Five Mistakes to Avoid When Buying a Law Firm

Law is one of the most competitive industries in the United States. The most recent data from the American Bar Association (ABA) shows that there are approximately 450,000 law firms nationwide. Buying a legal practice could be a great way to harness growth opportunities and secure a prosperous future. As the acquisition of a law firm is a major transaction, getting it done the right way is essential.

At The Law Practice Exchange, LLC, we are a trusted and leading national law firm brokerage company. Our experienced and talented team helps legal professionals buy a law firm. In all too many cases, lawyers make avoidable mistakes when acquiring an existing legal practice. In this article, you will find an overview of five of the most common mistakes you must avoid when buying a law firm. 

  1. Not Asking the Right Questions to the Seller 

When preparing to buy a law firm, it is crucial to know the right questions to ask. Indeed, asking the right questions can sometimes be the difference between getting a key piece of information that you need to know about the acquisition target and not finding out that information until it is far too late to take action. Some examples of important questions to ask when buying a law firm include the following: 

  1. Why is the current owner selling their legal practice?
  2. How did the seller determine the value of their law firm?
  3. What is the net projected cash flow for the next 12 months? 24 months?
  4. What transition help after closing can the seller provide?
  1. Failing to Conduct Comprehensive Due Diligence of the Legal Practice 

Comprehensive due diligence is essential when buying any business—especially so when purchasing a legal practice. Failure to conduct sufficient due diligence is also one of the most common mistakes that people make. Dealroom describes due diligence as an “investigation or audit of a potential investment consummated by a prospective buyer.” Along with other things, proper due diligence helps to ensure that: 

  1. You fully understand the law firm that you are considering buying.
  2. You are able to identify any conflicts of interest or other potential problems.
  3. You have all of the details that you need to negotiate the best deal. 
  4. You have all financials and operational items that you need to manage the law firm after purchase.
  5. You and seller have worked out a solid transition plan to implement at closing and after.
  1. Overestimating the Value of the Law Practice 

Is the law firm that you are considering buying a good deal? It is an impossible question to answer without knowing some key details. Any potential law firm purchase could be a bad deal if the price is too high. One of the most common mistakes that attorneys make when buying a law firm is overestimating its market value. You do not want to pay more for a law firm than it is actually worth. Of course, law firms are notoriously difficult to value, but there is more market data available and proven models to help than ever before. It is crucial that you get a thorough appraisal of an acquisition target so that you know the true market value of the practice. 

  1. Paying Too Little Attention to Transition Planning

As noted above another common mistake that people make when buying a law firm is paying too little attention to transition planning. When you purchase and/or acquire a law firm, it is imperative that you are able to hit the ground running. Poor transition planning could undermine an otherwise favorable acquisition. Before you finalize the transaction, it is imperative that you put considerable thought into how you will transition into being the owner and operator of the law firm and how the baton will be passed by the seller to you or others on your team. 

  1. Waiting Too Long to Get Professional Guidance

The purchase of a law firm is a big deal. It could even be a life-changing decision. It is important that you get all of the small details right. A common mistake that attorneys make when buying a law firm is waiting too long to get professional guidance and support. You do not have to figure everything out on your own. A skilled professional with relevant experience can help you with all aspects of the purchase—from identifying the right acquisition target to conducting thorough due diligence, appraising the law firm, and preparing for a successful transition.  

The Law Practice Exchange is a National Leader in the Buying of Law Firms

At The Law Practice Exchange, LLC, we are a national leader in the buying, selling, and transitioning of law firms. If you are preparing to purchase a law firm, we are here to help. Contact our law firm brokerage today to find out more about our services. You can become a Preferred Buyer and engage with our law firm team directly to actively search for the best available acquisition and growth opportunities.

Selling Your Personal Injury Practice: What You Need to Know

Personal injury law is a highly competitive field, and as a personal injury attorney, you may find yourself at a point where you’re ready to move on and sell your practice. Whether you’re looking to retire, take on a different type of legal work, or simply move on to a new chapter in your life, selling your personal injury practice can be a great option for exit and monetizing the value you have built. However, having the right approach is key to ensure a smooth transition and secure the future of your practice.

Before you begin the process of selling your practice, it’s important to understand the value of your business. Personal injury practices are typically valued based on a multiple of their adjusted net income along with a strong focus on case inventory and projected future intake from brand assets. However, there are other factors that can affect the value of your practice, such as the size of your client base, the types of cases you handle, and the strength of your reputation.

It’s also important to consider the terms of the sale. Will the buyer be purchasing the entire practice, or just a portion of it? Will you be able to remain involved with the practice in some capacity, such as a consultant? It’s important to have a clear understanding of these terms before entering into any agreements.

