What’s in Store for the Partner of the Future?
For senior qualified legal staff, the world really is their oyster. There are a wide range of potential career options available for solicitors, not least the path to partnership.
Below Kate Arnott, Head of Professional Practices at MHA MacIntyre Hudson, explores the potential considerations you’ll need to be making if you’re thinking about aiming for partner in the future.
For many, the reality, risk and trappings of partnership may not appeal, but for those who aspire to making partner there are a number of considerations they should focus on, from choosing a firm with a long-term strategy and culture that fits your personality and work-style, to managing the switch from employee to self–employed status.
What sort of firm do you want to be a partner in?
The majority of professional practices operate through a partnership (or LLP) structure; the fit is excellent for a participative business that’s handed between generations in a flexible manner. There are also quite a few firms which have private equity backing or have floated on AIM. This brings a completely different dynamic to a more traditional LLP structure. The culture of the firm is also important; it’s easy to assume all firms of a similar size will behave in the same way, but this isn’t the case. Some are very corporate and finance driven, some are very collegiate and supportive and there are all sorts of shades of grey in-between. Partnership is a long-term commitment and it’s important to make sure the ‘fit’ is right before signing up.
The basis for partnership will be set out in the firm’s partnership agreement, which forms the contract between you and your firm. It sets out the relationship between individual partners, their obligations and contributions. Partners should consider not just where the firm is now, but also its plans for the future. For example, is the firm on a merger strategy? Does it have aspirations to open new offices? Does it plan to commence or cease certain work types etc? Consider whether this fits with your personal aims and appetite for risk.
The firm’s financials
New partners often join firms based on professional reputation, without giving sufficient consideration to the numbers. They should make enquiries into the accounts (and forecasts), as well as other financial commitments of the business that may not be on the balance sheet, such as property leases, IT contracts, retired partner annuities etc., and discuss these with a third party who understands partnership accounts.
Your capital contribution is a significant investment in your professional future, which should be treated as any other investment; you need to believe in the strategy and ethos you are buying in to and should expect a good return. It’s crucial to understand how much is required, both on initial admission and in the future and what the arrangements are to recover capital on retirement or other exit from the partnership.
Professional firms are regulated and have an obligation to run their business in accordance with sound financial principles. Successful firms will have a comprehensive monthly management reporting pack to ensure partners have a full picture of the firm’s financial position available to them and will assess these on an ongoing basis.
Consider what questions you and your fellow partners should be asking to interrogate the data you have access to – do you understand the operating financials, lock up, work in progress (WIP), profit and loss, cash-flow etc? What has the profitability been over the past few years? What’s the firm’s borrowing position or other liabilities? Have additional capital calls been made in the past and if so, how much? What is the firm’s professional indemnity (PI) cover and claims record?
Your personal finances
Managing the financial responsibilities of being a partner, alongside personal tax obligations, funding requirements and day to day finances, is a minefield. Whether new to the profession or starting to think about succession, the professional journey needs careful navigation and a long-term strategic approach to ensure future financial success.
When you become a partner it’s vital you understand the implications of being self-employed and the basics of tax, such as what constitutes allowable expenses and how profits are assessed for tax purposes.
There are also implications for how you should prepare for major life events, such as buying a home, having children and planning for retirement. You need to carefully consider how to best protect your financial interests, and those of your family.
The considerations may seem daunting but there are many financial planning tools that can be maximised to help you manage your personal finances effectively. These range from making use of individual saving account (ISA) allowances for you and your spouse, to income protection in case you find yourself unable to work due to sickness or injury.
Partnership brings responsibility at a personal and firm wide level, but equipped with the right knowledge you can make the most of the exciting opportunity it presents.