Mirror Time is Required to Reflect on Important Issues Before Starting a New Firm or Joining Another
by Linda Oligschlaeger
Business issues when moving to new employment
When making the decision to move on to another firm, before you get too far down the road take a good look back through your rear view mirror at what caused you to consider changing firms in the first place. You will want to be certain that the new firm doesn't have some of the same traits that caused you to make the move in the first place. Even if you're leaving an unpleasant environment, it's best to give your entire effort to the firm until the day you clean out your desk. Keep your thoughts and opinions between you and your bathroom mirror rather than sharing them with others.
As you prepare to depart your old firm, giving sufficient notice is important if you're an associate. However, if you're a partner in the firm, it becomes much more complicated. You and your partner(s) will need to dust off the partnership agreement, looking closely for provisions for your departure. You will need to establish the value of the equity that you have in the firm, and check for any obligations that you might personally be responsible for such as leases and loans. According to The Essential Formbook: Comprehensive Management Tools for Lawyers, Volume I, by Gary A. Munneke and Anthony E. Davis, and published by the ABA Law Practice Management Section, "Payout clauses typically include the value of capital contributions, work in progress to which the lawyer would be entitled had he or she remained with the firm, the value of the lawyer's interest in the equity of the firm (assets minus liabilities), and the value of projected billing for work not yet begun but for which the lawyer's efforts in part were responsible."
Firms with a departing partner may need to reorganize depending upon the entity under which they are established. Obviously, if there are two partners and one leaves, you no longer have a partnership. Winding up the departure of a partner involves many details, including compensation for work-in-progress as well as tax liabilities and ethical issues. Your accountant can help facilitate an amicable and fair arrangement for the departing partner and the firm. The former firm may lose a substantial number of clients who choose to go with the departing partner(s). Replacing those clients will require more marketing efforts. Until the client base is re-established, there may be a need to recapitalize the firm and to increase lawyer staff to be able to serve the remaining clients, or decrease support staff and other overhead. Warring former partners can have damaging effects on both the new and former firm. If an amicable resolution can't be reached when a partner leaves, the partners should consider mediation or arbitration as a method to quickly decide the unresolved issues.
When considering joining a partnership in an existing firm, take into account the capital contribution or equity interest that may be required. Will you be required to produce the entire amount to buy-in when joining the firm, or can you purchase your partnership interest over time? Will you be required to bring a client base to the new partnership? How is the new firm organized? This could affect your tax liabilities as well as partnership liability issues. You will definitely want to thoroughly review the partnership agreement, which should be in writing for such issues as how compensation and profits are determined. In addition, you will want to review the firm's financial history and obligations among others.
Taking the legal assistant or paralegal
If your departure is not amicable, a dedicated legal assistant or paralegal may welcome the chance to move with you. Others may perceive that the person's loyalty will no longer be to the firm. If lawyer staff is reduced at the old firm, the employee may not be needed and you will be in a good position to offer an experienced employee an opportunity to make the move with you. Be cautious about approaching that person too far ahead of time. Recruiting a valuable staff person may be viewed unfavorably by the departing firm and further fuel the fires of an unpleasant departure.
When moving to a newly established firm
Dissatisfaction with your current job may be motivating you to move on. Then again, your interest in moving on may not stem from discontent in your current situation, but rather a desire to reach beyond your limits - to grow and further develop your skills and abilities even if that means leaving behind a job at a prestigious firm. Nonetheless, before making the decision to start a new firm or even beginning the planning process, you may consider doing a self-assessment to analyze your personal characteristics. The reality is that you are starting a small business that will offer legal services to clients. Solo or small firm practitioners are more likely to succeed in this business venture if they possess an independent spirit and entrepreneurial traits, such as a tolerance for uncertainty and risk and the associated pressures of constant professional and personal demands. To be successful, you will need to be self-disciplined and possess (or start to learn) management and organizational skills. The ability to market your new practice is essential. Everyone has some self-doubts, but you will need to balance those with a comfortable sense of self-confidence in your legal skills and abilities. A good sense of your interests, preferences, and values also helps. Consider what types of clients you prefer to serve and whether a specialized practice appeals to you. Rely on your common sense and the advice of knowledgeable friends and relatives whom you trust for their insight and wisdom. Finally, you will want to take a hard look at your economic potential, your family needs and commitments, as well as your other best alternatives.
