MyShingle is pleased to host this guest post by Roy Ginsburg. Other posts authored by Roy at MyShingle are available here
The most common exit strategies for retiring solo practitioners and small law firm owners typically include recruiting a successor, merging with another law firm, or selling the practice. All of these options have advantages and disadvantages.
However, there’s one strategy that is rarely considered, though it may make the most sense in terms of the retiring lawyer’s financial and personal well-being. That strategy is downsizing.
It’s a rather simple concept, and works well for both solo practitioners and small law firm owners. In a nutshell, the attorney takes fewer cases and works less while reducing overhead expenses.
Downsizing works well for a number of reasons. First, I rarely meet a lawyer who, when contemplating retirement, wants to quit the practice of law cold turkey. It’s difficult to go straight from being a full-time practicing lawyer to someone whose primary focus is their golf handicap. Many attorneys want to wind down over a few years and gradually ease into full-time retirement. Gradually reducing one’s caseload accomplishes this objective.
Second, when contemplating retirement, many lawyers get nervous about depending upon only Social Security benefits and their IRAs to fund their retirement lifestyles. Downsizing can free up time to take those vacations you always wanted to go on, while still bringing in income to fund them.
Here’s how it works.
Take fewer cases, or better ones
How do you do that? For example, if you’re a personal injury attorney, you become even more selective when screening cases. In the past you may have taken risks accepting cases that were “close calls.” When downsizing, decline those cases at the outset, and refer the prospective clients to other attorneys.
If you’re a family law attorney, you screen out cases that are likely to be overly contentious, if you’re tired of doing those, or the lower-asset cases where you were never sure you were going to get paid anyway. In estate planning, set a higher asset threshold for clients, or stop doing probate work if you prefer to venture out of the office less and have a more predictable schedule.
Raise your fees
Another effective way to reduce your caseload is to increase your fees. This weeds out potential or existing clients who are way too price sensitive, and are often difficult clients to begin with. If they don’t want to pay the higher fees, let them take their business elsewhere.
I’m hardly suggesting that you gouge your clients, but why not price your hourly rate or fixed fees at the higher end of your market? Your extensive experience justifies the higher fees. After all, many experienced lawyers are more efficient and exercise better judgment than younger, less experienced ones. Clients should be willing to pay for that benefit.
Will you lose some business by doing this? Of course; that’s the whole point. But not as much as you may fear. Some clients are actually impressed by lawyers who charge at the top of the market. To a certain degree, there’s even a cachet to being one of the highest billing lawyers in town or in your practice area.
Reduce your overhead
Reducing overhead can be accomplished in a number of different ways. If your firm has staff, perhaps some can work fewer hours. Some may not be even needed at all. If this is the case, you may need less space. Another way to reduce overhead is by reducing your marketing budget, since building a caseload isn’t as important as it was in the past.
Admittedly, some practices will be able to save more than others. It will be harder to cut expenses for solo practitioners who have no staff than for small firms that do. Regardless of your situation, though, you can find some savings if you look hard enough.
Can I still merge or sell after downsizing?
It depends on the nature of the practice, as well as how much overhead can be reduced. When you’re ready to completely retire, there may not be much of a practice left to sell. If that’s the case, don’t lose too much sleep worrying that you may have left money on the table by not getting out early enough. While that may be the case, you will likely recoup that money and perhaps more by working a few more years.
In short, for those who still enjoy practicing law and are not sure what they will do if they retire completely, downsizing is an exit strategy that allows for an easier transition while still preserving a retirement nest egg.