Internal Succession?

In our continuing discussion of law firm exit planning, we turn to the idea of internal successors. 

Having an internal successor could be an ideal way to exit a law practice.  Attorneys who have worked at a firm for some period of time will have a chance to get to know the firm’s clients and gain their confidence.  As the junior attorney grows into the role, the senior attorney can train their heir apparent and ensure that they are prepared to succeed.

Internal transitions may also be one of the most financially advantageous succession arrangements.  Internal candidates are the ones likeliest to pay the law firm owner the highest price for the practice as they are best positioned to maximize the value of the practice. At the same time, the exiting law firm owner may be more flexible about accepting payments over time, as they should have confidence in the financial future of the firm.

Unfortunately, this ideal of internal succession may be more theoretical than realistic.  Hiring any junior lawyer is incredibly difficult, let alone one who is to be the internal successor.  Ninety percent of law firms report challenges in finding qualified candidates for open positions, according to a survey by the American Bar Association.  2022 Legal Technology Survey Report.  This difficulty is, in my experience, even more pronounced in the Rockland small firm setting.  Attracting candidates is challenging as we cannot offer salaries comparable to those found at firms in Manhattan or Westchester and are located in an area that is difficult to access by public transportation.

Even if a small law firm does find and hire a good internal succession candidate, small firms rarely dedicate the necessary time or the resources to adequately train young attorneys.  Moreover, few small firms have the infrastructure or systems to support continuity and growth.

With these realities, if a local law firm owner is hoping to have an internal succession it behooves them to plan early.  They must devote the necessary resources to attract, train, and support their young lawyers.  Internal succession could be an ideal exit but it requires this work to make it a realistic one too.