to piecemeal. Rule 19-301.17, MD R Attorneys.
Before marketing your firm as available for purchase, get your practice, financially and organizationally, in good working order. Create a database of former and current clients, review closed physical files and dispose of files as appropriate and permissible under the Ethics Rules. Review and prioritize all open files with emphasis on time-sensitive issues. Prepare an ongoing updated file with financial statements, fee schedules, accounts receivable, leases for the property and equipment, work in progress schedule, insurance policies, and bank statements.
Consult with a few experts including a CPA, financial advisor, and valuation expert. There are law practice brokers specializing in the sale of law practices that you should consider hiring. The practice value of the firm needs to be determined. The simplest method is to look at annual revenues. Other factors to consider when valuing a practice: the nature of the practice, recurring business, number of clients, stability of revenue stream, and overall reputation of the firm.
If you are seriously thinking of closing your practice or in the alternative selling your practice for retirement, or otherwise, there are many considerations to ponder. Starting now and planning ahead is a good start. Talk to your colleagues who have closed their practice for a few tips. Also talk to other lawyers who have sold their practice and ones who have bought a practice for guidance. As always, relevant experts should be consulted including your malpractice carrier.
Material and content to support this article was taken from “Succession Planning, A Malpractice Insurance Company’s Perspective,” published by Minnesota Lawyers Mutual (2017), by Michelle M. Lore and Ben Mulligan.