Are you a law firm owner thinking about retirement?
This episode of The Lawyer Millionaire Podcast is a must-listen as host Darren Wurz concludes a pivotal three-part series on retirement strategies for law firm owners.
Darren emphasizes why you need to prepare for your exit strategy today, regardless of your age or how many years you plan to keep working.
Key Takeaways from this episode:
1. Why Exit Planning is Crucial for Law Firm Owners
Darren emphasizes that exit planning is not something to be left for when you’re 65 or 70. Even if you think you’ll work forever, you need to consider your exit strategy now. Here’s why:
a. Creates Options: Exit planning isn’t just about leaving your practice; it’s about having the flexibility to make business transitions that align with your personal and professional goals.
b. Mitigates Risk: A well-thought-out exit plan helps protect your clients, family, and staff in case of unexpected events, like involuntary departure.
c. Adds Value: Firms that are “transition-ready” are often more profitable and valuable, making them more attractive whether you’re considering selling or just want a robust, efficient business.
2. The Three Core Areas of Exit Planning
Darren outlines three key areas you need to address: personal, financial, and business.
a. Personal:
– Understand how you’ll spend your time post-retirement to avoid the regret many business owners feel after selling their practice.
– Identify other passions or interests you can pursue to keep yourself motivated and engaged.
b. Financial:
– Calculate your wealth gap and ensure you have a comprehensive financial plan in place.
– Work with a financial advisor to create an income strategy and protect your portfolio from market volatility and other risks.
c. Business:
– Develop a long-term vision for your practice.
– Implement risk management strategies to reduce owner dependence and customer concentration.
– Focus on systems, efficiency, and culture to maximize your firm’s value and profitability.
3. De-Risking Your Practice
Two major risk factors often seen in law practices are owner dependence and customer concentration.
Darren points out that mitigating these risks is essential for a valuable, transition-ready firm. Steps to take include:
– Diversifying your client base to avoid over-reliance on a few key customers.
– Reducing owner dependency by developing robust, transferable systems and processes.
4. Developing a Professional Advisory Team
Darren suggests that law firm owners assemble a professional advisory team consisting of:
– A financial planner
– A personal or retirement coach
– An estate or tax attorney
– A CPA or tax planner
– A value or growth advisor
– A business broker and valuation expert
Conclusion
Preparing for your eventual exit from your law firm isn’t just good business—it’s imperative. By tackling these areas now, you can ensure a seamless transition that maximizes the value of your practice and secures your financial future.
Resources:
- Book a Call with Darren
- Wurz Financial Services
- The Lawyer Millionaire: The Complete Guide for Attorneys on Maximizing Wealth, Minimizing Taxes, and Retiring with Confidence by Darren Wurz
- LinkedIn: Darren P. Wurz
- How to plan towards retirement and enjoy it fully with Denise Henry (Ep. 43)
Transcript:
Darren Wurz [00:00:15]:
Exit planning is something that every single law firm owner should be doing now, and I’ll tell you why. In today’s episode, welcome to the Lawyer Millionaire podcast, where we deliver financial planning insights for ambitious law firm owners like you so that you can expand your business, maximize your profits, and grow your wealth, even if you’re still growing your law practice. Exit planning, isn’t that something I should think about when I’m 65 or 70? Well, yes, but you should think about it now, no matter how old or young you are as a law firm owner, and even if you plan on working forever, and here’s why. Exit planning is good business strategy in action. Stay tuned. Hey, listeners, and welcome back to part three of our part three part series on retirement strategies for law firm owners. So by this time, you have learned how to calculate your wealth gap. You have learned in part one and in part two, we talked about how to assess the value of your law practice as potentially a big part of your retirement plan picture.
Darren Wurz [00:01:36]:
And so we’re gonna talk now about the last step. And the last step is prepare now. No, but seriously, prepare for exit now. Retirement. Exit, succession. All of these terms are interchangeable for law firm owners. And I get it. You don’t want to think about retirement.
Darren Wurz [00:01:58]:
You don’t want to think about exiting. You don’t want to think about succession. I mean, those things are akin to death, right? It’s like, you know, I can’t imagine not being an attorney. Maybe you’re that way. I do know law firm owners who are like, get me out of here. But maybe it’s not something that you want to really think about terribly well. Here’s why it’s critical. It’s critical because this is how you really establish true, extraordinary wealth for yourself.
