7 Factors That Affect Your Law Firm Value. If you have read up or experienced the valuation process you already know that there are factors that affect your law firm value such as the owner’s cash flow from the practice which is typically the single biggest factor in determining a practice’s value. However, here are 7 others that also play a part in value determination:
1. Practice Area Type(s)
Certain practice areas have a bright future, high demand, and look ready for growth in today’s crystal ball while others are struggling for profitability or forced to change due to competition or regulation. Your specific practice area can have dictated a swing up or down in value determination.
2. Geographical Location
Is your practice area a great fit for where you practice? Is there a lack of competing firms in the area and does your area have the opportunities a buyer would be looking for?
3. Office Setup and Overall Appearance
There is a reason why people stage a home for sale, remove pictures, put in new carpets, and get everything in ‘new’ condition – they want a prospective buyer to be blown away when they walk in the door. Consider the same for your practice. Appearance counts to more than just clients and putting a little effort into the office never hurts.
If you can’t explain why the clients come to your firm or what you are doing to make sure they keep coming that won’t sit well with a prospective buyer. However, a clean and followed marketing plan that leads to results is a big plus to sell the buyer that they can repeat what you have done.
Every practice today has some sort of required software whether that is something you created for yourself to merge drafting documents or that you invested heavily with a developer or other third-party provider. Having software in place that works to improve your legal process is always a value-add. The more proprietary and impactful on that efficiency or benefit the more value.
6. Employees, Roles & Structure
If you have those key paralegals, legal assistants, office managers, associates, and they not only do their jobs well, but help you succeed in yours (and would do the same for a buyer) you have something more to transfer and greater value.
Ones that work and are used daily are key value drivers. The less that a buyer has to create, repeat your efforts, or worry about how to get a matter from A to Z the better they feel and the more comfortable they will be in paying a higher price.