November 14, 2011 Articles

Preparing for Partnership Buy-In: Exploring the Important Questions

One of the most important long-term career decisions relates to becoming an owner of a business.

By Cammie Hauser

One of the most important long-term career decisions relates to becoming an owner of a business. It involves risk and reward, challenges and accomplishments, influence and control, highs and lows. Many important questions need to be answered to make the best decision about your firm choice. How do you evaluate your firm? When should you start to pursue partnership? What expectations does the firm have for you? When should you start building your book of business? How should you plan for the required financial investment? These questions will be reviewed in this article. 

How Do You Evaluate Your Firm? There needs to be a good fit between the firm and the partner to create the best long-lasting situation. It is similar to a marriage. The firm’s long-term goals and core values should be clearly communicated, easily understood, and regularly practiced—and they should align with your own goals and values. Your compatibility with the firm and other partners should be carefully scrutinized and weigh heavily in your decision-making process. You should have a clear practice area and a thorough understanding how that area fits into the whole firm strategy. The culture of the firm should be one that you relate to and are comfortable operating in. You should agree with the firm’s expectations for different aspects of the practice, such as profitability, flexibility, quality of life, and leadership style. The presence of other women partners could be a sign of the firm’s understanding of the importance of diversity at the ownership level and having a marketing niche. Your awareness of these issues may emerge over time as you gain experience and true knowledge of the firm and how it operates.

<p><strong>When Should You Start to Pursue Partnership?</strong> I recommend serious contemplation about the partnership buy-in process at least five years out. That will give you enough time to gather information, assess what is important to you and the firm, and make sure there is a good fit. Therefore, your first job out of law school may not be the place where you will end up as a partner. As you gain experience, your preferences will become more important and you will begin to know what you want and do not want in firm ownership. There should be a track that you follow at the firm that is a clear indication of when and how you can achieve partnership status. If the firm does not have one, that is an indication of the firm&rsquo;s lack of long-term planning or lack of growth. A firm should need new partners because its business is growing and the firm needs more &ldquo;owners&rdquo; to handle the business. If there is no growth, it simply means splitting the profitability pie into smaller pieces with each new partner, which is not a thriving economic model. The firm also needs owners to make business decisions that are for the good of the business versus a simple &ldquo;what&rsquo;s in this for me.&rdquo; As owners are (or should be) aligned with the firm&rsquo;s goals, they share in the risks and rewards. Thus, the more time you have to get to know the firm, the better decision you can make about your firm choice.</p>
<p><strong>What Expectations Does the Firm Have for You?</strong> What are some individual competencies that you should develop to prepare for partnership? Each firm usually has specific minimum requirements in a variety of areas. Productivity is probably the first and easiest to measure. How many hours does the firm expect you to bill, how many dollars must you generate, or how many matters must you handle? Productivity includes efficiency. Just getting the job done correctly is not enough. You must be able to produce quality work in a reasonable amount of time. I recommend paying close attention in your formal reviews, which should highlight any concerns that the firm has about your efficiency. Or better yet, ask your supervisor directly about any areas that you can work to improve.</p>
<p>Most firms expect their partners to effectively manage other attorneys and staff. A partner should be a strong leader that develops others and therefore attracts productive team members. Thus, the ability of an associate to manage herself and others is very attractive to the partnership. The firm needs partners who can be effective people managers; otherwise, the firm&rsquo;s time and energy is needlessly spent on problem resolution. Management ability is also a learned skill over time. Look for a firm that encourages management development and involvement.</p>
<p>Firms also expect senior associates to take responsibility and act like owners. One example of this is seen when a lawyer&rsquo;s own self-interest comes second to that of the firm. Firms want partners who have a longer-term perspective and who do not respond out of short-term desires. You can illustrate this by taking on responsibilities that normally would be handled by someone invested in the firm without concern with how will I be rewarded for this? Perhaps you arrive early or stay late to complete a project. By operating at a level higher than expected, it shows a different attitude than your peers. What activities could you undertake that show initiative? This really impresses partners and sets you up as a potential partner in their view.  </p>
<p><strong>When Should You Start Building Your Book of Business?</strong> I often hear partners complaining that their associates do not focus on marketing. This must be an area of focus for anyone aspiring to become a partner. The technician that only produces work will always be the slave of the effective marketer. Therefore, marketing must be a focus for anyone seeking partner status. Marketing credit may be given simply for engaging in certain activities at first. Eventually, actual client matters would be expected from the developing associate. One difficult part of marketing is having the time to focus on it in addition to everything else that is on your plate. If marketing is not a skill that comes naturally to you, I recommend getting help with the use of a professional marketing coach who can help you develop your skills. In addition, I suggest exploring executive women groups. These groups usually reach out to and encourage other women and are a natural fit for female associates who want to grow their marketing skills.</p>
<p><strong>How Should You Plan for Partnership Buy-In?</strong> Once the firm and you have reached an agreement about partnership, the next question is how do you buy in? There are many ways to purchase your interest in a partnership. Some firms simply give new partners an interest in the business as a reward for the attorney&rsquo;s dedication to the firm and years of service. This is less common in this economy. Although you should not have to invest as much as the original founders did to establish the firm, you will probably need to invest a substantial amount of money. To accomplish this, it may be possible to forego bonuses and salary increases and apply that money towards your buy-in. This would give you time to save for your investment. Taking on debt may be another way, but once again the economy makes this option more difficult. Be creative and flexible to determine the best vehicle for your situation.</p>
<p>You should have honest and open conversations with firm leaders about the purchase in advance so that you can plan for the transaction. Make sure you know what the purchase price is and how it is determined. Is it the same for everyone? Has it ever changed? Is it based on a calculation? I have seen it calculated both as a percentage of annual revenue (ranging from one-half to three times) or the net present value of the firm. Look for your return on investment, because there are usually benefits that come with partnership that make the transaction very attractive.</p>
<p>Finally, be sure that your written partnership agreement specifies how your investment will be returned to you if you exit the partnership. If things do not go as planned, there needs to be a clear process to buy you out or return you to your non-equity position. It is much more difficult to negotiate when the situation occurs and obstacles exist that can cloud your judgment.</p>
<p><strong>Conclusion</strong> The more objective you can be in evaluating these factors, the better decision you will make. Take time to contemplate your own goals and objectives, focus on your time line, and consider all opportunities. Carefully consider whether the firm aligns with your goals and objectives. Finally, give yourself and the firm time to cultivate the relationship so that it is a good fit for a strong and lasting partnership.</p>
<p><strong>Keywords:</strong> partnership buy-in, long-term goals, build business, partnership agreement</p>