Darren Wurz [00:02:29]:
It’s by preparing for that exit today. It’s how you build an incredible law practice is by thinking about your exit today. Exit strategy is simply good business strategy in action. Exit planning equals good business strategy. Exit planning isn’t just about exiting. Exit planning is about having options so that you can constantly be evaluating, do I want to exit or do I want to keep growing? Exit planning is about preparation for transition, whether that is your transition to a beach in Florida, your transition into a higher level of leadership, or your transition of your law practice to a bigger scale. Right. So it’s not just about you exiting your business.
Darren Wurz [00:03:31]:
Maybe we should call it transition planning instead of exit planning. But the key is to think about exit is now. Exit is not 20 years from now. And this is so, so, so important because I talk with law firms, law firm owners all the time who are much older, you know, maybe in their seventies, and they’re like, okay, I want to talk about succession and exit planning, and I’d like to retire next year. Uh uh. Not gonna happen. Not gonna happen the way you want it to. It might happen, but you’re gonna leave so much money, millions of dollars potentially on the table unless you start thinking about exit planning today.
Darren Wurz [00:04:17]:
So let’s talk for a second about, number one, why succession planning is important and why you should do it now. It’s critical. Number one, from just a contingency planning perspective, you’re going to exit your law firm whether you like it or not. I get news for you. It might be, it’s either going to be on your terms or not on your terms. And if it’s not in your terms, you need to make sure you have a plan in place for what’s going to happen to your clients, to your family, to your staff and colleagues. Succession planning is important in order to take care of all of these people. If you’re a big part of your community, right? It’s important for your community.
Darren Wurz [00:04:53]:
You, in building your law practice, you have created value. You have created value out of thin air. It’s incredible. It’s amazing, right? We can. This is. What’s the difference between money and wealth? Wealth can be created out of thin air because you can create value. You can create value out of nothing. That’s just an incredible, amazing concept.
Darren Wurz [00:05:20]:
Now. I mean, the Federal Reserve can create money out of nothing, too. Let’s be real. But anyway, you’ve created a. A valuable enterprise that is perhaps an integral part of your community, an integral part of the legal sphere of the businesses of the business community, right? So there’s so much there. And you want to protect that, right? You want to do the right thing for your clients and for your family as well. And family is a big one, right? Because if something happens to you and your spouse is not an attorney, your spouse is not going to be able to step in and take over your business, because in most places, law firms have to be owned by attorneys. And so you need to make sure you have a succession plan in place to protect the interests of your family.
Darren Wurz [00:06:08]:
The other reason that exit planning is now, and it’s so, so important is this, and I want you to catch this transition ready law firms are the most valuable and the most profitable. Transition ready firms are the most valuable and the most profitable. So in doing an exit planning process, you are thinking critically about how do I need to structure my law practice if I’m not here? And in going through that exercise, you are going to create a firm that runs better, a firm that gives you more time and flexibility, and a firm that is more profitable. Now, when you think about. Let’s talk about preparing for exit now, how do you go about it? How do you start? Well, there are three core areas that you need to address. We call them the three legs of the stool. Okay. And here they are.
Darren Wurz [00:07:07]:
Number one, personal. Number two, financial and number three, business. All three legs of the stool need to be thought about critically. So let’s. Let’s tackle the business. First. You need to think about your business, right. How would I position my business? How would I structure my business so that it could be transitioned to a new owner? That’s critical.
Darren Wurz [00:07:32]:
The financial aspect. And that’s what we’re talking about, what we’ve been talking about over the next, over the last couple of episodes. How do you get your financial house in order, right. Understanding your wealth gap, knowing how much you need to grow the business, to grow your investment portfolio, to have enough wealth to be able to step away from the business. That’s critical. So business, financial, the third one, which I mentioned first, is personal. Personal. You have to sit down and think about what you would do, do with an extra 40 hours a week or 50, 60, 70, however many hours you’re working.
Darren Wurz [00:08:16]:
Right. Because here’s the sad reality by far. Most business owners who sell their businesses regret the decision. I think the number is somewhere around 75% of business owners who sell their businesses regret the decision afterwards. And the reason that they regret it is because they didn’t think about how they were going to spend their time. And so they sell their business. They go from being this super busy, highly ambitious, highly entrepreneurial person to having nothing to do. And let me tell you something.
Darren Wurz [00:08:52]:
You’re going to be bored out of your mind if you don’t have a plan for what you’re going to do next. So that’s so critical. You need to take a deep dive into what are your key core areas of interest. What are some things that you’re really passionate about. Maybe you want to start a different business. Maybe you want to start a new venture, right? Think about those things, because you have to have something to drive the bus towards. Otherwise you’re going to sit around you’re going to do nothing. Your health is going to decline, and you’re not going to enjoy yourself.
