The importance of early succession planning for sole practitioners

sole practitioner succession planning

Planning retirement becomes increasingly important as we get older, and it is a phase in life that many eagerly anticipate. For those in the legal industry, particularly sole practitioners, retirement necessitates careful consideration and preparation.

Retirement and succession planning can be a complex process. Effective preparation is essential to facilitate a seamless transition into retirement. The brutal fact is, “fail to prepare, prepare to fail”.

Developing a well-thought-out succession plan is vital for ensuring that the retirement journey is smooth.

You may wish to establish a successor practice to take over your caseload and staff following your retirement; or you may plan to appoint a member of staff to succeed you.

With all the increasing regulatory burdens, punitive cost of Professional Indemnity Insurance run off cover and the risks associated with being a successor practice, sole practitioner businesses are becoming less and less attractive as an acquisition target. 

Increasingly, outsourcing the runoff for ongoing matters and closing the firm compliantly is becoming another alternative.

Whether you decide to voluntarily close your firm or have a successor practice in place to take over your firm, planning for the event years in advance will pay dividends.

 

When to start succession planning

 

The sale, transfer, or compliant closure of a law firm can be a lengthy, complex, and often expensive process. For this reason, it is important that you start to make succession plans as early as possible.

Simple arithmetic: start providing for the cost of PII run off cover from 10 years out. Initiate a savings plan with a monthly instalment of 1/120th of the current cost, 5 years out 1/60th of the current cost. Suddenly that doesn’t sound quite so daunting.

Get to D-Day and a buyer materialises, Brucie bonus, a significant additional cash lump sum.

The reality for many sole practitioners today though is that if no buyer materialises, they cannot afford the runoff cover and therefore cannot afford to stop working.

Another area to discuss with your accountant is whether you are still operating as a traditional sole trader, or possibly as a small partnership. You may wish to consider incorporating the business.

This opens numerous alternative exit strategies that potentially separate the business from your personal affairs if things are not quite as rosy as you would have liked at point of hanging up your boots.

Some of the things you will need to consider before you retire may include, informing the SRA of your plans to close or sell, transfer or close your firm, informing your clients of your retirement plans, and obtaining appropriate run-off cover.

 

How can Recovery First assist in your succession planning?

The Recovery First model can be used to assist in sole practitioner succession planning.

Our process involves discreetly selling a firm’s cases to multiple purchasers on our panel of solicitors. This mitigates the risks to the buying firms and results in a higher value for the work in progress (WIP) being recovered, whilst ensuring SRA compliance.

Our team manage the transfer of files from start to finish, placing case files with an approved law firm to protect the integrity of the client’s case.

To find out more, contact us using the details below.

It's never too late to speak to Recovery First. Contact us now in the strictest confidence

Sally Dunscombe:

sally.dunscombe@recoveryfirst.co.uk

David Johnstone:

david.johnstone@recoveryfirst.co.uk

Telephone:

01357 440140

Manchester Address

106 Kennedy Building

Murray Street

Manchester

M4 6HS

Registered Address: 

North Torfoot

Drumclog

Strathaven

ML10 6QG