The Devastating Impact of a Random Tuesday Event upon Law Firm Value

In Ep. 58 of the State of the Market for Law Firm Sales in 11 Minutes, Senior Attorney Match’s Jeremy E. Poock, Esq. addresses the following 2 Random Tuesday Events:

1. A Key Employee Random Tuesday Event; and

 

2. A Pre-Mature Death or Incapacity Random Tuesday Event

 

A Key Employee Random Tuesday Event occurs when a key employee lawyer(s), typically the lawyer(s) whom a Senior Attorney views as the firm’s internal successor, provides only 2 or 4 weeks about accepting a new job at another law firm.

 

This type of Random Tuesday event causes the following short-term and long-term negative results for a Senior Attorney-led law firm.

 

Short-Term Impact: In the short term, the sudden loss of a key employee attorney impacts law firm revenues because key employee attorneys typically generate considerable billings, either in the form of hourly billings or revenues derived from flat fee or contingency type matters.

 

Immediate losses also stem from the potential loss of clients and referral sources who may choose to continue working with a key employee lawyer at the law firm that a key employee lawyer joins.

 

Long-Term Impact: A Key Employee Random Tuesday Event negatively impacts the following 2 key components of a Senior Attorney-led firm’s long-term value:

 

1. The value of a Senior Attorney-led firm’s Book of Business due to (i) The loss of clients and referral sources who follow a key employee lawyer to a new law firm; and (ii) The potential for not accepting as many new clients if the firm can no longer service the work before replacing a key employee lawyer; and

 

2. Decreased appeal to a Growing Law Firm purchaser due to Growing Law Firms seeking the following when considering growth by acquisition: (i) A Book of Business; and (2) Experienced, key employee lawyers to continue providing sophisticated legal services to a seller’s clients post-sale.

 

Once Senior Attorneys realize that their key employee attorneys prefer a reliable, predictable, and safe job, Senior Attorneys can then pursue a sale with a Growing Law Firm that seeks the following 3 resources to boost growth (1) Clients; (2) An experienced workforce, including key employee attorneys; and (3) Digital content derived from the subject matter knowledge of Senior Attorneys and key employee attorneys alike.

 

A Pre-Mature Death or Incapacity Random Tuesday Event occurs when a Senior Attorney law firm owner prematurely dies or becomes incapacitated prior to selling their law firm or establishing an internal succession plan.

 

Here, we focus on small business law firms, lead by 1 or more Senior Attorney founders and for whom their key employee lawyers do not want to purchase their boss’ law firm and cannot afford to either.

 

In those instances, the primary sale option involves selling or merging with a Growing Law Firm per a Law Firm Sales 1.0 type structure that consists of fee sharing upon a percentage of collections derived from a defined Book of Business during a negotiated period of time.

 

In the event of a Pre-Mature Death or Incapacity Random Tuesday Event, the value of the Senior Attorney-led law firm plummets because of the unavailability of Trust Transfer by the Senior Attorney who maintains the relationships with the firm’s clients.

 

Instead, a Pre-Mature Death or Incapacity Random Tuesday Event typically results in the firm’s clients retaining successor counsel, or receiving referrals to successor counsel at 1 or more law firms without any fee sharing terms.

 

Even if a personal representative or power of attorney can sell a law firm following a Pre-Mature Death or Incapacity Random Tuesday Event, the consideration typically involves minimal realization of the firm’s true value due to the inability for its Senior Attorney owner to transfer the trust of clients to lawyers at a purchasing law firm.