Asked and Answered 

By John W. Olmstead, MBA, Ph.D, CMC

Q. I am a solo practitioner in upstate New York and I hope to retire in three years and move to Florida. I have been talking with a larger firm with 20 attorneys in Albany that has an interest in me either merging my practice with their firm or joining as Of Counsel. My plan would be to work three more years, gradually phase back, and transition clients and referral sources.

I have had several meetings with the partners in the firm and they are now asking me for detailed due diligence information – tax returns, financial statements, etc. I have no problem providing these documents, but I was wondering if I should be asking them for information. What do you think?

A. I believe that you are entitled to similar due diligence information from the other firm. You need to see what you are getting into.

Usually the smaller firm gets less, but the larger firm should share some information with you as you have with them.

I would ask for the following from them (or discuss with them):

1. Five years of profit and loss statements, balance sheets, and tax returns.
2. Lawyer and staff headcount for each of those five years.
3. Current hourly billing rates.
4. Description of practice area mix of clients by dollars collected (practice type and office location).
5. Description of how the firm bills (hourly, flat rate, contingency).
6. Copy of all leases (office space, equipment).
7. Copy of malpractice insurance policy and last application.
8. Salaries and benefits for equity and non-equity partners.
9. Any governance plan or agreements.
10. Copies of all partnership agreements or operating agreements for all business entities.
11. Any documents pertaining to the retirement of partners, including information relating to obligations for partners who have already retired and those nearing retirement.
12. Compensation data for equity and non-equity partners.
13. Copy of the written compensation plan for equity partners if one exists. If one doesn’t exist, a discussion of how the compensation system works.
14. Information on the line of credit and copies of all debt agreements.
15. Copies of third-party vendor agreements (equipment leases, subscriptions).
16. Copy of the firm’s present malpractice insurance policy and most recent application.
17. List of benefits provided.

I presume that you all have discussed any potential client conflicts of interest.

You need to determine whether the arrangement is going to be a merger or an Of Counsel arrangement. If the arrangement is to be an Of Counsel arrangement, the firm will be less likely to share all the information on the list, and you will have less need as well. However, I believe you should at least have the basic financial and compensation information.

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John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics and author of The Lawyers Guide to Succession Planning published by the ABA. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.