Expert witnesses are leaving millions of dollars per year on the table when they fail to develop and implement a viable succession plan.
Many experts have developed successful expert witness practices. Due to the press of time and work, too few experts have given serious thought to any succession planning.
All of us hope we will have the time and good health to wind down our business affairs when we feel it is time. Unfortunately, not everything proceeds in an orderly fashion as we might like it to.
For expert witnesses, their practices can end abruptly due to health issues, disability, professional discipline, retirement, or other problems.
In one infamous case, an expert had his career end abruptly when he got confused during a trial and asked which side he was testifying for.
Experts will want to consider, and at a minimum, plan for:
- What his/her spouse or attorney should do with their practice if the expert can no longer carry on the duties of an expert
- Providing a written transition succession plan
- The possibility for carrying on or selling the expert witness practice
- If the contacts and relationships with attorneys, insurance companies, and other can be transferred/sold or otherwise capitalized on
- Who will wind down the business, return active files, review outstanding contracts for services, notify the clients and others, collect the receivables, and pay the outstanding bills of practice
- If there is a way to maintain viability of the expert witness practice
The success of many expert witness practices make it imperative that the expert take transition planning seriously. Should a practice that is generating hundreds of thousands of dollars, and that has many years of good will and clients, just be scrapped with little or no thought given to a sale, succession, or transition planning?
All solo expert witness practitioners should confront these issues when they are still active and healthy and not under the pressure of a pending or actual crisis.
Determining Your Goals and Objectives
Experts will want to take a long realistic hard look at what they want to achieve.
Questions to Ask Yourself
- Do you want to work less hours and/or reduce your testifying and travel?
- Do you want to transition out of or possibly sell your practice?
- Would you like to continue working as an expert after you sell your practice?
- What will you be doing after you transition out of or sell your practice?
Biggest Mistakes Experts Make in Transition/Succession Planning
Thinking that their skills are so unique they simply cannot be replaced.
All experts can and will eventually be replaced by someone at some time. The issue is whether the expert will control the timing or leave it to chance.
Thinking that their practice is so dependent on them and their reputation that it has no value.
- “Expert witness practice is specific to the individual and there is no value to the buyer (i.e. the expert’s experience and reputation is not transferable)”
- “My practice is based on myself, experience, credentials, reputation – not really transferable”
- “As a one person operation my knowledge is my inventory. Without me, there is nothing left of my business except the files which I suspect would be of limited value.”
- “There are only two things to sell. The first is the client list and this can be generated by means of a couple of directories, the internet, and a little effort. The other thing is your personal skills and they cannot be transferred.”
- “For the past 11 years I have focused my time on providing my clients with the best possible service, increasing name recognition in the marketplace, and growing the company. Because the company has been built around me, I’m not sure that there would be anything to sell if I were to sell the firm and no longer play an active role as it relates to the expert witness part of our business.”
Experts will want to start thinking of their practice as a business. When a business grosses or nets hundreds of thousands of dollars per year, it normally has market value.
Experts frequently will wait until they are in a crisis (health, disability, age, etc.) before they start to even think about succession/transition planning.
Experts will want to plan early and leave adequate time for an orderly and successful transition.
Experts believe that transition/succession planning means they have to retire and give up practicing.
Succession planning, transitioning, or even the sale of your practice does not mean you cannot continue to work in the practice advising, mentoring, and doing forensic work.
Experts do not adequately consider the value that their client list and goodwill may have to other experts.
Put yourself in the shoes of an intelligent, hardworking, up and coming expert in your own field. How much would it be worth to this expert to have:
- A readymade client list
- Introductions by a well-established expert with an excellent reputation
How many years of practice building could be avoided or shortcutted by reaching a mutually beneficial agreement with an expert who wants to transition out of practice?
Clients, lawyers, and insurance companies will not accept/hire a new expert.
When properly presented with adequate lead time, clients will accept new experts who are:
- Trained by the “old pro”
If I train/mentor an expert he/she will steal all of my clients.
Part of training, mentoring, and grooming a new expert in transition/succession planning is building an ongoing relationship of mutual trust and respect. Giving the expert a financial incentive to remain and run your practice is a crucial part of succession/transition planning.
