As a law firm owner, have you ever wondered if your practice can thrive without you? With over 70% of businesses failing to sell, many owners lack a solid exit strategy – are you one of them? If you are, it’s time to sculpt your plan for the future. In this detailed guide, we’ll explore the often overlooked yet crucial process of exit planning, ensuring your firm’s longevity and your financial well-being.

Key Takeaways from this episode:

1. Good Business Practices: The qualities needed to make a business ready for transition are simply good business practices. Documenting processes and procedures not only positions your firm for growth but also makes it more profitable and transferable.

2. Value and Profitability: Transition-ready law firms are the most valuable and profitable. Building a business that is both owner-independent and transition-ready enhances not only its market value but also its profitability.

3. Focus on Value: Aim to increase the value of your law firm first. Revenue is essential, but value-driven growth ensures long-term success and profitability.

Understanding the Importance of Exit Planning

Statistics reveal a concerning reality: 79% of business owners have no written transition plan, and 48% have done no planning at all. For law firm owners, this percentage could be even higher. Exit planning is crucial for ensuring the future success and transition of your practice.

Real-Life Examples of Exit Planning Needs:

• Attorney in Midwest City: An attorney, his wife (the paralegal), and their daughter (the associate) are thinking of selling their practice. With the principal aging and his health deteriorating, he must plan his exit strategy effectively to avoid undervaluing his business.
• Exhausted Owner: A law firm owner in his late sixties is looking to merge his practice but hasn’t planned properly. Without a solid exit plan, he risks losing significant value in a rushed sale.
• Overworked Practitioner: Another owner is so involved in the day-to-day operations that scaling the business and planning an exit seems impossible. This highlights the need to delegate and plan strategically.

A Practical Guide to Exit Planning

1. Conduct a Value Assessment: Understanding your business’s value isn’t just about knowing its worth; it’s about knowing why it’s worth that amount. This insight helps identify areas of improvement for greater value without necessarily increasing revenue.
2. Improve Your Business: Develop and execute a business plan through 90-day cycles of improvement. This systematic approach ensures steady progress towards preparing the business for transition.
3. Decide When to Exit: After improving your business, decide whether to continue growing or to exit. By focusing on business value first, you gain the versatility to explore various transition options.

Pulse Check: Is Your Law Firm Transition-Ready?

Ask yourself these three questions to assess your readiness:

1. Do you understand the current value of your business and why it holds that value?
2. If you had to transition, what would your ideal outcome be for your business?
3. How strong are your intangible assets—human, structural, customer, and social capital?

Immediate Steps to Take for Exit Planning

Start with basic business planning. Meet with your leadership team, set a compelling ten-year vision, establish annual goals, and identify quarterly rocks (key project goals). A value assessment will provide detailed insights into your firm’s worth and guide the necessary steps to enhance its value.

Conclusion

Exit planning is simply smart business planning. Updating your business plan, understanding your firm’s value, and systematically improving your business are the critical steps to securing a bright financial future for your law firm.

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

Transcript:

Darren Wurz [00:00:00]:
Discover the blueprint to transform your life’s work into a legacy that lasts. This is exit planning untangled. Welcome to the Lawyer Millionaire, delivering financial and business planning insights for ambitious law firm owners like you so you can enjoy more time, more abundance, and less stress. Even if you’re still growing your practice, are you confident that your law firm can thrive without you? With over 70% of businesses failing to sell and a majority of owners lacking a solid exit strategy, the time to sculpt your plan is now. Today, let’s navigate the often overlooked, yet crucial journey of exit planning to ensure your firm’s longevity and your financial well being.

Darren Wurz [00:01:07]:
That’s right. You heard it correctly. Over 70% of businesses put on the market do not sell. Now, that’s, you know, businesses overall on average. But I imagine the numbers are probably the same or similar for law firms as well. And maybe, in fact, well, they could be different because it might be the case that very few law firms actually make it to that place of actually being put on market. And yet, here’s another fascinating statistic for you. 63% of business owners plan to transition in the next ten years, an estimated wealth transfer of over $12 trillion.

