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What options do sole practitioners have when it comes to an exit strategy?
Too many lawyers retire without advantageous exit plans in place, leaving a substantial amount of value on the table, writes Rolf Howard.
Rolf Howard
One of the challenges of building up a successful practice as a sole practitioner is how to exit profitably, while minimising the impact on your trusted clientele. Unfortunately, what tends to happen more often than not is that sole practitioners will simply retire — often later than they would like — without an advantageous exit plan. A substantial amount of value is left on the table, and the clients are left needing to find new representation.
In these instances, usually, the sole practitioner has scrutinised the options for an exit plan but simply feels like there is no good choice. A succession plan doesn’t seem possible because there is no natural successor in place, and the process of finding or upskilling someone feels too time-consuming or complicated. A business sale seems unlikely because it doesn’t seem like there will be demand, and there may be difficulty in transferring goodwill. The sole practitioner will often end up delaying their retirement, simply because they feel like they’re out of options.
Not only is this a poor outcome for the sole practitioner, it’s also a poor outcome for the clients and community too. Sole practitioners enjoy extremely strong relationships in their communities and have significant localised expertise. When they do eventually move on, it leaves a serious gap. At a macro level, when this occurs, it can leave communities significantly underserved.
The challenges around how to exit can also deter up-and-coming lawyers, or those making the transition from BigLaw, from venturing out on their own in the first place. Becoming a sole practitioner can be very attractive for those desiring autonomy, the chance to build something, flexibility and work/life balance. However, if the financial gains don’t appear to be there, then the option becomes far less desirable. Without more sole practitioners emerging to replace those that are retiring, the very structure of the legal landscape could drastically change.
Merging with another firm: A way forward?
Many sole practitioners are surprised to hear that merging with a larger firm is, in fact, a viable option. Because the sole practitioner owns the relationships, they assume that once they’re no longer in the picture, those relationships will cease to hold value, reducing the demand for a merger. This is only partly true — it all comes down to getting the timing right.
If you wait until you’re ready to retire to investigate a merger, it’s most likely too late. The most advantageous position you can be in is to merge with another firm at least a few years before you intend on exiting. That allows enough time for you to embed your business at the new firm, for clients to get used to the new model and for others at the firm to build relationships with your clients. A slower transition allows you to reduce your hours over time and then eventually step out completely, in a way that works with your retirement plans, is financially advantageous, and which continues to fully support your clients.
A merger also provides several other benefits in the lead-up to an exit, like access to technology and systems, more resources, marketing support, and administrative assistance. Being part of a team can be a welcome change, especially after many years on your own. It is also a smart way of operating in an increasingly competitive marketplace, especially with the growth of NewLaw. The pressure on sole practitioners to be efficient and innovative in order to stay ahead of the curve has never been greater, and this model can certainly enable that.
Our experience with mergers
At Owen Hodge Lawyers, this is a strategy we’ve employed with much success. We’ve had several sole practitioners merge with us over the years. Most recently, Sandra Littlewood, a fixture in Sydney’s north shore for close to 40 years, joined us — enabling us to expand our operations to Sydney’s north shore.
In my view, it’s a win-win strategy that protects the position of sole practitioners in communities while enabling firms like ours to build market share. I believe we’ll see this model become increasingly common as the latest cohort of sole practitioners approaches retirement age. This model will allow that cohort to retire when they’re ready and create room for the next wave of sole practitioners. The next cohort will be incentivised to pursue their own business, safe in the knowledge that a favourable exit strategy is possible.
Rolf Howard is the managing partner of Owen Hodge Lawyers.
