My former law partner once argued with me that being in our law firm partnership was like being in a marriage, to which I quipped, “Yes, only without the love and affection part.” Smile.
And, having been married more than once, and a partner in several small law firms, I now realize that his analogy, along with my quip, were fairly apt assessments. So, if you are thinking about becoming a small law firm partner, here is some humorous advice from someone who been there and done that…
Like all marriages, a small law firm partnership starts with a proposal. However, before accepting any proposal, be sure and check your prospective partner’s credit. And, FYI – looking at the firm’s Profit and Loss Statements may not be enough, especially if they use a bookkeeper to pay their monthly bills. Sure, the accountant may prepare their taxes, but if the bookkeeper is the one entering the data, then the data is only as good as the bookkeeper. Here’s a perfect example: once I asked a prospective firm’s bookkeeper, “I see the monthly bills for the car leases and business loans here under expenses, but where are the balances? There don’t seem to be any long-term liabilities listed.” To which she responded, “Hey, I’m just the bookkeeper. I only cut the checks around here.” It turns out, the firm’s two outstanding lines of credit and several car leases totaled more than $500,000 in outstanding liabilities! Hmmm… this might affect how much I’m willing to pay for an equity partnership.
The Partnership Agreement,
aka, the Marriage Contract. Okay, now that you’ve verified their financials and accepted their proposal, it’s time to hammer out the Agreement. And, because you are expected to pay your share of firm overhead expenses, you should find out exactly, and I do mean exactly, what all firm overhead includes. For example: ever come home and have your spouse show you the new car he or she just bought? Well, I can tell you that it feels much worse when your law partner shows you the new red Maserati that the firm just leased for him. Hmmm…, maybe it’s time to talk to the other partners about changing the firm’s car leasing policy to a more limited car “allowance.”
Business Partner Life Insurance,
and Unexpected Events. Seriously, all small law firm partners should take out life insurance policies for each other. Surprised? Unfortunately, I’m speaking from personal experience here. The unexpected death of a partner can be financially devastating to small firm, and since term life insurance tends to be pretty inexpensive, I think it is a prudent investment. Hopefully, a policy you will never need to use.
aka Divorce – plan for it. Like most marriages, most small law firm partnerships do not plan for dissolution. However, having been in more than one small law firm partnership, I’d say planning for dissolution is a must. Of course, like with all divorces, the common areas of dispute involve custody (who gets which staff and clients) and debt. Who me? Assume the office lease? That’s way too much space for just me and my secretary! And, you know that personal line of credit was used for firm expenses… Hello? Hello?