Darren Wurz [00:01:50]:
That’s crazy. There are so many people that are thinking about this process of exit planning, and perhaps you’ve been thinking about it as well. You know, the baby boomers are aging and retiring, and there is just a flood, a huge avalanche of people who will be selling their businesses, and probably a lot of law firm owners as well. Maybe you’re one of them. Listening. Now, you’ve been thinking about the idea of selling your practice. Well, you know, the idea of exit planning, it’s so confusing. It’s like, okay, where do we begin? Right.

Darren Wurz [00:02:23]:
What exactly is exit planning anyway? You know, I find that law firm owners are often very confused, and they find the idea of exit planning to be somewhat daunting. Well, you’re not alone. This is, you know, I think business owners overall have probably a very similar feeling. It’s like exit planning seems so nebulous. What’s the starting point? Give me the one, two, three. How exactly do I go about this process of exit planning? Well, let me demystify it a little bit for you. Here we go. Exit planning is simply good business strategy executed.

Darren Wurz [00:03:06]:
That’s right. Exit planning is simply good business strategy. That’s all it is, folks. There’s nothing crazy about it. And I’m going to give you three reasons why exit planning is simply good strategy. Number one, here it is. The qualities that make a business ready to transition are just good business practices. That’s right.

Darren Wurz [00:03:28]:
So, you know, the things that we do in exit planning are simply good business strategy. They’re simply good business best practices put into place. I mean, think about this, right? If you are trying to build a law practice that’s gonna be transferable, right. That’s gonna be able to be transitioned to a new owner. One of the key things you need to do, right. Is document your processes and procedures and perfect those processes and procedures as well, right. But just documenting those things, making sure those things are documented. Now, that actually happens to be, by the way, a good business practice.

Darren Wurz [00:04:06]:
And it’s one of those things that it can actually make you more profitable by positioning you for growth. You don’t want to grow. If you haven’t documented your processes and procedures, you’re going to be in trouble. Right. Growth is great, but growth brings new challenges, new organizational stress. You’ve got to have those things documented. So there’s just one example, and there are so many more, right? So when you think about exit planning, think about it simply as, like, best in class business planning, right? That is what it is. Okay, so that’s number one.

Darren Wurz [00:04:37]:
Number two, here’s a fact. Transition ready law firms are the most valuable and the most profitable. I’ll say that again. Transition ready firms are the most valuable and the most profitable. Now, why is that? Well, if you. It’s all about the system that you’ve created, the machine that you’ve created, right? If you have built a business that that’s easily transferable, number one, obviously it’s going to be very valuable to somebody who’s looking to buy, but that type of business is also going to be most profitable in most cases. So we find that this is a trend, right. Firms that have positioned themselves to be owner, independent, and to be transition ready tend to be the most valuable.

Darren Wurz [00:05:19]:
But what’s really probably more important to you is that they are also the most profitable. Okay. And number three, put all this together. The key here is to work on making your firm more valuable. If you focus on value, first, you’re going to get revenue, you’re going to get growth, you’re going to get profit. Now, so often we go after revenue, right? We want to grow. We want more revenue. But not all revenue is good revenue, by the way.

Darren Wurz [00:05:48]:
I mean, let’s talk about that for a second, you can actually make more revenue and have less profit if you’re not careful. Right. Revenue brings growth brings risk. Growth brings, as I said, stress to the organization. So revenue is not always a great goal. I mean, yeah, sure, you’re not going to get a million dollars of profit on $100,000 revenue. Law firm. Right.

Darren Wurz [00:06:10]:
So you do have to have some revenue. But revenue is not the end all game here. Usually the end game we’re looking for is profit. Right. We want to make the most money. We want to take home the most money from our business. Right. We want it to be profitAble.

Darren Wurz [00:06:25]:
You can’t make profit your only focus, and here’s why. Sure, you can increase profit by focusing on profit, but usually focusing on profit. You’re focusing on two things, raising your prices or raising your revenue and reducing your costs. And you can only do both of those for so long until you run out of ideas, until you’re scraping away too many expenses and things are just, or the growth has become unmanageable. So the key really is to focus on value. Focus on building an infrastructure that is positioned for growth, and you will get the growth. Right. So that is really the key value first.

Darren Wurz [00:07:04]:
You have to adopt a value first mentality. Now why is this important? Well, let me give you a few statistics. I mentioned a few statistics at the top. I want to give you some more. Okay? So check these out. Here’s the number one off the bat, right? 99%, might as well say 100, right? Because if, and you’re probably one of these 99, but tell me if you’re not, right? So listen to the statement. 99% of owners agreed with this statement and these statistics. I’m going to make you wait here for the statement, right.