Darren Wurz [00:09:29]:
Come up with some hobbies. I laugh because I’m thinking about conversations I’ve had with law firm owners. I ask them, so what are your future plans? What do you envision the future? Like, what do you want to do? What do you want your future to look like? And they’ll tell me, well, I’d like to grow the law firm to x amount of revenue, and we’d like to have ten attorneys on our team. And I’m like, not what I asked, what I have witnessed is it’s very difficult for law firm owners to actually step back and think about this. And in fact, I just had a great meeting with a client where we went through an exercise to figure out what were some of his core key interests. And for the first time, I finally got through to him and I finally got him to open up. And you know what he said to me? I want to write science fiction. I was like, no way.
Darren Wurz [00:10:28]:
We’ve been working together for over a year, and I never knew this about you, even though I’ve been asking you these questions. So we all have interests deep down, other than law, other than legal. Think about what things you could do and pursue that would really make you happy. You have to have a plan for that. That’s really, really critical. Okay. But let’s talk about getting your business ready, preparing your firm, and improving the value and profitability of your practice. So there are three steps that you need to go through.
Darren Wurz [00:11:06]:
Number one, you need to create a long term Vision for your practice. Where do you want your practice to go now in creating this vision? I want you to think big. Think huge. Right? You’re at 2 million in revenue. Don’t say to yourself, oh, we’d like to have, you know, 10% growth over the next couple of years and get to 2.2 million. There’s a great book that I read recently called Ten X is easier than two X. Maybe you’re familiar with it. I love the concept, because when you start to think Ten X, you start to think on a whole different level.
Darren Wurz [00:11:49]:
Instead of thinking incrementally about, oh, well, we need to bring in x number of new clients, and therefore we need to do these activities, and we’ll get just a little bit more revenue. When you think Ten X, you think systems, you think infrastructure. I’ve got to build this thing, right? And it actually is easier because when you start thinking about not, I need to hustle more, I need to work an extra 2 hours a day to get this plan to move forward. Think bigger than that. Think structures, think systems, think business, think building a company, building an enterprise. So let me challenge you. Take your current revenue, multiply it by ten. What would it take to get there? That’s a different question.
Darren Wurz [00:12:42]:
Right. So create that long term vision and be comfortable thinking big about that long term vision. Step two is you need to determine specific goals and then specific action steps that you’re going to take to, to maximize the value of your practice. And I’ll tell you, it starts with de risking. It starts with de risking. And the two biggest risk areas, I’m not talking about insurance, by the way. When I first heard this term, I thought people were talking about insurance. De risking in a business means looking at the key risk factors and how you can reduce those.
Darren Wurz [00:13:23]:
The two biggest risk factors in law practices are owner dependence and customer concentration. Let’s say you’re doing insurance defense and you have, you know, two insurance companies that you work for. Oh boy, you have a customer concentration issue. If any one customer represents more than, let’s say, 20% of your business, you could have a customer concentration issue. There’s two reasons. Number one, you become so dependent on that one customer that you’re afraid to raise their prices. Okay, that’s a problem. Number two, if that customer leaves, you have a huge revenue problem.
Darren Wurz [00:14:05]:
So customer concentration is a big one. And I see that a lot with law firms. And then the second one, of course, is owner dependence. So when we think about growing the value of your practice, it starts with de risking. It then goes to strategy. Strategy systems, implementing processes, workflows. We then go to efficiency, maximizing our operational efficiency. Then we go to growth.
Darren Wurz [00:14:37]:
Growth is not first notice, growth is up there because you can’t grow unless you have improved the risk profile, created a really good strategy, maximize your efficiency. Okay, now you’re positioned for growth. Now you can go all in on marketing growth, new new markets, new clients, new product lines. And then the last step is culture. Culture comes last because you don’t create culture. Culture happens. And culture is an extremely valuable part of any business, and especially a law firm. If you have a toxic culture, that is a big dead weight on your value.
Darren Wurz [00:15:21]:
But if you have an incredible team oriented, culture supportive culture that you’ve built in your law practice, that’s incredible value. But that doesn’t happen overnight. Culture happens, you don’t create it. You can do things that will promote a good culture, but that’s what happens over time. Okay, let’s talk about key risk areas. The biggest risk areas are your customers. Number one, we talked about that. Customer concentration is a big problem.