Oftentimes, lawyers become partners because they are friends or they practice in the same area of the law. Compatibility is important, but partners should also have complimentary entrepreneurial, managerial, and marketing skills to bring together to their legal practice. One partner may be more outgoing and enjoy marketing the new practice in the community, while another partner is organized and more interested in overseeing the day-to-day systems of the new practice. Potential partners should share the same vision and goals for their new firm and, thus, take time to plan together developing an effective and fair partnership agreement that is reduced to writing. It's better to find out before entering into the partnership if your aspirations don't mesh than it is to charge into a practice only to find out later that you're not professionally compatible even though you may have been friends for years. Model partnership agreements and a checklist can be found in The Essential Formbook: Comprehensive Management Tools for Lawyers mentioned earlier.
Doing your homework, planning
If you are reasonably confident after doing your self-assessment, and still want to charge ahead with developing a new practice, you're ready to begin some intense planning.
A call to The Missouri Bar's Law Practice Management Center should be on the top of your to-do-list. You will be provided with many different resources including a checklist of the many details that you'll need to tackle.
In your early planning stages, be sure to get your hands on a copy of How to Start & Build a Law Practice, by Jay G. Foonberg, published by the Law Practice Management Section of the American Bar Association. In its 5th edition, this book should be the Bible or Koran of anyone considering starting a law practice. Another excellent resource is Flying Solo, also published by the ABA Law Practice Management Section. These resources are available for loan from the Law Practice Management Information Center for only a small shipping charge.
Definitely consider attending the Solo and Small Firm Conference held annually in June even before you have committed to starting a new practice. The Conference is an excellent opportunity to visit with other lawyers who were once facing the same issues. You'll find most of them more than willing to readily share their experiences and save you from making the same mistakes they may have made.
You might also considering joining The Missouri Bar's Solo and Small Firm Committee and the committee's listserv, known as SFIG (Small Firm Internet Group). The SFIG listserv will link you online with 400-500 other solo and small firm lawyers from all over the state who may be used as a resource and a referral system.
Developing and writing a business plan is critical work because it forces you to build the financial and marketing plans and create income projections that will wrap around your personal and financial goals. In essence, your business plan is the road map for your new practice. Be realistic in your planning - plan for things to go wrong. Your business plan should be a constant work-in-progress and flexible enough to continuously be modified. In his book, Secrets of the Business of Law, business consultant Edward Poll suggests that a good business plan is:
- Requires effort and time to create
- Is ongoing and evolving, changing as circumstances change
- Agreeable to and supported
A bad business plan is:
- Overly complex and intimidating
- Academic, without practical applications
The fact is you will need enough paying clients in order for your firm to thrive - emphasis on "paying". Your marketing plan is the blueprint as to how to attract those clients to your new firm. That plan should be formalized and written down. It should include timetables, which you should check regularly; otherwise, it may be neglected as you become busy with the day-to-day needs of your practice. The fact is, the legal market is a mature, saturated market in many areas, and you'll need to figure out how to have a competitive advantage by setting yourself apart from others. Networking with other lawyers and forming alliances with other professionals and business acquaintances should be a top priority in any marketing plan. A system to develop excellent client relationships is also critical to promoting future referrals from clients and should be included in your practice development plans.
Sufficient capitalization will be critical to your new practice. In addition to your start-up costs, you will need to have adequate financing available to pay for your family's living expenses for at least the first year in your new practice. By then the new firm should start showing a positive cash flow, which you can use for personal support. Start-up funds may come from personal savings or loans from relatives or financial institutions. If you have a working spouse whose income is sufficient enough to support the family while you build the practice, consider yourself fortunate; nevertheless, you will still need funding for start-up costs and expenses to keep the doors open until you turn a positive cash flow. Even then, while you build your practice, your income is likely to be less for the first several years than it was previously.