Darren Wurz [00:07:36]:
These statistics, by the way, come from our friends at the EPI, the exit planning institute. So here it is. Having a transition strategy is important both for my future and for the future of my business. 99% of owners agreed with that statement. Do you agree with that statement, by the way? If you do, hey, great. We don’t need to go any further. You already agree exit planning is important, right? Well, yeah. And everyone agrees with this in theory, right? So why hasn’t everybody done it? We’ll get to that.

Darren Wurz [00:08:03]:
Okay. Number 2 79% of owners have no written transition plan. Maybe you’re one of those people. Do you have a written transition plan? Maybe not. And it could be higher for law firms because law firm owners, you guys are in a tricky position, right? You’re a business owner and usually a practitioner at the same time. So there’s a lot happening. But guess what? You’re not alone. Most businesses are the same way.

Darren Wurz [00:08:31]:
Right? The business owner is deeply involved in the business and they face very similar challenges. And so that should actually give you a lot of hope, by the way, because other businesses have solved the same problems that you have. And so you’re not, you’re not alone, right? You’re not, you’re not unique either. Okay. Statistic number 348 percent have done no planning at all. No planning at all, right? And you might be one of those folks, too. And this means not, not having a written plan, not having a, you know, a plan in your brain, right. Not having done any kind of planning whatsoever.

Darren Wurz [00:09:06]:
And finally, number 494 percent have no written personal third act plan. And perhaps you’re one of those folks, too. I find for law firm owners, this is probably 100%, because not a lot of law firm owners really want to retire in the traditional sense. Maybe you’re one of these people as well. What’s your idea of retirement? Do you want to retire completely from the practice of law? Maybe not. Maybe you want to get out of the day to day operational stuff and be more involved in leading the organization and still maintain a pulse on the business, even while you are enjoying more family time and enjoying the fruits of your labor. Right? But at the same time, if you’re going to have more free time, what are you going to do with it? That’s a really, really, really important question. Because guess what? If you retire and you’ve got no plans, you’re going to go right back to work because you’re going to be bored out of your mind.

Darren Wurz [00:10:03]:
You know, my dad is perfectly happy, perfectly content, you know, to drive his motorcycles down in Florida, enjoy the beach, enjoy his house on the beach. And, you know, that keeps him busy, keeps him happy. Not everybody can do that. You got to figure out what it is for you, right? What is it that makes you tick? What’s your purpose and passion? So anyway, 94% have no personal third act plan. And I’m going to add one more statistic in here. This is not an official statistic from EPI. This is just from my own observations. Right.

Darren Wurz [00:10:36]:
I’m going to guess on this one, but this, I’ve done some, you know, informal polling in speaking engagements. I’ve done. And so I’m going to, I’m going to make this claim. 90% of law firm owners have no written business plan. Do you have a written business plan? Hmm. If you do, is it up to date? Yeah. Well, what’s at stake, right. If we’re not going to get these things done, we know what’s at stake.

Darren Wurz [00:11:04]:
I’m going to give you some examples. You know, real people that I’ve worked with. I’m not going to name names, but here’s some folks you know that I’ve talked to and worked with. I talked with an attorney in a Midwest city small law practice. It’s him. His wife is the paralegal and his daughter is the associate. Right. Daughter wants nothing to do with ownership.

Darren Wurz [00:11:24]:
He’s 75, thinks he can sell his business next year because he wants to retire and he’s getting older and his health is deteriorating. Do you want to be that person? No, you need to. So you need to get on the exit planning now, today. Right. Another person I’ve talked to and worked with in his late sixties, he’s been doing this a long time, 2030 years. Been a business owner, law firm owner. He’s tired. He wants to merge with another firm by the end of the year, like six months or less.

Darren Wurz [00:11:59]:
Right. It’s going to be very difficult and you’re going to give up a lot of value. Do you want to be that person? Right? Do you want to be in that position? And here’s another one person I work with, have worked with, owns a practice, has several attorneys that work for him, but is still so involved in the day to day work, he’s been unable to scale his business and unable to make any kind of exit plans. Right. And. But he’s of the mindset that if I just work a little bit harder, if I just grind it out a little bit more, if I just get up an hour earlier and put in an extra, you know, a little bit of extra work, I can do it. Right. I’ve just got to, I’ve just got to get this done.