Darren Wurz [00:15:54]:
Related to that are your key people. So if you’re really, really dependent on one salesperson or one attorney, that’s a big risk factor. Business interruption. You need to make sure you have a plan in place for if your business was to be interrupted, dislocated by any kind of event like, let’s say a pandemic or something like that. Technology is a big risk area. If you’re extremely dependent on a particular technology provider, if they change their platform or they have a disruption, they crashed, you’re in trouble. Others would be partner disagreements, right? That’s a big one. And I see partner disagreements a lot with a lot of law firms.
Darren Wurz [00:16:39]:
So step number one, make sure you have a really good partnership agreement. Make sure that that has been updated. It’s not sitting in a drawer and no one’s looked at it in ten years. Owner dependence, we talked about that. Compliance, legal and debt and loans I financial risk. One of the biggest problems I see with law firms in particular is not having any kind of liquidity. So the biggest value killers, I’ll give you some of these. Owner dependence, we talked about that.
Darren Wurz [00:17:10]:
Lack of documentation, lack of transferable and scalable systems, customer concentration, management and retention, those are your biggest value killers. If you can solve those problems, you can drive a ton of value into your practice. Okay, so those are some ideas on how to prepare your law firm for transition. Now, can you see how, you know, if you were to tackle those areas, that wouldn’t just make your practice transition ready. It would really position you to take a huge leap in growth. It would position you to take the next step higher. It really would. It would drive profitability.
Darren Wurz [00:17:55]:
So think about those things and the last step, so, you know, preparing yourself personally. We talked about that. How would you fill that 40 hours week? Preparing yourself mentally and emotionally, having a passion and a purpose to go towards after retirement, preparing your business through some of those things that we outlined. And lastly, of course, financial preparation, making sure that you have a plan, an income plan. Talk with a financial advisor like us. Create a plan for your Social Security income for how you’re going to invest the proceeds of the sale of your law practice, for how you’re going to position your portfolio to protect you from market drops. You know, it’s been a while since we saw a big doozy, but the last big doozy was zero eight. We had a 50% decline in the markets.
Darren Wurz [00:18:48]:
And that upset the retirement plans of a lot of folks. Those things are rare, but those things can happen. And you need to make sure that your portfolio is protected from those kinds of things and all kinds of other risks that could disrupt your retirement, you know? So having an income plan and then thinking about key disruptions to that income plan, changes to your Social Security income, long term care expenses, higher inflation. If you’re married, what happens if one of you passes away prematurely? Or what happens if you live too long and you need more money than you anticipated? Talk with somebody. You can talk with us. These are the things that we are great at here at Wurtz Financial Services, right? We’re certified financial planners. This is our bread and butter. These are the key things that we help people with.
Darren Wurz [00:19:41]:
This is where our business started, was on the personal financial planning, and then we added in the business planning as well, because that’s a key part of your financial plan. So, next steps. What should you do? How should you get started? Well, you can start by developing your professional advisory team. You should have a financial planner. You may even want to have a personal or life coach or a retirement coach. I know some great retirement coaches. In fact, we talked with Denise Henry a number of episodes ago. She’s a retirement coach, and she helps people with this exact problem of what do I do after I retire? So you might need to talk with somebody like that.
Darren Wurz [00:20:26]:
An estate or tax attorney, a CPA or tax planner, perhaps a value or growth advisor for your business, a business broker and a valuation expert. These are some of the key members of your team, and we would love to be a part of that team as well. So, you know, these are the things that we do here at Wirtz Financial Services, helping you figure out the value of your business. We can actually help you put together an action plan for how to drive the value of your practice higher. We have wonderful, amazing tools to help you do that. And what we’ll do is we will then periodically reassess the value of your law practice so we can actually see how the value of your practice is growing over time. We can help you. If you’re thinking about these things, you’re, you know, five to ten years away from retirement, and you want to get a handle on your exit planning and your retirement planning, give us a call.
Darren Wurz [00:21:29]:
I’ve got a link. Or actually, better yet, schedule a call with me using the link in the show notes. Just go down there. You can choose any time that works for you, and I would love to talk with you. Well, this has been the lawyer millionaire podcast and the conclusion of our three part series on retirement strategies for law firm owners. I hope I gave you a ton of great ideas. I really tried to deliver a ton of value here for you, and if you want to talk more about these topics, I would love to talk with you. We’re here to help you expand your business, maximize your profits, and, of course, grow your wealth.
Darren Wurz [00:22:12]:
Thank you so much for listening. Come back and join me next time.