Although the economy is far from recovered, there are still many practitioners who are thinking about, if not retiring completely, reducing their practice.
If the past decade and especially the past three years taught us anything it is that being prepared helps you handle crisis more easily. Needless to say, the earlier you can start thinking and planning for retirement, the easier and more successful the transition. There are both broad personal issues and practical "how to" issues that need to be addressed. Both are critical to consider even if most solo and small firm practitioners want more on the "how to's."
For the sake of word counts, I will use the word retirement but it can be any voluntary closing of a practice. Although the focus of the column will be for those practitioners who are just in the "thinking" stage, much of the information applies to anyone voluntarily considering closing a practice for other reasons.
BROAD AND PERSONAL
When starting to consider retirement, you need to take a hard look at your finances. According to Boston College's Center for Retirement Research, you will need 65% - 75% of your current income to maintain your current standard of living. That is only an average and makes the assumption that you have no mortgage, no major expenses and have decent health care coverage. Your percentage may be different but it will not be much less than 70%. You need to determine now if you will have this type of income you will have for the next 10, 20 or even 30 years if you will not be practicing law.
This financial information may even help you decide whether you want to just close up your practice or attempt to sell your practice. If you are in a small firm, you need to review your agreement to determine what benefits, if any, you receive from your firm. You should have a financial advisor, whether a CPA or a tax attorney, to guide you in these areas.
If you are considering “selling your practice,” you need to review and understand Maryland Lawyer’s Rule of Professional Conduct 1.17 Sale of a Law Practice You should also read the MSBA Ethics Opinion 99-4 on the Sale/Purchase of Law Practice. All Ethics Opinions are available online at www.msba.org to MSBA members only.
(NOTE: The MSBA Young Lawyer Section has an app for the MD Rules for the iPhone, Android and Blackberry. You can have the Rules at your fingertips.)
You need to have a CPA or other professional who has worked with selling a law practice to help with this process. A third party will be able to help you confidentially determine who may be interested in purchasing your practice and determine its "value." According to Jay Foonberg in an article on selling a law practice on www.seniorlawyer.org "The urgency or lack of urgency in buying or selling may affect the price. Hopefully, the lawyer will have begun the process of selling the practice to another lawyer or law firm as part of a retirement plan while there is time for give and take negotiation with a potential buyer." (A pdf copy of the article can be found at LOMA Information Packets under Closing a Law Practice)
There are other ways to close your practice for retirement. You can simply finish all your work and turn out the lights. You can also begin to transition a younger associate or partner to take over your practice. Just as with selling your practice, the more planning, the easier the process.
This will also be a good time to take a look at how you are spending your money to determine what, if any activities or habits can be or should be changed. Notice I said changed and not eliminated. In addition to reviewing your future income and expenses, you need to think seriously about "what you want to do when you grow up." How do you plan to use the 60 -70 hours a week that you used to spend on your practice? Will your future activities require more or less resources? If more, this may be a good time to start considering a budget if this is something you have not done. It may be a good time, to start keeping track of exactly where you are spending your money.
WHEN TO GO PUBLIC
I have heard from many practitioners that they are afraid to go public too soon for fear of losing potential clients or even current clients. Regardless of whether or not you feel this is an issue, you should certainly inform your most trusted staff. You want to have a plan in place on what will need to be done and what role each of your staff may play.
Depending on your type of practice, you may want to begin to tell some of your long time clients and again, be ready to explain how you plan to proceed with whatever work you will be doing for them.
Again, depending on the client and the relationship, you should certainly try to make certain that clients who may owe you fees are as current as possible. This is a very good time to collect any outstanding or past due account receivables.
If you have been active with a website, Facebook, Twitter or other type of online “marketing,” this may also be a time to start to consider slowing down some of these activities. These new technologies are really a new frontier when it comes to retirement. To date, I have not found much information on what should be done with some of these sites when you retire, but there will be issues since so many of these sites do not disappear.
You should begin to review all client files that you are currently working on and create a time line for completing the work. You also need to determine when to stop taking any new work that may take longer than you anticipate practicing.
Regardless of which method you choose to close your practice, there are certain tasks which must be completed such as disposing of client files, contacting and informing clients and other administrative tasks.
Client Files: Ideally you had a policy for dealing with the disposition of client files. Unfortunately there is no simple answer to the question, how long do I need to keep files. The answer is "it depends." The MSBA's Ethics Committee has a number of opinions on the disposition of client files. They are
94-28 -Retention of Closed Files
93-39-Disposition of Client Files
92-2 - Notification to Ex-Clients of Departure from Law Practice. Disposition of Remaining Escrow Funds
89-58 - Attorney/ Personal Representative's Duty regarding files of Attorney/Decedent;
89-26 Safekeeping Client’s Funds: Funds of Unidentified Client
85-77 - Disposition of Files.
80-42 Retirement from sole practice – guidelines
According to Mel Hirshman, Retired Bar Counsel, Attorney Grievance Commission, "You must retain your records for 5 years after termination of representation whether you sell your practice or not."
"You must notify your clients and offer them the portions of the file to which they are entitled."
"Files not retained must be properly destroyed."
Ideally all work will be completed before your departure. However, if work is not going to be completed before your departure, you will need a client's permission before turning any file over to another attorney. You must tell clients that they have the right to not go with the attorney. You may decide to give clients the names of a number of attorneys so that they can choose.
You should make copies of any items in the file which you may need in the event of a malpractice claim.
There are now many packets of information regarding the topic of Closing a Practice which includes checklists, Leaving a Law Firm, Starting a Practice, Of Counsel Relationships and many others on the MSBA Website at LOMA Information Packets