Curiously, solicitors who routinely prepare Powers of Attorney and wills for their private clients and encourage business clients to engage in succession planning often make no such plans for themselves and their law practices. Properly handled, your law practice could be sold with the proceeds managed to look after you and your loved ones. Improperly handled, your practice could instead be decimated in a fractious fight among clients, creditors, co-workers, and a coterie of regulators. When you finally come to terms with the fact that you are your own most important client, please read the following helpful hints before you or your maker decides that it is time for you to cash in your chips.

1. Start Small

Start by planning for your next vacation. Take note of all of the e-mails, telephone calls, and other communications you needed to send to the office while you were away. List all of the issues that arose while you were away that your office left for you to handle when you returned. Review the list and determine who you can delegate these items to the next time you take vacation.  After your next vacation, assess how well plugged the gaps as compared with your earlier vacation. Keep up the process with each vacation you take.  When you reach the point where can take more frequent or longer vacations without a hitch, you have taken the step in succession planning, namely dealing with the short-term issues.

2. An Alternative Always Exists

Particularly in suburban and rural areas, sole practitioners can come to feel that they are irreplaceable.  If you are feeling that way, ask yourself who handled things in your region before you started your practice.  Where will your clients go after you are gone?  In this age of teleconferencing, e-mail, and intranet collaboration sites (like Google-docs, to name but one), lawyers from remote regions and far distances are readily available to help you service your clientele at a click of your mouse.  On your next beach holiday, consider reading Michael Connelly’s The Brass Verdict – an interesting bit of fiction about a successor lawyer (a so called assisting attorney in US parlance) who is bequeathed his murdered friend’s law practice.  Apart from the mystery of who murdered the friend, intriguing are the series of challenges the successor lawyer faces when taking over the practice and the many steps the murdered lawyer had taken to ensure a smooth transition of his sole practice.   Instructive, the novel illustrates   that all lawyers can make plans for their practice in the event of sudden injury or other disaster.  Plans made to cover planned vacations can be formalized into arrangements to cover an ad hoc and more permanent leave of absence.

3. Get Something in Return for Sharing the Wealth

The biggest barrier to any sized firm’s succession planning is the idea that the practice will be transferred to a junior lawyer or one’s partners solely out of some sense of responsibility to the clients.  Grow up!  It is hard for anyone’s professional status to go from hero to zero without a like hit to the pocketbook.  The junior or remaining partners in a firm need to stop invoking the “all clients are firm clients” mantra and accept that they must buy the departed lawyer’s book of business just like in every other industry.  Build succession plans into the partnership agreement.  Arrange for a purchaser to buy the practice out of life insurance proceeds, the same as you do for your clients in shareholder agreements.  And you solo practitioners, acknowledging that as more senior lawyers you may be selling your practice to hungry newborns fresh from articling  should give you an incentive to mentor and associate with a younger lawyer with a view to your own retirement.  I  suggest negotiating some kind of  virtual partnership agreement well ahead of time contemplating options to buy or sell at some future date at an arbitrated price should a sudden disability change the mentor-junior relationship.

4. Start Preparing Your Practice for Sale

Do you assume that when you retire you will simply close you doors, your clients will go elsewhere, and that will be that?  Is that the succession planning advice you give to your business clients?  Do you tell your clients that the business they invested a lifetime in is going to just shut its doors?   Or, do you instead discuss  their sons and daughters someday taking the reins, and maybe preparing by acting as receptionist or in some other capacity in the meantime?  If so, why treat your own business any differently? 

Get your business ready by preparing a balance sheet with the firm’s assets and liabilities – all of them, not just the ones your accountant recognizes.  It will likely look something like this.

 

Assets
Human Capital and Other Intangibles: your firm name (trade mark) your staff your lawyers your students leases Location, phone numbers and other goodwill Proprietary software and copyrighted material Case files (inventory), client lists, and WIP Relationship with referral sources Modus operendi in dealing with matters   Obligations/ Liabilities	Cash Bank and trust accounts A/R Life Insurance Furniture Fixtures Library Equipment (computers, photocopiers etc.)       Liabilities
Arrangements / connections with banks, suppliers, landlord and other key stakeholders of your firm	Balance sheet liabilities Trust obligations LSUC and Lawpro  GST, PST and other obligations

 

Because your firm’s goodwill includes your business methodology as much as anything else, memorializing that methodology may be crucial to ensuring its transfer.  Having this advance valuation of your practice in place will greatly assist your successor.