Darren Wurz [00:12:41]:
Well, you’ve been on the same hamster wheel for many, many years. Right? Right. So time to get off. Right. You don’t want to be in these kind of situations, so you need to get on the exit planning as soon as possible, ASAP. Well, how do you do exit planning? Let me tell you the process that we use, we call it the value acceleration process. It’s really three very, very simple steps. Number one, you conduct evaluation, and I’m going to, let me, let me rephrase.

Darren Wurz [00:13:13]:
You conduct a value assessment. Valuation is pointless, pointless for you at this stage. You don’t need evaluation. You need a value assessment now, what’s the difference? Okay. Evaluation is great. Evaluation to tell you, oh, your business is worth a million bucks. Okay, big whoop. Who cares? Who’s going to give me a million bucks for my business and why? That doesn’t give you any meaningful information.

Darren Wurz [00:13:36]:
I mean, sure, it’s great to know, you know, to track, but what you really need to know, what you really, really need to know is what is your business worth and why? Why is it worth that much? If your business is worth a million dollars, if your law firm is worth a million dollars, why is it worth a million dollars? Why is it worth a million dollars and not $2 million? And it’s not all the revenue. It’s not all the profit. In our previous conversation, one of our previous, one of our previous episodes, we did the series on retirement and exit planning strategies. Episode two of that series, we talked about the formula for valuing a law firm. There are two parts to that formula. Only one half of that formula is profit or earnings. The other half is the multiple that the market gives you. So you can have two law firms, both with a profit of a million dollars, with both very different valuations.

Darren Wurz [00:14:38]:
A million dollar profit law firm could be worth a million, 6 million. What matters is the multiple. So that’s why I say you need to know why. You need to know why what it is worth. Great. That’s great information, but you need to know why it’s worth what it’s worth. Because then that tells you how you can actually grow that value. And that’s where the magic is.

Darren Wurz [00:15:00]:
You need to know how, without adding revenue, without adding profit, how can we actually drive the value of our business higher? And the way you can do that is by understanding why the value is what it is. So we can get into that a little bit more in a second. Okay. Number one, conduct a value assessment. Number two, improve the business. So create your business plan and work your business plan. Execute your business plan. We do business planning.

Darren Wurz [00:15:33]:
We like to execute in 90 day cycles, quarterly cycles. Right. Once you have that value assessment, it’s going to tell you where exactly you need to improve, where your areas of improvement are. And it’s going to be, you know, this is a huge, monumental task. Selling a practice, selling a business of any kind. Right. But how do you eat an elephant? You eat an elephant one bite at a time. So you’re going to break it down into small quarterly actions that you can take, you know, and you’re going to just one small step at a time.

Darren Wurz [00:16:03]:
You’re going to work in 90 day cycles on improving the value of the business. And then comes step number three, after you have been through that cycle, through that process of business improvement for some time, now you’re in a position where you can decide, now you’re in a position where you can decide, do I want to exit or do I want to continue growing? Now, notice, do not put the cart before the horse. So many people put the cart before the horse. When we think about exit planning, we start with, okay, what are my exit options? I can sell, I can bring on someone, I can merge. No, don’t start there. That’s too early. That is at the end. Focus on value first.

Darren Wurz [00:16:48]:
Focusing on value first gives you options. So you focus, number one, growing and building the value of your business. Then you go to options. Then you go to the decide phase where now you can explore options, because now you have options. After you’ve built the business and grown the business, now you have the options. So that’s where you want to not put the cart before the horse. And this is all about having options. That’s what it’s all about.

Darren Wurz [00:17:21]:
Okay, so I want to ask you. I want you to ask yourself three questions right now to kind of give yourself a quick pulse check on how ready you are to sell your business or sell your law firm, or how transition ready your law firm is or how valuable your law firm is. Number one, do you understand the value of your business today? Not, do you know how much it’s worth? Do you understand? Do you know why it’s worth what it’s worth and how that could be changed? Number two, if you had to transition, what would you like to see happen with your business? What would be the ideal outcome? Think about that. That should be in the thought process. Okay. And number three, how would you rate the strength of your intangible capital? How strong are your four c’s? The four c’s are human capital, your people, structural capital, your infrastructure, your systems, processes, workflows, etcetera, customer capital, your customer relationships. And number four, your social capital. How strong are those? Strengthening those, building and working on those will build the value of your practice and lead to profitability.