Once you’ve found a buyer, it’s important to ensure that the transition is smooth. This includes transferring client files, transferring any retainers, and ensuring that all legal and ethical obligations are met. It’s also important to inform your clients of the sale and ensure that they are comfortable with the new attorney handling their case.

Selling your personal injury practice is a significant decision that requires careful consideration. By understanding the value of your practice, finding the right buyer, and ensuring a smooth transition, you can secure the future of your practice and move on to your next chapter with confidence. It’s also important to seek professional advice from a law firm valuation and brokerage expert (we know some…hint, hint), as it will help you to navigate the process and ensure that your rights and interests are protected.

How to Conduct Proper Due Diligence When Buying a Law Firm

Law is a competitive industry and seems to becoming more competitive day by day. According to the American Bar Association (ABA), there are approximately 450,000 law firms nationwide. If you are looking at ways to stay ahead of your competition then buying a law firm—either as a stand-alone business or to acquire/merge with your existing law practice—can be a great way to put yourself in the best position to succeed. At the same time, purchasing a law firm is not something most lawyers or law firms have gone through and it can be a complex transaction with lots of questions to be answered along the way.  

It is imperative that you know what questions to ask and that you conduct comprehensive due diligence on a law firm that you are considering purchasing. You need to be confident that buying the law firm is the right option and that you know a fair price. This article will give you an overview of the best practices for conducting proper due diligence when buying a law firm

All Buyers Should Be Prepared to Perform Comprehensive Due Diligence

Due diligence is a crucial part of purchasing any business. It is the process of examining the finances, operations, employees and other aspects of a target to ensure it is the right opportunity. It is key to making sure you as a buyer want to go forward and is especially important with complex professional practices, including law firms. Defined broadly by Investopedia, due diligence is “an investigation, audit, or review performed to confirm facts or details of a matter under consideration.” When you are making a significant investment—such as buying a law firm—careful due diligence is of the utmost importance. Here are three core benefits: 

  1. Due diligence helps to ensure that a buyer better understands the law firm—including making a final decision on whether or not it makes sense to move forward with the purchase. 
  2. Due diligence allows for the early identification of potential conflicts, hidden liabilities, and other areas of concern.
  3. Due diligence provides a buyer with the full, comprehensive facts that they need to be in a better bargaining position when negotiating a final purchase agreement. 

A Checklist for Conducting Due Diligence When Purchasing a Law Firm 

Knowing that due diligence is critically important when buying a legal practice, you may have questions about how to go about actually doing it. The answer depends, in part, on case-specific factors. That being said, the central goal of due diligence for buying a law firm is to ensure that you are able to perform a comprehensive review and analysis of the target business. You do not want to leave any stone unturned. Here is a checklist that you can use for conducting due diligence when buying a law firm: 

  • Perform Legal Due Diligence. A law firm is a complex, highly regulated business. Legal, due diligence is a must. Among other things, this includes assessing potential conflicts of interest, ensuring that there is adequate insurance coverage, ethical requirements and preparing for the handling of sensitive client information.  
  • Review and Verify All Financial Information. The law firm’s finances are going to go a long way toward determining whether it is a suitable acquisition target and the appropriate sale price. You must carefully review and scrutinize all financial documents and records, including income, cash flow, balance sheets, tax returns, debts, and other liabilities. 
  • Human Resources and Physical Assets. With the purchase of a law firm often comes its employees and physical assets. Due diligence should be conducted on both human capital and physical assets to determine the value of what is being acquired as part of the transaction. 
  • Review and Analyze Law Firm Structure and Operations. The specific structure of a law firm matters. Even if you are open (or interested) in making some changes, it is still crucial that you take the time to understand and assess the current structure and operations of the business. This will provide useful information on the viability and value of the firm. 
  • Review Any Outstanding Contracts/Agreements. A law firm that is being sold will often have outstanding contracts/agreements. Indeed, these agreements can sometimes be highly beneficial―they could be assets. At the same time, it is essential that you understand all contracts and whether or not they will still be enforceable if the firm is sold. 
  • Assess Client Records and Firm Goodwill. A lot of a law firm’s value will be in its accumulated goodwill (an intangible asset) and its list of clients. It is imperative that you carefully analyze client information as well as the goodwill of the law firm. 
  • Develop The Transition Plan. What’s the plan for attorneys to transition, the announcement to clients and team and the plan after closing to ensure a smooth transition and transfer of the assets.

The Law Practice Exchange is the Leader in the Buying and Selling of Law Firms

At The Law Practice Exchange, LLC, we are proud to be the experts in law firm brokerage services. You can become a Preferred Buyer with our team. If you have any questions about conducting due diligence when buying a law firm, we can help. Contact us today to set up a strictly confidential consultation. We are a nationwide leader in the brokerage of the buying and selling of law firms.