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Stepping Up - Becoming a Law Firm Owner

Post by Admin , Feb 07, 2019.
Business Consultancy

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Becoming a Law Firm Owner is, for many, the reason why a career in law was pursued. But for too many, the prospect seems daunting or confusing. Finding Partners (or Directors) is a challenge for law firms. Particularly finding good ones who are driven to take the firm forward and assume the responsibility of ownership, accepting the risks and enjoying the rewards.

Becoming an owner of any business is a challenge, more so in a regulated environment. BUT that should not be a deterrent to future owners. Lawyers are trained to overcome challenges, and the application of this training and harnessing the skills learned through your career will prepare for ownership and what this entails.

How can firms and individuals prepare themselves for ownership? Whether salaried or equity, there needs to be a clear path to achieving the status and preparation is key.

The industry is facing a problem with succession. With many firms both not appreciating and facing succession issues, or are simply unable to find the right people to take the firm forward into the future. Too many firms take a backward step for these reasons and either disappear through closures or mergers, or simply fade away due to lack of leadership.

Those firms who focus and address succession provide themselves and their staff with a future. Those who plan, prepare, understand, train and reward provides an enriched platform for growth and success.

What are the steps a firm and their future owners can take? Some of these are discussed below, far from an exhaustive list but some key areas to consider: -

·         Current Partners Plans – Owners of firms should discuss with each other and understand what their future intentions are. Quite often Partners and Directors do not discuss when they intend to retire, or what would happen in the event of ill health or death, whether retirement means full or partial. This is an issue which is dictated by an individual but impacts the whole firm. Being open and honest about plans (or preparing for the unexpected) is essential for firms and their owners. It provides clarity and focus and, importantly, allows for preparation. Plans can change and should never be set in stone, but providing your co-owners with an indication of your intentions will underpin a stronger future.

·         Preparing for exit – Preparing for an existing owner to exit is important, and agreeing on expectations is essential to avoid disputes at the exit point. Or individuals staying because they did not understand the consequences of an exit, due to bad planning. There are a number of options available to owners of firms, from walking away and being released through, to a financial package to repay their investment and reward their efforts. Whatever the conclusion reached by the owners, they can set what an exit means and the impact on each of the individuals and set this out in an agreement, and where appropriate put financial structures in place to prepare fully for the exit date.

·         Agreements – Ensure your Partnership/Members agreement or shareholders agreement is a true reflection of how the firm operates and intends to operate. If it is out of date, cannot be found or poorly drafted, review, discuss and fix. Owners of firms should discuss the agreements regularly (annually or every 2 years) to ensure that it remains relevant and current and reflects the needs of the owners both historic and new and provides for the future of the firm, its structure and management.

·         Path to Equity – The firm should have a path to Equity. Decide on what it takes to be an equity owner. What is an individual expected to achieve? Whether that relates to experience, financial input or other attributes that the firm will want each of the owners to have? How does remuneration work and will there be a salary or true share of profit on a %? If there is a requirement to invest how will that be funded or are there funding options available? Setting out a path to Equity not only applies a set of rules which the firm can apply when selecting new owners, but also makes it clear to potential candidates what it will take to be an owner of the firm and what they must do individually to meet the standard.

·         Training – Owners of firms have additional responsibilities and preparing for these is essential. Whether the firm provides the training or an individual seeks to enhance their own knowledge, some of the areas to ensure knowledge is gained for application are as follows: -

o   Regulation & Compliance– Learn the code of conduct and its application. You are responsible for the running of the firm and compliance with the regulators code of conduct. Whether an owner is a COLP or COFA, there remains an enhanced duty and responsibility to apply regulation to the full. What are the core codes which impact the firm and how does the firm ensure compliance on an ongoing basis, what must an owner ensure happens and how must those who work in the firm be managed. However onerous regulation may seem, it is made easier through understanding, clear policies and knowledge. Including the staff who apply the rules as much as any owner. Appreciate the expectation of the regulator and learn what happens when you engage them or they engage you. Be prepared.

o   Planning and Strategy – All businesses must have a plan and a strategy. This does not need to be complex and will often be dictated by the size of the firm. But regardless of size, understanding what the future of the firm looks like, setting targets by which performance can be measured and setting out the strategy to achieve those targets provides firms with the building blocks of success. Preparing plans and strategies is not always easy and natural to some owners, but is something that can be learned and applied. Involve all owners and staff where applicable in the planning phases, ensuring there is an understanding of the direction and focus of the firm. Be prepared to communicate, monitor, adjust and adapt plans as they are implemented.

o   Understanding finance – the basics – Responding to the changing financial needs of the firm and having a basic level understanding of accounts and profitability is key for all future departments. Whether an owner is responsible for the whole firm, a team or department they should be able to understand the basic financial requirements and have access to the management and financial information they need to control the environment. The obvious requirement is to make sure the firm, team, and department bring in more income than is being spent. But this simple statement is often difficult to achieve when faced with an ever changing financial platform. Having information and understanding it will enable that to be responded to and changes reflected in the firm to ensure that the goal of profitability is achieved. Learning and having basic financial management skills is key, understanding management accounts, cash flow and forecasting, HMRC and profitability. This is mostly about numbers and access to ALL information and the planning around the results to effect change to deliver the requirements of the firm. Although straightforward, it is often overlooked and can be easily taught through training.

