The legal industry is aging and replacement law firm owners and leaders are needed. According to data from the American Bar Association (ABA), a record high percentage of active attorneys are senior citizens. While more and more lawyers are working later in their life, a significant share of the lawyer population is expected to retire in the coming years.
This raises an important question: What options do law firm owners have when they are ready to retire? The answer is that you have several different choices, including selling your firm which can take many different structures depending on your specific goals.
Be Proactive: Ensure a Strategic Exit from Your Law Firm
For lawyers, preparing for retirement can be challenging. Owning and operating a law firm is complicated and the client demands take priority. You do not want to simply wake up one day and leave the business without warning. Many unique issues need to be considered and addressed when transitioning a legal practice—from client notification – to file and case transfers – to insurance coverage.
By ensuring a strategic exit from your firm, you can do right by yourself, your family, your associates, and your clients to keep what you have built going even after you are done running the firm. A proactive approach can make a big difference. Give yourself time to develop the right strategy. The sooner you start preparing for retirement from your firm, the better position you will be in for a smooth transition.
Know the Three Main Options If You are Ready to Retire from Your Law Practice
For the owners of law firms, there are many different ways to retire from legal practice. Every situation is unique. Some attorneys may want a clean break from the law. They may be ready to sell their law firm and move on to the next stage of life. Other attorneys may be interested in keeping some part-time role with the firm, perhaps as an of-counsel lawyer or a consultant. The options for lawyers who are ready to retire from their firm typically fit into the following three broad categories:
- Transfer the Law Practice to a Successor (Family Member, Junior Partner Associate, etc): Upon the retirement of the primary owner, many law firms are transferred to an internal successor. It could be a child, a long-time associate, or someone who joined the law firm relatively recently. Transferring a law firm to a successor requires a well-considered succession plan. The plan should ensure that the successor—or multiple successors—has the funding, resources, and knowledge that they need to take over the firm.
- Sell the Law Firm on the Open Market to a Third Party: A law firm is a marketable asset. It can be sold on the open market to a third party. Indeed, many law firms are sold to outside parties each year. You do not have to have any pre-existing relationship with the buyer. Selling a law firm on the open market to a third party is often the best approach for retiring attorneys who are looking to get the most out of the business that they built. That third party may be another law firm or an individual attorney. The sale may be structured as a merger, joinder, of counsel relationship, or others, but the financial and exit strategy goals remain the same.
- Close Down the Law Firm: A final option that is always available is to simply close down the law firm. While it may be a sensible option in some limited cases, closing a law firm is less advantageous than selling the firm or, at the very least, selling its assets. Building and developing a law firm takes a tremendous amount of work and sometimes closing it down requires a significant amount more. Retiring lawyers should consider the value of their firm before closing it down and see if instead of taking on the burden of shutting it down themselves, they may be able to sell or affiliate with another firm to save some of that time and expense in closing it down. Even a solo practitioner’s small law firm has a market value.
For retiring lawyers who own small or mid-sized practices, transitioning to the next stage of life can be complicated. You do not have to figure everything out on your own. The Law Practice Exchange, LLC is a brokerage firm dedicated to helping attorneys value, sell, and buy law firms. We are available to help you understand and evaluate all of your available options and help you decide which is right for you.
Ready to Retire from Your Law Firm? The Law Practice Exchange Can Help
At The Law Practice Exchange, LLC, we were created by attorneys for attorneys. With an exclusive focus on helping clients buy and sell legal practices, our team has the knowledge, experience, and professional expertise that you can trust. If you have any questions about your options when you are ready to retire from legal practice, we are here to help. Give our resourceful law practice brokers a call now or connect with us online to find out more about how we can help. We provide nationwide law firm brokerage services.