Taking on a new associate and mentoring him/her will be a chore and a distraction and take away from my practice.
Experienced experts who take on a less-experienced associate often find:
- It is rewarding to mentor a young person
- Mentoring someone will force you to stay current and think about your long established protocols and procedures
- When done correctly, taking on an associate can make practicing fun again and actually extend your practice life
I will make less money when I have to pay to support an associate.
Many experts find that adding a less-experienced expert frees them up to:
- Work on large, more lucrative assignments
- Permits them time to do practice building and marketing they have been neglecting
- Leverage themselves and, in fact, make more money
Young, less-experienced experts will not “have the money” to buy my practice.
Work out a small down payment and percentage of revenue over a period of years. Alternatively, use a multiplier of 50-300% of annual gross receipts. So long as it is to the advantage of both, the seller and the buyer, the financial terms should be able to be worked out.
Case Study #1
A physician builds a successful expert witness solo practice. He dies unexpectedly. His wife, who helped manage the practice with him is forced to place an ad in the New York Times for a physician in the same specialty to purchase and take over the practice.
A physician expert purchases the practice for only $25,000 due to the circumstances. He wisely agrees to keep the seller (wife) on as the office manager to ensure a smooth transition. She calls each client for him and each and every client remains with the purchasing expert.
The purchasing physician goes on to generate millions of dollars in fees and has been running the practice very successfully for over 20 years.
Case Study #2
A forensic engineer purchases an engineering practice from a 79 year old forensic engineer who was practicing out of his house. The purchaser kept the selling engineer on salary as a consultant for several years for training and to ensure a smooth and orderly transition.
The selling expert was paid $50,000 up front and a percentage of the gross income for 6 years. The selling engineer signed a 6 year covenant not to compete. Both parties are very pleased with the purchase and sale of the expert practice.
The day the 6 year period of the contract ended, the selling engineer started up a new practice which he sold 2 years later at age 87.
Case Study #3
A 75 year old expert (Ph.D.) has an established forensic practice. He has written and lectured extensively and has an excellent reputation in his field. He no longer wants to testify and wants to wind down his practice. He has a consultant that he has been working with and paying on an hourly basis. The consultant is 45 years old and would like to do more of this work. The expert and the consultant get along well. The expert who would like to transition out of practice hires a consultant to help with the transition.
Advice by consultant Steven Babitsky:
I enjoyed talking and working with you. As discussed, the issues you should consider and work on and resolve are:
- Can Danielle take over?
- Will she be committed to doing what it takes to make this a success?
- How can you increase the amount of income generated from the business?
- What will it take to get Danielle up to speed so she can successfully analyze the data and write high quality reports?
- How can you help build up her brand (i.e. co-author status, lectures passed on to her, introductions to pact clients, etc.)?
- Institutionalizing the practice so it is less about you and more about the business.
- Incorporating the business.
- Reaching an agreement with Danielle on short and long range planning and compensation.
- Deciding how much work you want to do and for how long.
- Intensely mentoring Danielle so she can come as close as possible to your reputation and expertise in the field.
It was a pleasure working with you and feel free to call upon us again.
- The consultant has agreed to become part of the practice of the expert
- The expert will train and mentor the consultant and share with her proprietary methodology
- The expert joining the practice will pay 30% of receipts for 6 years to the selling expert.
Case Study #4
A senior expert witness with a successful expert witness practice wants to eventually slow down and retire. In addition, he wants to have another expert carry on his life’s work which has saved countless lives due to safety legislation he has helped pass. An up and coming expert desires to strike out on his own, learn the business, and develop a sustainable practice.
The two experts meet, hit it off, and with assistance, negotiate a gradual takeover plan. Both experts obtain what they are looking for. The senior expert will be training the younger expert who will carry on his important work. The younger expert will modernize the practice for smooth gradual takeover. Both parties are satisfied with the financial arrangements.
- The art of succession/transition planning and sale of expert witness practices is in its infancy.
- More and more experts will start to view their practice as a “business.”
- Experts who develop an exit strategy are best positioned to generate a stream of revenue after they reduce their active involvement in the practice or retire completely.
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