o   Understanding finance – advanced – More detailed understanding of finances is not essential but if understood is extremely beneficial. Most firms will have accountants and advisors to assist with the more complex elements of the financial management of a firm but knowledge will enable better engagement with these experts and enhanced understanding will assist in a more enriching relationships with them.

o   Management – One of the most significant, challenging and regarding elements of ownership is the management of staff. This does not come easily to everyone but is the reality for all owners as they are responsible for the people they employ. With staff being the most expensive element of your business, and the most valuable, learning how to manage them is critical. Not only for a firm to be successful, but for the individual owner. Management may not be natural or comfortable for all, but can be taught and experience and exposure to staff management will result in more effective ways of managing and interacting with your staff to get the best from both you and them.

o   Decision Making – Making decision and taking those does not always come easy. What is key is the understanding of the decision you are making and knowing when you need support and assistance from others and listening to your advisors, co-owners and colleagues to ensure you acquire the information needed to make the right decision. Decision making is a requirement for all owners and getting these right is essential. You will improve the success of the decision you make through planning, research and monitoring. Do not be afraid to reverse and review what is going on around you and be ready to harness success. Not all decisions are positive ones but successful managers will know when to respond and when to make difficult or unpopular decisions to benefit the overall firm. Do not be afraid to make decisions, popular or not, and ensure you are prepared and understand the expected impact of these decisions.  

·         Risk Management- Risk management in a law firm is wide spread. It is not just about avoiding negligence claims and ensuring the advice you provide is correct. Risk in a law firm arises across a range of areas, to name a few, business generation, financial management, recruitment and staff management, planning, strategy, regulation, compliance, auditing, complaints, systems. Risk management is really about running the firm and every facet of it. Neglecting any one area can have negative consequences and understanding what it takes to run a firm and each area that needs attention will provide a sound platform for success.

·         Marketing – Marketing is of course the generation of new business, but not all law firms’ owners and their staff feel or believe they need to possess a knowledge of this area. However, the marketing strategy of a firm is one of the fundamentals. It sets out how you will obtain new business to sustain or grow the firm. It will cover projecting the brand, products and services and identify who you wish to generate business from, how you will do this and what the strategy is. Poor marketing strategies can prove expensive. Understand what you are spending and what you expect in return (your ROI). A badly thought out or planned marketing strategy will be costly, not just because it will lose money but it will not generate new business and may damage your brand. Marketing is a skill and it is not that each owner needs to be able to apply the marketing techniques personally, but understand what a marketing strategy involved and being able to direct those who are applying the strategy is critical. Understand, challenge and adapt. Monitor spend and if it is working, great, decide if you should invest more and if it is not working step back and review. Also understand your resource, there is no point spending money when you cannot service the work or enquiries, make sure your budget meets the ability of the firm.

·         Systems and Technology – This is not just about understanding the technology being used in the firm and what is in the market place but also how to plan, apply and use systems to enhance performance, productivity and profits. The first step is to gain knowledge about your system being used within the firm, and whether they are being applied properly or not. Exploring where improvement can be made and what other technology exists and how it will help your firm is a skill which can be taught and learned. Whilst it is obvious how most systems will work, it is not always obvious how they will impact in each law firm and you cannot always rely on the people selling the system to understand application into each environment. That is for an owner (or their staff) to work out and importantly to establish that any investment cost would be justified and appropriate. Firms need to train their staff to understand the system being used.

·         Recruitment – Sourcing, interviewing and employing new staff is largely the responsibility of the owners. Interviewing is not as easy as it may first seem and identifying the right people for a firm is not just about the technical acumen and experience. The right experience but a poor culture fit can have devastating consequences in a smaller firm or department. Learning interviewing techniques for the interviewer and having a standard approach to interviews including questions, testing the interview process itself will help to minimise poor recruitment decisions. This again is an element that can be taught and reinforced through developing a policy which will include establishing the recruitment need, advertising, selection, working with agencies, the interview itself, post interview process and joining.

·         Confidentiality – Confidentiality can be an issue when a new partner or owner is appointed, particularly when moving from staff into the partnership. It is important to establish rules about confidentiality. It may seem obvious but becoming an owner will mean access to significantly more information than was (probably) previously available and when information is available and accessible it is no longer gossip. Respecting an elevated status in the firm is not just about staff recognising a promotion it is also about the individual recognising their own position has changes and modifying behaviour appropriately.

Owning a law firm can be rewarding and enjoyable. Becoming an owner should be a celebration. It will bring with it additional responsibility but also opportunity. An owner is an influencer and a decision maker who needs to lead their firm and department to a successful future through applying knowledge, skills and understanding of your firm, your market and your clients.

At Mr Green Consultancy and through our work with The Strategic Partner (www.thestrategicpartner.co.uk) , we spend significant amounts of time with law firms, helping them with strategy and planning and the training of future leaders. If you wish to learn more about our service you can contact us on 0207 842 1825, make an online enquiry or email us at info@mrgreenconsultancy.com