Words: Colin White Managing Director, Ortus Group
Future proofing is an inexact science but one thing I think we can all agree on is that owning a small law practice is unlikely to get any easier during the next 5 years. With this in mind, we must review our strategies with the end in mind and make sure we either build a firm that is sustainable by creating internal succession or work toward making sure the firm is well-placed to be an attractive purchase opportunity for a suited external buyer. I have witnessed some poor decision making with exit planning and there are relatively simple steps that can be taken to prepare much better. These are the three most common errors that can all be mitigated.
1. Failing to plan far enough in advance
Deal with succession long before you wish to retire. Identify the need to recruit seniority sooner so you have time and opportunity to source the right people to share the journey with you, ideally people unlikely to want to end the journey at the same point in time as you and others.
2. Unrealistic financial expectations
Whether you are aiming to sell your entire firm or just to open up the equity to another person or persons, there needs to be a fair and realistic valuation undertaken. This must be done by someone who understands the legal sector deeply because a generalist accountant who looks after manufacturers, retailers and other businesses alongside yours is unlikely to have the insight to reach a number that will make a sale possible.
3. Talking only to people already known to the owners
When a firm approaches Ortus Group unsolicited, the most common reason is urgency to find a solution because a previous attempt has been made to do a deal with a known Without a skilled third-party driving discussions, it can often take six months to reach the full financial disclosure stage. When the parties are known to each other, a third-party is even more essential because people with longstanding professional relationships can be too polite to say what they really think to a peer they may have known for 30 years.
Most partners wishing to retire now or in the near future will have become owners in a very different professional climate and would probably never imagined how hard it would be to sell the business to an internal candidate. This shortage of successors is anathema to a profession that for decades, worked on the idea that junior staff would come through the firm and ultimately take over from the owners. The market has a habit of finding a path of least resistance and many people find themselves being swept along with it. While there is little we can do to influence external pressures as they are imposed and tweaked by politicians and others with an agenda differing to the majority of owners in the legal sector, we can only seek to predict and protect ourselves from the negative consequences that may arise as a result.
Those who do not seek to address these issues often find themselves exposed to further risk so make sure you seek good counsel in good time.