If you are considering retiring, or simply want to close your practice, it is important to start planning early.
Large city firms (assuming they are not in financial difficulties) tend not to experience difficulties with Partner retirals, but the story is often different for smaller firms and Sole Practioners.
Your Exit Options
There are essentially three retirement/exit options available to Partners in smaller practices:
- Sell your firm as an Ongoing Concern - most typically though a merger or acquisition
- Leave the firm, as an ongoing concern, having appointed another Partner in your place
- Close the firm, triggering 'Run-Off' cover
Retiring through sale/merger
Selling their business tends to be Sole Practioners first preference as a Retirement strategy, but Partners in smaller firms, and Sole Practioners in particular, can find it difficult to sell their Practice as a going concern. To do so successfully, at the price you want, definitely requires strategic planning.
You should consider
- How good is your client book?
- How profitable is the business?
- Have you identified particular firms with whom your business has a natural fit?
- Do you have a good claims experience?
The most successful sales/mergers tend to be to firms where there is a long established rapport and business relationship, or where your Practice is strong in a particular area of work into which another firm is looking to expand.
If your claims experience is unfavourable, not only is this likely to make a sale or merger more difficult to achieve, it also means that they will be unlikely to take on the liabilities for any claims that may arise from your practice's past work, meaning that you are likely to have to pay a Run-Off premium.
Continuing the Practice, appointing a Successor
A popular alternative is to retire while retaining the Practice as a going concern. This requires careful succession planning, several years in advance ideally. It is often easier to promote a younger Associate internally - although current market dynamics mean that fewer solicitors are seeking a route to partnership than in the past - and smaller firms are finding it harder to recruit and retain staff as larger city firms can usually offer better salary and benefits packages.
Often, if a Partner leaves without finding a replacement Partner, the firm's finances can be materially harmed, leading to closure. There may also be conditions on extracting capital that make it more difficult unless a successor has been appointed.
Closing your firm without any Successor Practice in place, may end up being the reality. If you close your firm with an excellent claims history, then, subject to having been established for 5 years or more, there is likely to be no charge for Run-Off cover. Otherwise, a charge will apply.
For more information regarding Run-Off cover, download our Guidance Note, or to discuss this or any other Insurance Issues regarding Retirement or Closing your Practice, Contact your Lockton Broker.