Planning for What Comes Next: Why Every Law Firm Needs a Succession Financial Plan

Law firm managers should be frequently thinking about the future. Where will their firm be in 1-5-10 years?  Whether a firm is considering a lateral hire, a new practice area, a merger, or a partner is considering retiring, every strategic decision should rest on a financial foundation. Succession plan reports provide a foundation. They answer the questions that matter before a major commitment: Do we have the capacity? Can we sustain the cost? What’s our current runway? What does our growth trajectory look like?

Having reports available to review past financials, creating forecasts for the future 3-5 years, reviewing cash flow projections, and buyout scenarios can put a managing partner at ease. When leadership can sit down with a clear picture of where the firm has been and where it is realistically headed, strategic conversations become more productive and less emotionally charged.

For many founding and senior partners, their equity stake in the firm may represent a significant portion of their personal net worth. Yet unlike a privately held business in other industries, law firm equity is difficult to value and even more difficult to monetize. The firm’s goodwill — its client relationships, its reputation, its culture — doesn’t automatically transfer.

A succession plan establishes how the firm will be valued, how departing partners will be bought out, over what timeline, and from what financial sources. Without this plan, departing partners may receive far less than their contribution merits — and the firm may face a liquidity crisis trying to fund exits it never modeled.

The best time to plan was 5 years ago. The second best time is right now.