RSS feedsThe retirement of the last of the firm’s founding partners two years ago provided an opportunity for the remaining partners to examine every aspect of the practice and hopefully create a new model that would provide a platform for future growth. The business had always been organised on traditional lines with partners managing their own portfolios and no formal development strategy.
We decided to reorganise on departmental lines with a formal business plan for each department. We agreed to bolster the smallest of our three offices with the acquisition of a block of fees from a retiring sole practitioner in the same town.
With such a major project we needed the right person at the helm and so appointed a managing partner who would be responsible for the whole process. There was really only one candidate William who, as well as being the most outgoing and entrepreneurial of the partners, also had the people management and motivational skills.
The past two years have seen a number of changes and also significant expenditure. As well as the investment in the acquisition of the fees to boost our smallest office, we have also spent a great deal on upgrading and improving our IT systems and taking on new staff.
Tragically, William died of a heart attack at just 48 years old. Needless to say the whole firm is reeling with the shock and, with no contingency plans in place, we are like a rudderless ship.
Just to make matters worse we discovered that, while developing our grand plans and strategies, there was one vital element that we had totally forgotten: the partnership deed. It was so out of date that none of the current partners were original signatories. Not only that, but were had not considered the effect of its provisions on the business should one of us retire or die.
Under the terms of the deed, goodwill is valued at 1.5 times fees and William also held 30% of the equity. Payout is to be made within six months of death or retirement and also includes capital and current accounts. William’s widow believes that the firm is doing well and that the estate is due a substantial sum.
Even if the firm had been very profitable we would have struggled to find the money to make payment in full within the six months stipulated, but while we are in the middle of a major restructuring and investment exercise, there is no money readily available. As well as a substantial overdraft we have yet to get to grips with our cash flow problems and with WIP and debtors running at very high levels there is no prospect of a settlement on schedule without major financial restructuring.
Most of the partners are unwilling to invest any of their personal capital into the business, even on a short-term basis so we will have to borrow from the bank.
Then there is the problem of who is going to take over the role of managing partner. None of us are really suited to the task, especially at such a crucial stage in the firm’s development and we don’t have anyone with his talents to take over.
At a recent partners’ meeting it was decided that I would take over as managing partner. Of course the others all promised their support, but I doubt if they will be of much practical help.
Hopefully we will be able to persuade William’s widow to accept stage payments over a longer term, but this will not help us to bring the business back on track. The lesson to be learned here, apart from the importance of keeping the partnership deed up to date is: ‘never put all your eggs in one basket’.