Darren Wurz [00:18:39]:
Okay, so here’s what you can do. I’ll give you some things you can do right now. Where should I go from here? Okay, here’s what you can do right now. You can start. Right. You know, this exit planning thing, it seems so nebulous and big, and it’s confusing. Well, here’s how you begin. Okay.

Darren Wurz [00:18:57]:
Start with business planning. Very simple. Start with business planning. Meet with your team. Meet with your leadership team. Set your vision. Set your long term, compelling ten year vision for the firm. Where does the firm want to be in ten years? Where do the people want the firm to be in ten years? Will you be a part of it? Right.

Darren Wurz [00:19:16]:
Ten years is good because it makes you think, will I be around? Okay, the other people will be there. So ten year vision then we need to break that down. So set some goals based on that vision for this year. Annual goals. Where do we need to be at the end of this year to be making progress towards that ten year vision? Break that down into smaller chunks and assign three quarterly rocks to yourself, to each of your people. These are things above and beyond their normal job description, right? These are things that are gonna move the organization forward. Things are gonna move you towards that ten year vision. You could also have a value assessment done.

Darren Wurz [00:20:01]:
Now, notice I said value assessment, not evaluation. Evaluation is great, but it’s not giving you the full picture. You need to have a value assessment done so you can understand what your business is worth and why. And that is going to tell you what you can do to grow the value of your business. Okay, so to wrap up here and to summarize, exit planning. Recall is simply good exit. Good business planning. Exit planning is simply good business planning.

Darren Wurz [00:20:32]:
If you’re wondering where to start, start with business planning. My challenge to you today is to update your business plan when you get back to your office or, you know, you are at your computer. Next, pull up your business plan. If you have it, dust it off, get it up to date. Right. That’s my challenge for you. Now. I get so excited about this because this is what we do.

Darren Wurz [00:20:54]:
We have built business planning into our financial planning process, and we provide personal financial planning and business planning. And the reason we do that is because we know for our clients, who are just like you, who are law firm owners, business planning. Business growth is number one. It’s number one, you know, and so in. Furthermore, your business is likely your largest financial asset. So it only makes sense for us to advise you on how to grow that asset so that you can get the most value out of it. Our business planning, business growth planning includes creating your one page business plan, business planning, business growth planning workshops that we hold for our clients, and very exciting revenue expansion coaching. If you want to know all about this, you get all of this by becoming a member of the lawyer millionaire.

Darren Wurz [00:21:49]:
And if you want to know more about how you can become a member about different membership options, I encourage you to sign up for your intro call today. Simply go to thelawyermillionaire.com you can go there right now if you’re driving. Don’t do it. But get out your phone. Get out your phone. Type in thelawyermillionaire.com. it’ll take you to our webpage. There’s a calendar right there.

Darren Wurz [00:22:12]:
You pick a day that works for you, pick a time. And I, or a member of my team, we’ll talk with you. We’ll share with you all of our options. And you’ll get so much more because we’ll also tell you the secrets of elite law firm growth. We’ve put it together. I mean, what makes one law firm owner ultra successful and another is living paycheck to paycheck. We’ve gathered these based on our work, based on the people we’ve worked with, based on the things that we’ve discovered. We’ve got the list of the secrets to elite law firm growth, and we’ll share them with you.

Darren Wurz [00:22:45]:
Your introductory call. You’ll get more. We’ll also give you a free business growth planning workshop, and you’ll get a free copy of my book, the lawyer millionaire. I mean, so much great stuff. Why would you say no? So go ahead, hop on over to thelawyermillionaire.com or go down in the show notes. There’s a link to my calendar right there down in the show notes. You can schedule a call with me or a member of my team, meet with you. We’ll give you all this great stuff.

Darren Wurz [00:23:15]:
Well, this has been the lawyer Millionaire podcast. I’m your host, Darren Wurtz, here to help you expand your business, maximize your profits, and grow your wealth. Thank you so much for listening. I’ll see you next time.