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FINANCIAL PLANNING Preparing for partnershipSarah joined her firm shortly after graduating from law school. Her commitment to the company generates a good income and has enabled her to develop her practice specialty. She and her husband have been married for two years and last year became first-time homeowners. Sarah was elated to learn she was being considered for partnership at her company. She needed a loan for the partnership investment and looked to her bank branch for financing. The banker took some basic information and gave Sarah three options: a home equity line of credit, mortgage refinancing or a personal loan. Given that the couple’s recent home purchase required 95% financing, there was little home equity as yet. Sarah had roughly $100,000 in student loans still outstanding. The amount of the personal loan being offered was only half the figure she needed for the partnership investment. Her excitement over partnership turned to apprehension. She needed guidance. Sarah’s situation is not unique: Motivated professionals who aspire to firm partnership may also face competing demands on their finances. One of these demands is the rising cost of higher education, which leaves many professionals with a big debt and long-term repayments. Add to this the cost of financing a partner investment, and it may seem overwhelming. But up-front financial and career planning can make considering that partnership opportunity less daunting if you keep three things in consideration: Professional development: Many firms encourage their associates to become involved with networking opportunities and to expand their circle of influence and general business knowledge. In addition, most professions require continuing education in order to maintain credentials or license. Associates who successfully balance workload, continuing education and networking are typically the first to be offered partnership.
Planning ahead for the
financial obligation: For young professionals, repaying
student loans is often top-of-mind, given the national average
for aggregate student loans after four years of college is
$42,000, according to SallieMae. Graduate students specializing
in a professional service can hold an average of
$70,000-$120,000 in student debt. At a mid-sized firm, expect the financial commitment to range between $20,000-$35,000 for equity partner. Begin planning with a financial partner at least two to three years before pursuing partnership. This smoothes the way for the firm’s partnership review or application process. Developing relationships with key advisers: Request advice from a mentor or firm partner and indicate the goal of future ownership. A firm’s managing partner might request a financial plan. Consider using an existing firm partner or an informed outside adviser to gain more information about a financial plan and to assist in developing a strong case for partnership acquisition.
The best source of financing is likely to be the one who has
working knowledge of the firm. Knowing the firm’s level
of income, ability to make partner distributions and, most
importantly, to what degree the partnership investment will
change your new income makes it far easier to structure the
right financing for those considering a partnership
opportunity.
— Mike Paul, president
and CEO |
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