Edward Poll, BridgeTower Media Newswires
Law, as I’ve repeatedly stated, is more than a profession; it’s also a business. When you close up shop, in addition to your professional responsibilities as a lawyer, you also have business responsibilities as the owner of a professional services firm, some of which may involve state or federal statutes pertaining to your business entity.
This column covers the steps that you will need to take with regard to your finances.
Inventory assets and liabilities
Inventory all the assets and liabilities of your firm, including such things as work-in-progress and possible contingent liabilities. Create an inventory list of all the items and be sure to add associated tasks to your timeline. This includes deciding what you want to do with all the tangible assets of your business, such as office furniture, computer equipment and library materials.
Collect accounts receivable
Send out your final billings as soon as possible. It may even be easier to send out each billing as the client account is “cleared” or transferred to another attorney. Sending your billings quickly is important because you want to collect your fees before you close your office.
You don’t want to be collecting these accounts into your retirement. Also, as most collections professionals will tell you, the older the account, the harder it will be to collect.
You may also make arrangements with the new attorney to receive payment from the first funds that he or she receives.
The files cannot be held hostage for payment. Therefore, focus your energies on getting full payment early. You may choose to hire an agency to collect old, overdue accounts. It could be worth the extra money to get the largest portion or percentage possible of the fees owed to you.
Assess bank obligations
Once you have a plan and a timeline for winding down your law practice, contact your banks about any outstanding obligations. Honor the obligations or get an extension until you have worked out exactly how and when the practice will be closed.
Negotiate debt with creditors
Either pay or negotiate an extension or settlement of all outstanding debts with creditors. This becomes important because in closing your practice, you are ending the traditional cycle of incurring debt in order to cover your operating costs and other expenses involved in the practice. While you have to satisfy your creditors, you may be able to do that by quickly and aggressively collecting on the balance of your accounts receivable.
Determine tax requirements
Learn about the tax rules and requirements involved in closing your business. Talk with your accountant about the specific requirements for filing state and federal tax returns.
Review insurance policies
Analyze your insurance policies — including malpractice, general liability, disability and life insurance — to find out when coverage will end. You also want to understand their various notification requirements so that you can let each carrier know when to cancel the policy or which policies to change because your circumstances have changed.
To protect your retirement assets, you should also consider an insurance policy called an “extended reporting period endorsement” or “tail” policy. This policy covers any claims brought against you after you retire from practice for errors, omissions and acts that happened prior to your retirement.
Consider dissolution of entity
If your business form is other than a sole proprietorship, assess the consequences of dissolving your organizational entity, including the liability and tax issues. If appropriate and consistent with protecting your family, dissolve the entity.
Determine whether your state has any special filings that you must meet, with the secretary of state or other officials, regarding the dissolution of a business entity. Also, think about whether it might be more appropriate or advantageous for you to maintain your business entity for liability or tax-filing purposes.
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Edward Poll is the principal of LawBiz Management. He coaches lawyers and is the creator of “Life After Law,” a program that helps attorneys plan for profitable exits. He can be contacted at edpoll@lawbiz. com.
