Getting the Capital Structure Right
A 100-lawyer U.S. law firm with a corporate and commercial practice contacted Altman Weil when it encountered problems in meeting its loan covenants. Undercapitalization was forcing the firm into a disadvantageous position with its bank and causing serious concern, as well as an ongoing series of departures, among partners.
Altman Weil responded with an examination of the firm’s capital structure and investment requirements. This included a review of its buy-in program, capital philosophy, retirement program, and buy-out terms. Our goal was to understand, not only its short-term financial position, but to project the firm’s future capital needs and identify resources to meet those needs. After establishing the firm’s financial and demographic profile, we developed a 15-year projection of their capital requirements considering key elements including the working capital, retirement of older partners, the desire to bring in new partners, physical plant issues, infrastructure and current debt. We then provided specific recommendations to help the firm close its capital gap.
Three years later, the firm’s financial health has improved dramatically. It took advantage of a favorable real estate market to sell the office building it owned, increased capital contributions, reduced its debt and modified the payout schedule for retiring partners. By instituting greater fiscal discipline, the firm has created a cushion against unexpected downturns and positioned itself to respond to opportunities for growth and expansion.
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