Why Partnerships May Seem Good But Can Be Costing You Money

I am working with a very committed client at the moment who has been sharing stories with me of her partnership experiences and why she knows she will be leaving her firm and is working towards this goal very soon.  And her story is probably more common then most realize.

She is the partner in a five person law firm in a well-heeled town in Maryland.  She has been the partner in this firm for more than 8 years. She is the youngest partner and does very well in her two chosen practice areas.  She made partner because she was good, really good at rainmaking and handling her clients.  This is perfect.  However, as typical, her partners are second wave with extraordinary overhead, support-staff heavy and associates overpaid to the point they are disinterested in learning rainmaking activities themselves.  They are just very comfortable with their paychecks and she is just one voice.  And this typical partnership expects the younger partners to start buying out the older partners in a few years while pushing the associates up through the partnership track.  That’s the model.

In 2007 she alone brought in $400,000 more in billables than any other partner.   She took home only an extra $106,000 from all her work.  The following year, believing she may have to go overseas because she is in the reserves, she wanted to spend more time with her family, took fewer cases. Yet her partners relied upon her to do all the heavy lifting.  When she didn’t they responded typically not realizing they had an obligation to up their game as well and said, ‘wassup?’.  They just depended upon her for their income and got lazy.

This was when the lightbulb went off. She realized if she can generate this type of revenue and is just giving it away because the others aren’t pulling their weight, why should she be in a partnership?  And so she is breaking free.

If her partners weren’t so archaic in their thinking, billable hours, high overhead, support-staff heavy, they would be more profitable.  But their behaviors aren’t going to change.  She recognizes she needs to be out from under this way of thinking.  This is also the mindset of a solo – if I’m going to work this hard, I’m going to do it for myself.’

I bring this up now because as more and more people are being forced into going solo (I get at least two e-mails a day of stories of lawyers being laid off and frantic about what to do) they are also going to make decisions based upon fear.  And fear drives them to form unhealthy partnerships without understanding what partnerships really are.

So, I am going to resurrect an older post as it is timely today:

To Partner or Not To Partner – That Is The Question.

I remember reading years ago about a marriage prenuptial agreement that was so specific as to each spouse’s responsibilities, right down to the husband’s obligation to put the toothpaste cap back on the toothpaste tube, that most people thought it was a prenup on steroids. The spouses, however, clearly loved it because it laid out all the expectations each had of the other so neither one was in the dark about their responsibilities in the marriage.

Well, partnerships are like marriages. Half will last a lifetime, the whole being greater then the sum of it’s parts; growing together, getting stronger through adversity and filled with compromise. The other half will end up in a bitter and nasty separation and dissolution fighting over assets and the custody of the children (read “clients”). Therefore the burning question that’s always asked and must be answered is, “to partner or not to partner?”

Like marriage, partnering should be for the right reasons. However, most lawyers enter partnerships for the wrong reasons borne out of fear of the unknown, doubt about their own capabilities and a lack of understanding about what partnership truly means. Do you really need a partner and all of the emotional and financial entanglements it entails in order to assuage those fears? The answer is a resounding “no.”

These are the wrong reasons to partner with another lawyer:

I want someone to bounce ideas off of.” As a rule, most lawyers are very generous with their knowledge and will give invaluable guidance if asked. It is important to maintain relationships with your peers, law school alumni, your bar associations and the like and you will get all the guidance and mentoring you need. Continuing legal education will provide a great base for practical knowledge and an opportunity to network with others in your area of concentration. Depending upon your office selection, should you choose a shared suite, you will have a built-in sounding board without the financial intimacy.

I want to be able to take a vacation and know my clients are being taken care of.” (And from the client’s perspective, “who will take care of my case if you are not available?”) Any solo will tell you they have strong reciprocal relationships with other solos and cover for one another when necessary. It is very important you have a dialogue with your clients about a planned or unplanned absence even if the client never asks because it is a legitimate concern of clients who hire solos.

I don’t want to take all the financial risk.” If you are going out on your own, you are taking a calculated risk, period. If you wish to defray cost, how you set up your office, whether working in a suite of other lawyers with shared services or setting up shop by yourself, will determine your cash outlay and financial risk. If you’ve already invested nearly $100,000 in your education is a few more thousand any riskier?

I’m not very good at (fill in the blank)” Sharing your profits with someone simply because they have an accounting background while you can’t balance a checkbook is not a reason to take on a partner. It is a reason to hire an accountant. If they don’t work out you get another. Not so easy with a partner.

I want to partner with someone who can teach me.” Again, sharing the profits in exchange for guidance you can pretty much get for free if you are properly networked, belong to the right associations and taking continuing legal education, is just giving away your hard-earned dollars.

Do not take on a partner out of fear. You will be living and breathing this partner morning, noon and night. You are depending upon this person for your livelihood while making them the caretaker of your professional reputation.

The short list of the right reasons to take on a partner is: You share a similar vision of where you want to go with your law practice and how you want to get there and are committed to being in it for the long haul. You respect each other’s ability as a lawyer and trust the other to make decisions in your absence which will be binding upon you. Each of you has something of comparable value to bring to the partnership, skill sets which compliment and enhance each other. Both of you recognize your equal responsibility to develop business and bring in clients. You share a work ethic and morals. (Partnership brings both benefits and liabilities and you do not want to be vulnerable to the ethical missteps of a partner who does not necessarily share your values). You work well together.

Partnerships can be a wonderful experience when entered into for all the rights reasons and with the right partner. If you decide to partner, make sure you have a partnership agreement that clearly spells out all the financial agreements between the partners not just while you are together but also should you part company….right down to who puts the toothpaste cap back on the toothpaste tube.

 

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