Month: January 2022

The Benefits of Using a Broker in Selling a Law Practice

Regarding the sale of a law practice, it is reasonable to say that there is a distinct lack of communication,  opportunities, and knowledge in the professional marketplace. While you may know that you want to buy or sell a practice, you may not know where or how to start. Speaking with a law practice broker may provide you with the right tools to accomplish this goal and overcome knowledge deficiencies.

What is a law practice broker? The goal and purpose of the law practice broker are to help organize, prepare, value, promote, negotiate and package a deal for the sale of the practice. What does this entail? Generally speaking, a broker will use his or her skills, expertise, connections, and other tools to promote and develop your knowledge, awareness of market opportunities, and overall ability to get the deal done. More specifically, this includes:

• Listing the practice, finding the right practice to buy, and otherwise exploring the marketplace;
• Connecting you with key advisors;
• Developing marketing and listing strategies;
• Assisting in practice valuation and valuation improvement strategies;
• Assisting with preserving and transferring goodwill;
• Negotiating, and facilitating the negotiation of, key deal terms and otherwise bringing the parties to the table;
• Reviewing and discussing exit strategies and opportunities;
• Providing alternative growth options;
• Ensuring confidentiality in the sale process;
• Expediting the process and keeping it moving;
• Allowing you to focus on your business;
• Assisting in practice transition;
• Facilitating closing and accomplishing checklist items; and
• Developing an overall plan for transferring the practice.

The broker is motivated and incentivized to help you make the sale, so you may question the motives of or need for the broker. But the simple truth is that the broker can often be the difference between closing the deal and it falling through. Buyers and sellers often have substantially differing opinions on what constitutes a “fair” deal. From price amount, structure, and allocation, to limitations and qualifications of representations and warranties, to post-closing transition requirements, there are many opportunities for discord among the parties. And while it is typically the job of the attorney to hammer out these terms and prepare and revise the purchase agreements, it is the broker that often can get past the recalcitrance and get the parties talking.

The benefits of having the right law practice broker to guide and assist you through the purchase and sale process often more than justify the commission. How do I find a buyer? Is the seller asking too high a price? Does the buyer have the right qualifications? Is the market share and growth outlook of the seller the right fit for your practice goals? These are complicated questions that often take a qualified and experienced broker to help you fully understand. And while you may feel comfortable or qualified to or sell a practice based on your experience as an attorney, you can still benefit from speaking with a broker.

As you begin considering purchasing or selling a practice, take the time to speak to a law practice broker. Whether you move forward with his or her services, you will almost certainly benefit and learn from the experience.

Six Steps to Prepare Your Practice for Sale

So you’re ready to sell your law practice. That’s great! Selling your law practice can be an excellent way to realize the value built up over years of practice and to generate income as you transition into the next phase of your career or life. But where do you start? Listed below are a few steps to review and help you prepare for the transition and sale process.

1.Set a Time frame.  When do you want to sell? Knowing this (flexible) date in mind, and factoring in a post-transition assistance period, is important in readying the practice for sale and maximizing sale value.

2.Self-Education.  Spend some time researching the process, the applicable laws and rules (including NCRPC 1.17), and the practical concerns of putting practice for sale on the marketplace.

3.Get Your Team in Place. You can’t go it alone, although it may be tempting: as a lawyer, you may have helped sell many businesses, but that does not mean you are necessarily qualified to best conduct the sale of your own. Having the right people to help you through the process will not only make it easier but can also have a dramatic effect on the bottom line. Additionally, you are trying to run a practice, so your time and focus are limited. Find yourself a law practice broker and CPA, and consider consulting or retaining a financial advisor, an insurance advisor, and a valuation expert.

4.Value your Practice. It is a good idea to have a verifiable idea of your practice’s value before placing it for sale. And while we are all likely to place a high premium on the work that we do, a potential buyer may see things differently. Consult with your practice valuation expert on current value and ways to increase value.

5.Analyze and Initiate Steps to Make Your Practice More Valuable.  Get your practice in the best shape possible. Client management, practice areas, intended timeframe for sale, billing and realization rates and procedures, and employee management and transition are some of the factors that go into valuing a practice. There may be ways to improve efficiency and results in any or all of these areas. If you give yourself enough time, these improvements may make the practice more appealing to potential buyers and may lead to increased sale price and take-home profits.

6.Develop Your Strategy. Consider the type of intended buyer, your financial needs for retirement or next phase (consult your financial planner and CPA), necessary sale price to provide for those needs, tax strategies, internal communication, and transition needs, and other desired terms of sale. Prepare your strategy. It may and likely will change, but don’t adlib the sale process.

Selling your practice does not happen overnight. It takes months of prep as well as months, if not years, of post-transition assistance. You have to start somewhere, however. Just as you may advise a client preparing to sell his or her business, start by getting your house in order. These steps should help.

Tom Lenfestey is the Managing Member of The Law Practice Exchange, LLC, as well as a practicing North Carolina attorney The Law Practice Exchange, aims to curb the lack of knowledge in the profession on law practice transitions by educating and advising attorneys on the number of different options available in the legal marketplace and also serving as a confidential broker and advisor to seek and provide connections for those right opportunities between an exiting attorney and a growth-focused attorney or firm. Find out more at www.TheLawPracticeExchange.com. © 2021 The Law Practice Exchange, LLC. Reproduction in whole or in part is strictly prohibited.

Specific Things to Remember When Selling Your Law Practice. While many different considerations are leading up, during, and after the sale process, here are a few to which you should pay particular attention.

Valuation and Increasing Purchase Price. It is common to value our work. It is particularly true for business owners, and lawyers are no different. As such, we may be prone to overvaluing the business.

Unrealistic or unsupported sales prices can hamper or outright quash a deal. So it is typically a good idea to bring in a valuation professional to accurately value the practice.

However, it would be beneficial to review some of the critical factors of valuing a practice. These include historical financial performance and growth, reasonable expectations of future revenue, likelihood and extent of repeat clients, geographic location of the firm, a saturation of practice areas in the local and regional marketplace, and others.

Many factors come into play, so getting a formal opinion from a valuation consultant will almost certainly benefit you in the long run. But make sure you know about your practice’s valuation prospects.

Insurance Considerations. Coverage details will likely be a pivotal point in the sale transaction deal. Maintaining proper coverage is vital due to the nature of legal malpractice insurance coverage.

Coverage details will likely be a critical point in the sale transaction deal, with the seller’s responsibility probably taking the form of “tail” coverage, which provides a certain period of extension of coverage for claims made during the original life of the policy.

Ethical Considerations. As an attorney, you are subject to a myriad of legal and ethical duties on an ongoing basis. That doesn’t change just because you sell your practice!

Rule 1.17 of the North Carolina Rules of Professional Conduct is the seminal authority on your responsibilities during and after this process, laying out certain conditions precedent the ability to sell and providing guidelines on the post-closing transition.

Make Sure You Are Ready. Selling your practice can be very draining: mentally, emotionally, physically, and financially. It is important, therefore, to make sure you are ready, on all of these levels.