Home Archives September 2006 Financial planning: Preparing for partnership

Financial planning: Preparing for partnership

| Print |  Email
Friday, September 01, 2006

Sarah 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.

Though firms vary, the opportunity for ownership often comes after seven to 10 years of experience. This is an age that can coincide with the expense of  a new family or household and at a time when candidates have significant earnings potential, yet still a modest net worth.

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
The Commerce Bank of Oregon
This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 

More Articles

The Rail Baron

October 2014
Thursday, September 25, 2014
BY LINDA BAKER

Oil is gushing out of the U.S. and Canada, and much of it is coming from places that don’t have pipeline infrastructure. So it’s being shipped by rail.


Read more...

Gone Fishing

October 2014
Thursday, September 25, 2014
BY LORI TOBIAS

Business has been good to Laura Anderson, leading some to suggest she must be awfully lucky to find such success in a business notorious for failure. But luck’s had little to do with it.


Read more...

Downtime

September 2014
Wednesday, August 27, 2014
BY JESSICA RIDGWAY

How State Representative Julie Parrish (House District 37) balances life between work and play.


Read more...

Downtime

October 2014
Thursday, September 25, 2014
BY JESSICA RIDGWAY

I'm not very interesting,” says a modest Ray Di Carlo, CEO and executive producer of Bent Image Labs, an animation and visual effects studio.


Read more...

Fork & Bottle

October 2014
Thursday, September 25, 2014

National media can’t get enough of Oregon’s pinot noir, artisan-food purveyors and lively, independent film scene.


Read more...

Back to School

September 2014
Wednesday, August 27, 2014
BY LEE VAN DER VOO

By now we’ve all read the headlines: Starbucks is giving away free degrees. Except it isn’t.


Read more...

Fast Food Slows Down

September 2014
Tuesday, August 26, 2014
BY KIM MOORE

The ubiquitous fast-food restaurant may be on the decline.


Read more...
Oregon Business magazinetitle-sponsored-links-02
SPONSORED LINKS