“It is better to have a permanent income than to be fascinating” was said once by Oscar Wilde.
The final tip in this series is the capstone issue in our Top 10 Financial Mistakes posts – and one that we feel is facing most firms today.
This capstone issue is how to deal with the introduction of new partners while funding the buyout of existing but aging partners. Without a succession plan that compensates aging partners over time by establishing a retirement fund, the firm might be unable to attract new partners. The reason is that prospective partners who are on the upswing may very likely be unwilling to contribute their billings to fund the exit of a diminishing partner.
The whole issue of succession planning is a sensitive one. The founding partners of the firm would desire a certain degree of recognition for the risks and hard work and time that they put into building up the good will of the firm. The new entrants, however, are much more focused on the future of the firm and ensuring that capital is invested in the firm to ensure its competitiveness and ability to generate income moving forward.
Accordingly, this dialogue must be handled carefully. In many cases, an independent consultant may assist in keeping all parties involved in the dialogue and in crafting of the succession plan, since an independent party is not seen as having any stake in the discussions other than ensuring that all parties stay on track.
Otherwise, if you don’t deal with the issue of partnership retirement and succession, you are left to rely on the ‘lottery retirement plan’ – which basically means hoping to win the lottery in order to retire.
We close these financial mistakes posts by urging lawyers to make planning – particularly succession planning – part of your partnership agreement at the outset to ensure the future of your firm down the road.