Berks Barrister Fall 2018 - 17

Options For

Winding Down Your Practice
By Ellen Freedman, CLM

owadays there are a multitude of reasons why people
decide to close their law practice. Age is still a primary
motivator for those of the baby boomer generation.
Some still choose to "die with their boots on" because it is too
difficult to retire on an emotional level. If health remains good,
and there are no other interests or opportunities which provide a
feeling of self-worth and continued mental stimulation, it makes
sense to work as long as one is capable.
We don't always get to stay the course with our plans.
Sometimes declining or sudden negative changes to health force
retirement unexpectedly. Such is the case with an attorney I know
who loved being a lawyer, and expected to die with his boots on.
A recent stroke which left permanent impairment to cognitive
function changed those plans overnight.
Some are especially fortunate to accumulate sufficient wealth
when they are young and healthy enough to actually enjoy it.
Extensive travel, or sometimes attempting to achieve an elusive
goal such as writing a book, encourage early retirement from
practice. Sadly, a small number of lawyers are each year forced to
retire early because they cannot generate sufficient revenues to
keep the doors open.
Moving to be closer to family - usually children and
grandchildren - encourages many attorneys to retire. Although
it's possible to continue to work remotely on a virtual office basis,
it rarely works in consumer-based practice areas. And among
commercial practice areas, only a few lend themselves well to
working successfully on a permanently remote basis.
Two desirable reasons to close one's practice are appointment
to the court or being elected to political office. Accepting an
in-house counsel position is yet another desirable alternative
for those who dislike the need to engage in continual client
development. Most are also happy to escape environments which
seem to have differing opinions on every management decision,
usually leading to frustrating decision paralysis.
Nowadays lawyers - particularly in solo and small firm
environments -have a lot more options available when seeking
to retire. Before deciding which is for you, a little soul searching
should be conducted. And then, advance preparation will be key

to getting to your desired exit door.
The sale of a practice [Rule 1.17] is a relatively new option.
It actually requires the shortest lead time of all available options.
Planning can start anywhere from one to three years ahead. The
Rule is detailed and speaks for itself, so I won't waste valuable
space stating the obvious. The most difficult parts of the process
are not found in the Rule, however. They include 1) valuation 2)
location of a buyer, and 3) crafting the deal.
Valuation is difficult because the seller is usually confident
about a practice which has generated a known income over
a span of years. To a buyer, however, it is all risk, as there are
no guarantees that the revenues will continue. So it becomes
incumbent on the seller to illustrate not just the fees which have
flowed through the pipeline each year, but to be able to break
them down by type of law and, more importantly, by the source
that fed the work into the pipeline.
To illustrate, let's say that the revenue of a practice is
generated from PI, SSD and WC. If there is a steady stream of
prospects coming through the firm's website, social media, and
other forms of advertising such as TV or radio, this is work a
prospective buyer can depend on continuing to materialize after
purchase. So the value is high. On the other hand, if the work
is coming from attorney and physician referrals based on the
reputation of the seller, the buyer cannot count on that work
continuing after the purchase. Even if the seller sticks around for
a while after the deal concludes, in an attempt to make all the
right introductions for the buyer, it's still a high risk. That makes
the value of the practice lower.
So many factors may raise or lower the value. Are there longterm clients being serviced in multiple practice areas by a number
of competent attorneys? That increases value. Are clients mostly
one-and-done, such as in family law? That lowers the value. Is
the office exceptionally well-run with a high profit margin?
That raises the value. Is the office disorganized, with outdated
equipment, no practice management, and a ton of old files which
have never been purged and likely contain original documents?
That plummets the value.
Continued on next page

Fall 2018 | 17

Retirement

Planning

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Berks Barrister Fall 2018

Table of Contents for the Digital Edition of Berks Barrister Fall 2018