You also need to consider ways to preserve your personal goodwill when you are no longer there to rule the roost. In an article I prepared for a 2000 Carleton County Law Association conference with the ominous title, “The puzzle within the enigma wrapped in a conundrum insinuated in a labyrinth: the difficulties inherent in protecting employers from departing professional employees through restrictive covenants," I suggested that law firms could (albeit with some difficulty) have employment contracts with their associates with legally binding restrictive covenants to protect the firm from a “midnight move” of files.  If you consider this too big a step to take in your own firm, you should at least create some understanding with the lawyers in your firm regarding firm clients, firm name, and transfer of the firm’s goodwill in recognition that your practice should be sold, rather than interred with your bones.

5. Do a SWOT Analysis

Strategic planning is an MBA buzzword that barely has a toe hold in the world of law practice management.  Ignore the annual budgeting practices of adding $5.00 to everyone’s billing rate, projecting revenues and expenses to be 5% more than last year, and projecting more profit next year than last.  That nonsense gets old pretty fast.  What I am talking about is doing a SWOT analysis that considers real strengths, weaknesses, opportunities, and threats to your practice.  You must do this to maximize your practice’s value, seamlessly transfer the practice to another lawyer, and preserve the practice’s realization value for you and your heirs.  A business plan is an ideal way to communicate what your firm is all about to your successor.

When considering your practice’s strengths, ask yourself whether location is important and your lease allows you to transfer your business to another.  If you are hi-tech, can others take your technology over seamlessly?  If your strength is your unique skill-set, could hiring and mentoring a junior help “clone” you?.

The best way to identify your potential weaknesses is to go through the likely “what if” scenarios.  Ask yourself what would happen if:

• your assistant left,
• your server were destroyed,
• your premises burned down,
• your major client left, or
• your bookkeeper made off with your books of account and trust funds.

The point is to create a certain degree of redundancy in all firm assets (including information systems) so that if you or any other asset of the firm were lost, the firm’s value would remain intact.  Having a Plan B does you no good if your successor or executor cannot find it when push comes to shove.

As for opportunities, consider what this means for new lawyers as opposed to senior lawyers.  New lawyers need to expand the clientele, while senior lawyers need longer term, loyal blue chip clients that ensure steady cash flow to the practice.  For you, opportunities mean enhancing existing relationships with the right clientele to graduate from loyalty to you to loyalty to your practice.

Finally concerning threats, consider that threats from within a firm can weaken the firm;  while threats from outside can challenge it. Threats include any factor that someone purchasing your practice would view negatively. Ask yourself whether another lawyer could come in and be assured that your firm’s name would remain solid, its clients would be on board, and firm lawyers would have to give due notice before leaving?  All of this tells your successor what key factors need attention in your absence.  What have you done to make it more sensible for another lawyer to buy your practice, rather than set up shop next door and simply take your clients?

6. Run Drills

As a military brat, I appreciate the value of drills – moots, if you will – to practice the modular nature of your practice’s design. Some drills are easy. Every time your junior or assistant is away is a drill in that you are seeing whether a replacement can operate the firm’s systems seamlessly. Take note of the questions that temporary help asks you and consider simplifying your system or explaining your system more clearly in your firm’s manual (temporary help cannot be expected to read a 100-page manual, so keep it straightforward).

Choose a safe non-business day to kill your server and see how well the back-up system works.  Pick a day to see how well you and your assistant can work from your homes for a day.  Your practice’s portability will be a key factor in preserving its value.

Finally, kill yourself for a day – as you did your server.  Are your will, life and disability insurance policies, and Powers of Attorney readily  available to those who will need them?  Is your executor prepared to take over?   What questions will people have that they will wish they had asked you when you were alive?  Remember – this is a drill so you are alive and have time to answer those questions now.  Does your practice seem to carry on with the successor in place?  Is all your client contact information available? If not, why not?  After the drill, de-brief and do not be shy about meeting with your personnel and engaging in a dialogue of what work and what tanks while you are away. Take time to debug your practice. The Checklist at the end of this article might help you work through this process.  

Doing drills brings a number of collateral benefits, for instance, when you discover that you have to replace staff or your firm has grown too large for the personal touch to prevail (but we won’t mention those advantages since every management consultant probably has old you about those already).                                               

7.  Do It Anyway…and Now

Maybe you are one of those Masters of the Universe Tom Wolfe writes about and you have some ability to see the future and control events through the sheer power of your personality and intellect.  Even so, you need to practice some emergency planning and prepare your practice by putting transfer agreements and systems in place.  Please do this, even if you do it just to humour me and my kind.  You see, I am a litigator and it will be a litigator who will be called in to pick up the pieces of your practice when the unforeseen and unimaginable happens.  You have seen what a mess litigators can make of your clients’ businesses when they do not have the appropriate shareholder or partnership agreements in place for a creditor-proofed business.  Imagine what we litigators can do to your practice by way of court-ordered receivership and the like if you have not taken the appropriate steps yourself!  Unfortunately, this happens far too often, a very sad and common case of the skilled cobbler’s children having no shoes.  

