Lateral Partner Move – Assessing your portable revenue What are law firms really looking for in your business plan?
An essential part of any partner move to another law firm is a discussion around your portable practice or following. This question is to be expected from a law firm’s perspective, as part of a partner’s undertaking to a law firm is the ability to run a successful practice, with a key part to this being financial profitability.
However, quantifying your portable practice can often create uncertainly, with partners often concerned that this discussion is a highly subjective exercise. Some partners are worried not to overpromise, given that they usually have a 12-month restrictive covenant to contend with, and without a crystal ball, do not know which clients or matters will follow them and which will not. Each partner can have a good guess at who and what has a high chance of following them, but many factors can influence this outcome.
The good news is that your prospective new law firm knows that it will take you between 12-24 months to build your existing revenue back to the same level you were at prior to moving. This is a given when recruiting new lateral partners. Law firms are not expecting you to port every piece of existing work, or every one of your existing clients. They are aware that some work will come, some will not, and you will generate new work and clients through your new firm platform, brand and through the firm’s referral system as well as additional marketing enacted through your new firm’s structure.
The purpose of the lateral partner business plan is for the prospective law firm to understand the revenue figures of your existing practice, the depth and source of your existing client relationships and your ability to win new work and clients. It is these three factors which will indicate to a prospective law firm how likely it is for you to run a successful law practice within their platform. Even if zero of your current practice is ported over to the new firm (which is highly unlikely), by providing the details of your current practice, you are showing the new firm what you are capable of in terms of generating a practice and developing new and existing client relationships. No magic, crystal balls or time travelling machines required, just some pure hard facts around your current practice and relationships.
1. Revenue figures for existing practice
The first thing to do is to report in your business plan your current practice billings, ideally for the last 2-3 financial years. Providing the last 2-3 years of figures will ideally show consistency and longevity of your billings and may even show growth in your practice. This provides the law firm with reliability around your performance, which is what you are wanting to demonstrate.
At this point, many partners start to deviate and apply their own futuristic discounts to their billings with pessimistic thoughts such as ‘I am not sure this client will follow, and if they do, they won’t give me the same level of work’. If this is what you are thinking, please stop right there. Prospective law firms will apply their own assumptions to your current practice, knowing that it is unlikely that 100% of your current revenue will port to the new firm in the first 12 months. It is not advisable to start discounting your own practice before you provide the figures, as it is these figures which will show the new firm how successful your current practice is, as well as your track record and what you are capable of at a new firm.
2. Depth and portability of existing client relationships
A key area the law firm will focus on is the depth and portability of your existing client relationships. This is as important as your actual revenue figures, as it shows a law firm the likelihood that your existing client relationships will be able to be re-grown or ported in time to the new prospective law firm.
For example, if your practice is $3 million, and of this, $2.5 million has been generated with institutional clients of the firm and referred work from other partners where you do not hold a relationship, your actual portable practice is only around $500K. If on the other hand, your practice is $3 million, and of this, $2.5 million was generated from clients where you either hold the relationship as the client partner, you generated the client from scratch through reputation, you won the work through networking or business development activities, or you were provided the client several years ago but since this time you have become the main client contact and know the client well, all of this $2.5 million would be credited to you by the law firm as being portable.
Importantly, from a non-monetary perspective, demonstrating the depth of your existing client relationships shows the law firm your ability to develop and engage client relationships. This is important as you will be required to further develop existing clients of the prospective firm if you move, so it is important to show your track record in how you are able to develop client relationships to run a profitable and successful practice. You can demonstrate depth through showing the length of time you have received instructions from the client, the type of relationship you have with them (they like you so much you went to their child’s wedding perhaps!) and repeat instructions.
3. Ability as business developer for client relationships
Given the new law firm knows it is impossible to port 100% of your existing practice, it is looking for evidence of where you have brought new clients into the firm, either through referrals, networking, or reputation. This will give your new law firm confidence that should none of your practice port (which is, of course, a ridiculous and highly unlikely outcome), you have strong business development abilities to work with new clients, either provided through the new firm platform or through your own networking, marketing, or business development activities.
This can be shown in your business plan through noting the source of the client relationship where this is self-generated, through reputation, network or generated through your own business development activities.
A second but very important way to demonstrate your ability as a strong business developer is to highlight the clients you refer to other partners within your firm. For you to be able to refer clients (and therefore revenue) throughout your existing firm shows the prospective law firm that your client relationships are so strong that the client trusts you to introduce them to the firm on a wider scale, and in many cases, continue to manage and run the relationship. It also demonstrates a team player approach to your law firm and an understanding of the bigger picture, focusing on the firm’s wider success and not just your own.
We hope this helps to debunk the idea that you must apply your own subjective outcomes of clients and revenue portability to quantify your practice at a new firm. The best course of action is to report on your current revenue figures, depth of existing client relationships and ability to win new work and clients. By providing this information you are providing evidence of your track record with your existing firm to run a successful and profitable practice. And if you can run a successful practice at your current firm, there is no doubt you will succeed to achieve this with your new, and hopefully more exciting, platform.