If you need to seek a loan, a lending institution will tend to look favorably upon a loan request from an up and coming professional. Banks will look for a businesslike approach with a well developed business plan. You might also tap into the banker's knowledge for feedback on your business plan. Your banker will be interested in reviewing your partnership agreement (if not solo), your cash flow projection, your personal financial statements including net worth and prior tax returns, projected income and expenses, where you anticipate your client base will originate, and you should be prepared to discuss how you intend to price your services. A commonly used formula to set hourly fees is Hourly Rate = (P +O) divided by CH. (P=profit you wish to make; O=estimated overhead; CH=estimated chargeable hours per year) Other financing options for your new practice might include a home equity loan, refinancing your home loan, or a Small Business Association loan.
As you develop your plan, you may want to seek the assistance of an accountant to help you determine the best entity for your new practice. Choosing to operate as a sole practitioner, partnership, limited liability company, or professional corporation will lead to different tax and liability consequences. Unless you have good accounting skills, you'll want your accountant to set up the accounting functions for your new firm. While you're visiting with your account, don't forget to begin developing your new practice by asking for referrals.
Before you open the door, you'll want to lay a good foundation for your new business and law practice by developing an office manual. An office manual will set the systems in place for your new practice to be organized, operate efficiently, and keep you out of trouble. It's particularly important if you will be employing office staff. You will want to explore which software can provide the means for a smooth operation. This is a good time to think through and develop these systems and learn how to use software effectively before you become too busy to find the time it takes to master your office software. Luckily, there is a time-saving resource available to help you get started. Law Office Procedures for Solos and Small Firms, by Demetrious Dimitrious, published by the ABA Law Practice Management Section is an off-the-shelf procedural manual that you can easily customize for your practice.
To lower your first year costs, you might consider renting space in a law firm or sharing office space with one or more other lawyers with a common reception area and conference room. With this type of arrangement, receptionist or secretarial services are usually available as well as other support systems. You might save enough to afford a more desirable location than you could otherwise on your own. Your suite mates might also be available to pitch hit for you for court appearances and may refer clients to you. The downside is that you give up some control over personnel and how the office is set up. Ethical issues must also be considered with this arrangement and should be reviewed thoroughly.
You might consider purchasing or buying into an existing practice from a lawyer who is working toward retirement. If the practice is viable, this could relieve you of the burden of establishing a client base, as most clients usually elect to stay with the firm. The lawyer who is winding down can ease you into the practice, serving as a mentor. However, there are some downsides to this arrangement. The cost of goodwill to buy into the practice may outweigh the benefits of establishing your own practice from scratch. The office systems and staff already in place may not fit your needs or desires.
An often overlooked option for a solo practitioner is to develop a home-based practice. Overhead costs and commute times are slashed, but you must have the space, a good location and not be prohibited by subdivision or local ordinance restrictions. You must also possess sufficient self-discipline to work from home.
Personal issues, stress of change
For most of us, change, whether positive or negative, creates stress. Even those who consider themselves risk-takers will readily admit that change raises stress levels even if it's positive change, such as getting married, having a new baby, or embarking on an exciting new career move. Positive stress, such as a new career move, can create the paradoxical emotions of being excited and frightened at the same time. For those who thrive on adrenalin rushes, the risk of change is an adventure; for others, change is frightening to the point of paralysis. Alternatively, consider how it would affect you long-term if you stayed where you have little or no chance of being fulfilled as a professional, or where your work environment is unpleasantly stressful. Well conceived planning and preparation can relieve much of the stress of making a career change or starting up a new practice.
