Plan Every Step Before You Walk Away: Closing A Law Practice The Right Way, October 2005
Plan Every Step Before You Walk Away: Closing A Law Practice The Right Way, October 2005
Apr 21 2009, 01:14 PM
Selling a law practice to another qualified attorney (or attorneys, for portions of the practice) no longer violates the code of professional ethics in most states. That doesn't mean it's a universal fact of professional life. There remain a number of situations in which law practices are simply closed rather than sold. Chief among them:
* A few states still prohibit solo practitioners from selling the practices they have built;
* A lawyer's unexpected death or disability can leave a practice with no viable future;
* Some lawyers still believe they have little or nothing of value to sell, irrespective of the size or profitability of their practice; and
* Some lawyers simply prefer to exercise a business owner's prerogative and conclude their practice on their own terms.
The Business of Planning
The third of these alternatives is the most interesting and challenging, because it involves skills that all lawyers should have but not enough exercise. Lawyers frequently emphasize the importance of planning to their clients and they should be prepared to do no less themselves. But, after years of focusing on immediate concerns including cases and contracts, rents and receivables, the pressure for quick action and for immediate results, many are unprepared to commit to the planning that is essential for a successful closing.
Closing a practice is such a complicated process that you should, ideally, allow six months to one year to accomplish the many tasks involved. Lawyers accustomed to the rush of meeting a 5:00 p.m. filing deadline at the courthouse tend to take for granted the weeks or months of effort required to reach that point. The same thing is true of what it takes to clean things up, tie the ends together, and perform all actions necessary to close your own law practice. Anyone who has ever moved from one office (or one home) to another knows that it requires considerable thought, pre-planning, and coordination. The complexity and organizational requirements of closing a law practice are similar. Each requirement has different yet interrelated elements that must be present to succeed. My latest book ((Selling Your
Law Practice: The Profitable Exit Strategy), a compilation of strategy fundamentals for selling a law practice published in August of 2005, covers these issues in far more depth than a brief article can do. But even a quick review can indicate the two key questions any attorney closing a practice must plan to answer: 1) as a lawyer, who do you have to involve?; 2) as a business owner, what steps should you take to wind up operations?
The List of Key Players
Yes, it's your practice. However, you may not realize all the people involved in it and who needs to be told about your decision to close it. Some are obvious: your family, your staff, your clients. Yet, with a little thought and planning, you can quickly grow the list to include:
* Financial institutions and insurance carriers;
* Bar associations and courts;
* Vendors and suppliers;
* Utilities and (if you have one) your landlord;
* Appropriate taxing authorities;
* The news media (at least your local legal press);
* The U.S. Postal Service (you'll want mail forwarded for up to a year after closing).
This list is hardly complete, yet it illustrates how many people can affect the closing process. That realization is even greater when you begin listing the concerns of your two most immediate constituencies: staff and clients.
The first thing you must do once you've decided to close your practice is inform your staff. Under no circumstances do you want them to hear the news from someone other than you; both because you employ them and owe them an honest answer about their future, and because you'll need at least some of them to complete the closing of your practice. If an alarmed staff bolts quickly, how will you contact all your past and present clients and keep up necessary office functions, like cutting checks and running software? You'll be stuck trying to close the office yourself, probably with temporary employees who certainly can't be expected to know the idiosyncrasies of your practice as well as your current staff does. That's why you need a plan to:
# Inform staff who you will and will not continue to need;
* Offer job search help, and seniority-based severance of a few weeks or months salary;
* Develop appropriate incentives to keep critical staff on board until the end; and
* Address all requirements for pensions, IRA's and medical benefits under COBRA. Client Considerations
Immediately after informing your staff, you must address your ethical duties to clients to ensure that their interests and confidences are protected. You also have a fiduciary obligation to keep their property safe. This requires communication by certified mail and with a telephone follow-up, to tell current clients that you:
* Are closing your practice;
* Will refer them to three qualified attorneys and to the local bar association's lawyer referral service;
* Will give all files and personal property to them or to their new representative (note that some state rules require you to keep client files up to 10 years if they are not claimed);
* Will close out all trust accounts; and
* Request payment on all open invoices.
You also must communicate with past clients by certified mail, informing them of the closing and asking them to pick up their files within 30 days (beyond which they will be destroyed, unless otherwise required by your State's ethics provisions).
The Responsibilities of a Business Owner In addition to your professional responsibilities as a lawyer, you also have business responsibilities as the owner of a professional services firm. Among other things, these responsibilities may involve state or federal statutes pertaining to your particular form of business entity, or even tax requirements. Certainly they involve financial obligations to utilities, landlords, and vendors. Even a partial list of what you must consider illustrates that even a sole proprietorship is a complex business entity requiring you to:
# Inventory your assets and liabilities, including all tangible office property;
# Send out final billings as soon as possible, and consider a collection agency for old, overdue accounts;
# Review insurance policies to determine when coverage ends;
# Assess bank obligations and negotiate any necessary repayment terms with creditors;
# Meet any legal requirements to dissolve your business entity or give public notice;
# Talk with your accountant about specific state and federal tax returns you must file;
# Notify utility companies, including Internet service providers;
# Give vendors and suppliers formal notification that your business with them will end,
# File mail forwarding instructions with the Post Office; and
# Decide what office property you want to remove, discard or store. Lease Considerations
If you own your office space, you need to decide whether to sell it and pursue the listing process if you choose to sell. If you lease office space, you should work with the landlord to:
* Discuss your lease's expiration and see what flexibility exists;
* Schedule an inspection and get a formal, written release if everything is in order; and
* Get written requirements for conducting moves out of the building, covering items like insurance, time and loading availability, and safety considerations.
After you establish a tentative closing date and know that you will be moving large items to your home or elsewhere, you should interview moving companies. Develop a list of potential movers and check the credentials of each before you contact them. Use a standardized RFP form to make comparisons between movers easier. Ask how much time they will need to do the move, determine any extra charges (for equipment setup or packing materials) beforehand, and take any necessary storage fees into consideration.
The Importance of a Timeline
If all of this sounds complicated, it is. Remember that planning is essential, and the entire process may take up to a year to complete. Making sure you get everything done right requires creation of a timeline that includes descriptions of, and completion dates for, everything you need to do, in the order you need to do it. Ethical considerations relating to people and practical considerations relating to business should be the focus.
Your timeline must, at a minimum, include the date that you decide to close the practice, the date that your current lease runs out, and the date that you would like to have all steps in the process completed. Establishing a timeline at the beginning of the process will provide you with a tool to help you focus your efforts and track the various elements of the closing. As you proceed through the closing, you will be able to add elements as they occur and continue to refine your plan as needed.
The form of the timeline should be whatever works best for you: a notebook, electronic calendar or to-do program. Building a thorough timeline will help ensure a smooth and happy transition to the next phase of your life, your life beyond the law.
|Lo-Fi Version||Time is now: 27th April 2015 - 01:08 PM|