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New Graduate taking over an existing law firm

I am a very recent graduate of law school. I had previously considered opening a solo practice in my current mid-sized city but I have recently been handed an interesting opportunity. An attorney in a more rural area is retiring and offering a situation where I would transition into taking over his solo practice. The deal we discussed would be 500 a month for rent of the building he owns (well below market value) and 20% of net for him. In exchange I receive the entirety of the practice and his agreement to two years of mentoring. Obviously his clients could leave but the area is extremely undeserved. It would also not require any direct payment on my part. I am seriously considering this but I wanted other opinions. Any help or comments would be much appreciated!

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Comments

  • Have you seen his numbers?

  • I would suggest going solo properly and doing an earn-out whereby he sends you all of his clients, and he gets 20% of anything you make from those clients. I see no reason to be tied to this guy unless his numbers are already incredible. You can get there.

  • paulspitzpaulspitz Cincinnati, OH ✭✭

    I think having the retiring attorney's mentorship is quite valuable, considering that bmt888 is a new grad. He only pays the 20% on clients that come from the retiring attorney's practice, and he'd have to pay the rent to someone, somewhere.

  • samgloversamglover Minneapolis, MN Admin

    It sounds like it has a lot of potential. One thing I'd want to know is where is work for the $500 plus 20% going to come from. Are you going to have to find your own clients, or does he have enough work for you, too?

  • bmt888bmt888 United States

    He did 115 last year. I'd be expected to come up with work as well as carry on with any clients already in his book hes currently referring out some work. However the sense I got would be that his 20 percent of net would not be solely on his clients but the firm as a whole in lieu of payment for the practice, goodwill, and reduced rent. In terms of duration what would be fair?

  • 20% is fair as a referral fee with or without the full setup. Decide if his office space is where you want to be. 100k in referrals is a huge jump for a solo. Then again, it's not much revenue for where YOU should be at his age. I'd probably take it, hire someone to sit there to do intake, and start a virtual shop in a "city" too.

  • Without further details, I agree that this sounds like a fair setup. I'd pick his brain about how he gets clients.

  • Just remember, this is your office now, and for a long time. You may want to re-think the old-school system he likely has. Ie. I run paperless and don't pay for storage of paper (thanks Scansnap)

  • Is there legacy staff? or other contracts? Whats the actual overhead?

  • This sounds like a good deal for someone starting out without any clients. The rent sounds very cheap (but I'm from NYC so I don't know the going rates in your area or the size of the office). I would have a few concerns.

    First, concerns the 20% of income you pay over. You should look into your local ethic rules about sharing fees. If you consult him on every case and include him on your retainers, you may be covered. But you have to check your ethics rules to see what exactly is needed.

    Second, you should workout in detail in a contract exactly what the mentoring will be. Does it mean that he goes to lunch with you once a month? He's available for telephone consultation whenever you need? He spends so many hours a week in the office? Does he come with you to a number of court appearances to observe and critique you? Will he go with you to a few networking functions and introduce you to his referral sources?

    Third, I would be curious to how he generates clients and why someone nearing retirement only generates about $100k. Ask him for his tax returns for the last 3 years and how much he spends on advertising.

    Lastly, I would look into books about buying a business and if possible specifically, a law practice. I think the ABA may have a book on this topic that you can probably find at your local bar association's library.

  • I agree strongly with $100k being a VERY low revenue for a near-retiree.

  • samgloversamglover Minneapolis, MN Admin

    Maybe. He did say it's a rural practice. That could be pretty good, for all I know.

  • paulspitzpaulspitz Cincinnati, OH ✭✭

    Going back to Lawrence's point about the referral fee, even if you can share fees with lawyers, he may need to maintain his license after he retires. Otherwise, you might have to structure the fees a different way. Also, I don't think it is a good deal for you to pay 20% on clients that you generate. Remember, he wants to retire, and if he can't strike this deal with you, he's probably just going to retire anyway and get nothing.

  • bmt888bmt888 United States

    Thank you all for the responses! His client's are mostly whatever walks in the door with a few institutional clients like the local hospital. I think the rent is good, I looked at a comparable commercial space in the area and it was triple what he was offering. Overhead is low even compared to my original solo plan and could probably be made cheaper. The one expense I wasn't counting on was a secretary but he's only paying her 9/hr and its part time. He also doesn't do his own typing which would cut down that even further. Advertising is nil, not even a website which I would probably implement quickly. The area is tiny, with the closest small city an hour and half away. There are only 4 attorneys in the county one of which is an 80 y/o prosecutor, one of which is set to retire, and one of which is a state senator and gone a lot.

  • paulspitzpaulspitz Cincinnati, OH ✭✭

    What is the nature of the work that you would be handling in such an area? I would imagine there's some estate planning, some real estate, maybe the occasional criminal case. I can see how $100K might be reasonable revenue, and how it might be reasonable to live on that, if the area isn't particularly affluent. I guess some follow-up questions are these:

    1. Will you want to do the kind of work he's been handling?
    2. Will you be happy living in that area, as opposed to living in a larger town?
    3. Will your state bar help you out with student loan debt, in exchange for you moving to a rural, probably underserved community?
  • samgloversamglover Minneapolis, MN Admin

    Also, are you going to be working for him — i.e., as part of his firm? Or are you working on your own, separately from his firm, and then buying his firm at the end of the contract?

    It matters for things like paying referral fees/co-counseling, but also for considering whether the 20% is reasonable. Or whether you should be paying rent.

  • This is a 20% royalty into perpetuity, right?

    This needs to be renegotiated.

  • bmt888bmt888 United States

    Nature of the work seems to be real estate, minor criminal matters, family law and the occasional personal injury settlement. I was planning on doing just criminal but I can adjust to a wider range. I can also deal with living where it is especially if I'm doing better financially. Debt isn't really an issue for me (I went to a tier 2 with scholarship over tier 1 without). We didn't really agree on the duration of the percentage at the initial meeting. I'm uncomfortable with a royalty into perpetuity but my question is what's a fair duration? Because there would never be a buyout in this scenario I can see how a percentage makes sense for some length of time I just don't know what that length is. It's an ongoing negotiation and he said hes open to any reasonable offer so I have some room to maneuver I'm just not sure what's good for me in both short term and long term.

  • I think rent + 20% of anything legacy is fair. The rest should be yours.

  • paulspitzpaulspitz Cincinnati, OH ✭✭

    Maybe five years on the duration of the percentage, or until he dies, whichever comes first. Ghoulish of me?

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