Stress levels can soar if you're facing a lay off or dismissal, rather than having the option of carefully planning to make your move. However, if you're fortunate enough to voluntarily make the decision to make a career change, particularly if you decide to start a new practice, your income and quality of life might still suffer as you focus on building your new practice. A tremendous amount of your time that is not spent on practicing law will need to be devoted to building your practice. Additionally, you'll still need to find time for your family and friends as well as maintaining a healthy lifestyle through good nutrition, exercise, and getting as much rest as possible so as to be at your peak performance. You may be able to blend your family into some of your professional and marketing activities by taking them with you to meetings and events. For example, The Missouri Bar's Solo and Small Firm Conference, held annually in June, is a family-friendly event for solo and small firm practitioners who combine quality time with their families while continuing their education and networking with their peers. You may be able to network in your community by attending civic functions that your family may enjoy as well.
The stress of change can be minimized when starting a new law firm by settling as many other issues in your personal life as possible, leaving you the mental energy to focus on your new adventure. It's definitely not a good time to commit to a huge community project or to remodel your home. Your focus should be on your new practice and your family life. In the first year or more, there may not be time for much else.
Impact on the family
A change in your employment will definitely involve your family, particularly if you are starting a new practice either as a solo or with partners. Therefore, it's imperative that your spouse or significant other be involved in your decision, help you sort through all the considerations, and be supportive of your endeavor. This type of change can be just what you feel you need to lead a fulfilling professional career, but it could be unsettling for your family. The change in your life will likely impact their standard of living, and the time you'll need to devote to your new practice, at least in the short term, will be time taken away from your family. If you have the support of your family and friends, you are more likely to succeed than you would if you become the rope in a tug-of-war from home. Don't allow guilt to overcome you. Good communications with your spouse and children about the change in your family life and how it might affect them is vital to their buy-in and support. If it is clearly understood that this change is an investment in your future and theirs, most families can actually bond together to support this mutual interest. Even young children can be very supportive if they understand the reasons for the change and what their parent is doing.
As you build your new practice and work toward a positive cash flow, your spouse may also feel the pressure of becoming the major breadwinner in the family for the first few years. Changing firms or starting a new firm could cause you to forego some major benefits, particularly health insurance. Your working spouse may need to cover this benefit or you'll need to cover insurance costs from personal or loan funds. Foregoing health insurance could add to the stress of your new undertaking and lead you to the unhealthy, unwise decision of avoiding your physician. Your working spouse may also have to assist with payments on your student loans and other obligations.
In addition to the support of your spouse and children, it helps if you can garner support from your extended family and friends. To maintain these important relationships, take your family and friends into your confidence about your plans so they will understand that your focus must be on building your new practice for the time being.
You may decide to relocate to a different community to start your new practice or to join another firm. Such a move uproots a family and will certainly cause increased stress levels as the family adjusts.
Impact on personal finances
Starting a new practice will, no doubt, impact your personal finances for at least the first year and, perhaps, up to five years, as you build your new practice. Personal savings that may have been earmarked to upgrade your home or for early retirement may need be invested in the new practice. It may appear that you're taking a giant step backwards. Not only will personal savings be affected, but you will probably take on debt to support the new practice.
The changes in lifestyle can sometimes be difficult for family members. It may mean that you won't be able to take the family vacation to the beach every summer, or the family minivan will have to hold together for another couple of years. On the other hand, the family minivan can get you to a nearby vacation area for a couple of extended weekends a year to spend valuable time with family.
Stay or Move on? That's the Question
If you feel restless or you are not fulfilled professionally, you do have options. That is to go, stay, or take the ostrich approach - stick your head in the sand and do nothing at all. In fact, doing nothing at all is a decision - a decision to ignore your potential. It's an easy decision because it doesn't take any work. Conversely, thoroughly exploring your options takes time and effort. If you decide to move on, you have a lot of work and risk associated with the move, but a move in the right direction may have the potential of being the most rewarding experience of your career. If you decide to stay, you can live with the peace of mind that at least you explored your options thoroughly and concluded that staying is your best option. You can then concentrate on taking full advantage of your current situation, growing where you are. Yogi Berra in his folksy wisdom, once said, "If you don't know where you are going, you might end up someplace else." Wouldn't you like to take some control of where that "someplace else" might be so the person in your mirror each morning reflects a peaceful and fulfilled spirit?