Sometimes, succession planning for law firms is akin to the purple elephant in the room.  It doesn’t have to be that way.

Dealing with the nuances of succession planning can give rise to a host of political, economic, and even emotional issues which can be difficult to address.  Don’t let such challenges and uncertainties prevent you from taking 2 simple steps to improve your income and law firm valuation.

Succession Planning Can Be Painless & It Will Make You More Money

While there are a variety of business attributes that make law firms more (or less) attractive to potential buyers, the quickest and easiest thing a future retiree can do is build a compelling case for an attractive valuation.

To do this, an owner need not worry about the nuances and potential complexities of valuing a law practice.  Building a compelling case for a higher valuation starts with creating a compelling business model.

Since the average value and strategic attractiveness of a law firm’s client base is often “set in stone” after many years in practice, we will focus on two simple things you can do to earn a compelling law firm valuation:

  1. String together three or more years of consistently improving sales and profits
  2. Create a firm that generates healthy cash flows and the ability to continue producing such cash flows as the owner slowly steps away from the practice

Before we explain exactly how to accomplish each of the two points above, we thought we would address two question which are often raised by lawyers contemplating retirement:

1) Why should I take 2 simple steps to improve the financial performance of my law practice? 

Both of these objectives will improve the owner’s compensation over the final 2-5 years of his career. Furthermore, they will serve as the cornerstone for a compelling valuation, boosting the nest egg that will facilitate a comfortable retirement.

2) What if I don’t know when I really want to retire?  

That’s fine.  In fact, in addition to not knowing when you want to retire, you don’t have to know who will buy your law firm.  You don’t need to worry about re-branding, who will handle future management issues, or how clients will react to their trusted counsel’s eventual departure.  All you need to do is sit back, and quietly create a more profitable, growing law practice.

If you do that, your income will improve, and you will have a larger nest egg upon which to retire.

What is the simplest way to improve law firm valuation before retirement?

As we mentioned above, the first steps in improving law firm valuation prior to retirement lies in:

  1. String together three or more years of consistently improving sales and profits
  2. Create a firm that generates healthy cash flows and the ability to continue producing such cash flows as the owner slowly steps away from the practice

A simple way to accomplish these goals is to turn the data you law firm is generating every day into revenues. Every law practice has revenue that is trapped inside of its billing data. Whether your law firm bills by the hour, charges flat fees, or uses other types of AFA’s, the simple premise of trading time for money results in a substantial volume of dollars being “lost in the system”.

With Bridgesphere’s intelligent analytics for law firms, less than 1hr of partner (or office manager) time per month can result in revenue improvements between 10% and 40% per year. It doesn’t require changing the way your do business. Analytics simply uncover (on average) 30 additional billing minutes per attorney each day.

In a matter of weeks, law firm analytics will improve your top line.  Over the first 12-24 months, they will enable you to more consistently improve revenues, boost your law firm’s profit, and allow you to spend less time managing your practice.

How does this prepare me for retirement?

A higher law firm valuation requires a consistent improvement in revenue and profits. Analytics help you manage your law firm like a premier services company: improving revenue, profit, and the retention of your key talent.

Law firm analytics also create a framework that is conducive to a smooth transition into retirement:

  1. Revenue and profit improve
  2. Less time is spent managing the law firm
  3. A framework exists to facilitate a 3rd party’s ability to retain (and even improve) your growing revenues and profits long into the future

If you begin to take advantage of the data your lawyers generate every day, you will be able to improve your law firm’s valuation heading into retirement. Aside from boosting your compensation during your final years of ownership, a higher valuation will provide a more attractive nest egg upon which you can retire.

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Law Firm Consulting

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Own it.

Own it.

Whenever someone says they want to “manage” something, I cringe.

I immediately ask myself, is there a better word? After all, words matter. The words we chose carry deep significance, not just because of their inherent meaning, but because they give insight into our actions. They cast light on our motivations.

So when people tell me they’re going to manage something (or even worse, manage-through something), I immediately try and discern whether they’re setting themselves up for failure.

After all, ownership breeds success. Management reeks of passivity.

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Law Firm Consulting

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Christopher Catapano, Bridgesphere Strategic Planning

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