Here are some key points to consider so your practice is not caught running in the snow with no shoes on:

• Make sure your office procedures manual explains how to produce a list of client names and addresses for open files.
• Move closed files to storage promptly to avoid confusion.
• Record all deadlines and follow-up dates on your calendaring system.
• Keep client files well documented.
• Maintain current and accurate accounting records.
• Punctually post time and expenses and bill clients regularly.
• Reconcile your bank accounts, especially your trust account.

8.  Foresee the Unforeseeable

According to one urban myth, law firm management guru Jay Foonberg, a big proponent of off-site file storage, stored all his closed files off-site and found that they had been destroyed in the 1994 Los Angeles earthquake, while the open files stored in his office were unaffected.   You can cite this story to rationalize your having done nothing to protect your practice if you want, but the better story might be the one your friends can tell about how professional you were in making sure your family, staff, and clients were well cared for after your untimely departure.

If you are on a law firm’s management committee, consider the benefits of being pro-active when a lawyer runs off to Tahiti with the firm’s trust funds, files for bankruptcy, is charged with fraud, suspended or disbarred, or freezes at the controls under stress or disability.  If you are a sole practitioner you need to consider whether formal agreements and retainers should address what  will happen when you are away on holidays. Include instruction letters, limited powers of attorney providing for the continued practice of law, access to and management of trust accounts, the safeguarding, transfer and closing of files, and the safeguarding or disposition of assets of both the practice and your clients. Written instructions should be prepared for not only the colleague whom you have chosen to assist in managing and closing your practice in the event of your death or incapacity, but also your family, executor, and office staff.  This should contain information and guidance to minimize confusion and uncertainty.

To familiarize the successor lawyer with your office systems, document those systems and keep written employment contracts with key staff to ensure that they stay on and are adequately compensated during the transition. Include generous termination provisions in case the successor lawyer decides to terminate the contracts after the transition.  Make sure that someone who knows everything (likely your assistant) will be on hand to contact the successor lawyer and put all formal agreements and office systems at the successor’s disposal in an orderly fashion.  This would include transferring control of trust accounts; if you have not put the proper planning documents in place to allow access to these accounts (through, for instance, powers of attorney during your life and an executor after your death), your clients’ money will remain in your trust accounts until someone obtains the appropriate court orders. In many instances, your clients will need their money to retain a new counsel. Delays in releasing funds could seriously prejudice your clients. The Law Society of Upper Canada Practice Advisory Service can help you acquire precedents for these agreements and help your successor with any details you may have forgotten.

9. Plan for Something Happening to Your Office

For those of you bored by this whole exercise because nothing ever bad happens to you (and therefore nothing ever will), at least consider the possibility that something bad might happen to your law office (unless your personal shield of invulnerability protects the entire city where you work).  Also consider what you would do if something bad were to happen to clients who treat you as their go-to professional?  Do you have access to all municipal, provincial, federal emergency authorities?  Do you know a lawyer who can take over for you while you attend to your client’s emergency? Can you pick up everything you need from your office and practice from your client’s site?  Do you have precedents to get an emergency injunction to protect your client’s business? Are you going to argue it, or do you have a litigator who can react quickly and help you?

10. Get Plenty of Advice and Follow What Makes Sense for You

This really is the first tip, but I saved it for last so you would read the rest.  Your bookkeeper, accountant, law practice management and other consultants, law practice valuator, and even your business clients may give you valuable insight into short- and long-term transition issues.  The Law Society of Upper Canada and LawPro (and their counterparts in other jurisdictions) also offer a wealth of excellent tips.   

Some Final Thoughts

If you put clients first, be consistent: Plan for what will be best for them when you no longer can practice law.  If you put you and your family first, be consistent: Plan for what will be best for you and your family when you are incapacitated.  Guess what – you will end up with the same plan either way. Since life is what happens while you are making other plans, implement the plan at a realistic pace. Hope for the best and prepare for the worst.  Do not leave your clients, staff and family in the position of the cobbler’s children.  Use your lawyer skills to protect your stakeholders with the same care and attention that you give to your clients. Prepare  your practice for the inevitable.

View David's handy Succession Planning Checklist to get started!
 

About the author

David Debenham is a partner with the Ottawa office of McMillan LLP. He can be contacted at (613) 691-6109, or david.debenham@mcmillan.ca