How does buying a law firm work?

The number of attorney’s facing retirement continues to grow. Successful practices need to be preserved and our transition-based exchange of value helps align both parties to make it a mutual goal for success after closing. If you are looking to grow then acquisition is a tremendous opportunity.

Should I buy a law practice?

The opportunities of acquiring a new practice or firm affords a would-be purchaser geographic expansion and overall growth to the existing practice. Often, when an attorney decides that it is time for his or her practice to grow, he or she will spend unnecessary amounts of time and marketing money in the efforts to effectuate that growth. If an acquisition is planned and executed properly, however, it can be an easier and more fruitful means of practice development than building through marketing or starting from scratch.

With a practice acquisition, many of the obstacles present when starting a practice have previously been overcome. A practice structure is already in place. Tangible items, such as office space, equipment and supplies, will likely be included in any deal. And, arguably most important, the purchaser instantly gains certain intangible items, including the client database, a willing staff and a referral client network. Merging practices is also a great option for an attorney that wants to offer his or her new clients a wider variety of practice areas. And while success and growth are certainly not guaranteed to follow, a well thought-out and implemented acquisition can go a long way toward achieving these important goals.

A potential purchase typically offers the same transaction structures as a sale offers the selling attorney, including merger, outright purchase, associate or junior partner buyout, and Assumption Agreements. The difference is the perspective of the buyer versus that of the seller. Regardless of which party in a given transaction you are, however, carefully planning the transaction and its implementation is very important to make sure your particular objectives are achieved.

How do you value a law practice?

Every Law Practice Has A Separate And Marketable Value Of Its Own
Big or small, every law practice has some level of value. The question is how much exactly? Like any other business, each law practice has a separate and marketable value of its own. The lawyer has built and managed to grow a proven business model. The tasks that were difficult years ago when that lawyer started his or her practice are no longer obstacles, but instead they have been solved with the client base, employees, processes, checklists, knowledge base, software and numerous other elements, that make up the now normal daily operations. All of those resources have value to someone who doesn’t have to repeat those ‘fun’ exercises of experimenting with software, training employees and all the other challenges.

However, the biggest impact on value that a lawyer or his or her practice can offer is the ongoing and future access to contacts, referral sources and clients along with the trust and comfort they have with that lawyer, his or her team and their overall practice. In a nutshell, that proven business platform along with the expectation that the clients will keep coming and the referral sources will keep referring (with a little transition help) and the accompanying revenues will produce the measure of a law practice’s value.

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What’s the process for buying a law firm?

Step 1: Goal Discovery and NDA
  • Financial goals
  • Law Firm and Transition Goals
  • Financing prequalification and NDA

We are happy to schedule an initial call to learn more about you and your goals. We want to learn your geographical, practice area(s), size, financial, transition timeline, etc. goals and to discuss typical purchase and structure options. We will also send along a Non-Disclosure to discuss current opportunities and/or to keep you apprised as opportunities arise.

*Do we want an online form and online NDA they can complete?

Step 2: Review of Opportunities
  • Overview of Current Opportunities that align with goals

If an opportunity is of further interest we will happily connect to further discuss and provide information pertaining to the firm(s), including high-level financials, key practice highlights and overview of transition plan potentials. During this time, we will be happy to provide further detailed firm and tax information for your review and answer follow up questions.

Step 3: Financing and Assemble your team
  • Explore Financing Options and get pre-qualified
  • Assemble your contacts and advisory team

Now is the time to prepare for potential purchase. It can be a lengthy process and banks will not disburse the financing proceeds until their requirements are met. We will be happy to refer you to financial institutions to become prequalified and learn your financing options. This is also the time to prepare your advisory team. Consider CPA’s, financial advisors, and drafting & contract attorneys.

Step 4: Initial Call with the Seller(s)
  • Get to know you call
  • Fit between the parties
  • Transition goals for both parties

Once we have answered any initial questions, if you remain interested the next step will be to connect directly with the seller(s) to learn more about the firm and each other. The focus of the call will be on the firm, it’s history, operations, growth opportunities, etc. with a goal of having you and the seller get to know one another. Another key focus will be to begin discussing the Transition Plan and what you may need from Seller post-closing, and what Seller believes it will take to transition management of the practice and the clients and referral sources.

Step 5: In-Person Meeting with Seller(s)
  • In Depth Firm Review
  • Transition Planning

If there seems to be a good fit between the parties and goals after that first call, then we encourage an initial in-person meeting to go into greater breadth and depth. This will provide an excellent opportunity to learn more about the firm and one another. The objective will be to learn if this may be a good fit for your goals and determine if there is a good fit between the parties, as well as to go into a bit more detail on how the Transition Plan may work given both parties needs and timeline.

Step 6: Letter of Intent and Negotiations
  • LOI Contract Preparation
  • Negotiations

If interest continues for the practice opportunity, then it is time to give additional consideration of how the purchase and transition would look in material terms. You can propose the terms and structure in the form of an LOI for the sellers to agree to or counter. The Letter of Intent or other form should cover key items like (i) purchase price, (ii) payment schedule, (iii) seller transition compensation post-closing, (iv) due diligence and closing timelines and (iv) Transition Plan highlights as well as other specifics. Once a letter of intent is agreed upon by both parties, you will enter a full due diligence stage where the full details can be worked out and agreed upon as you work towards closing.

Step 7: Due Diligence
  • Deep Dive on Firm and Financials
  • Purchase Agreement Contract Preparation
  • Transition Plan Development

This is often the most time-consuming portion of the process and we will happily coordinate the communications between you and the seller. This is the time to assemble a purchasing team consisting of your trusted financial advisors, CPA’s and other advisors to request and review materials and documents and processes of the firm. You and/or your advisors will utilize the information to put together the final purchase agreement and move towards feeling comfortable with the potential acquisition and going forward with closing. This is also where the full details on Seller Transition Plan are agreed to and the parties prepare as needed for implementing those actions post-closing.

Step 8: Purchase Agreement, Closing, and Transition Planning
  • Closing Day

You will propose the final purchase agreement which will outline terms, timeline, and key responsibilities for the parties based on the Letter of Intent and other key items worked through in Due Diligence. This will be the final terms and details that will need to be agreed upon by yourself and the sellers with an agreed upon closing date. On closing day, the down payment portions will be transferred, all legal agreements are signed and you will become the owner. At closing you will want to make sure you are fully comfortable with the purchase and prepared to take over the firm on that day or immediately after (with Seller’s help under Transition Plan)

Step 9: Transitioning After Closing
  • Ongoing build out and tweaking of Transition Plan

After closing, both parties will look to the Transition Plan they have prepared and agreed to smoothly take over management of the firm and client or referral relationships. The Transition Plan should be detailed with dates and responsibilities for each party, but it will also need to be flexible enough to adapt as the situations require. During this stage the Seller will assist in transferring over the knowledge base, key clientele, key referral networks, legal work training and transition and work alongside in other ways needed to ensure a smooth transition and success


What Our Clients Say !

“The transition was smooth, the clients were glad to know their new advocate was enthusiastic and ready to help them and the practice never skipped a beat.”

Erik B.- Buyer

The Law Practice Exchange

Erik B.- Buyer

“The transition was smooth, the clients were glad to know their new advocate was enthusiastic and ready to help them and the practice never skipped a beat.”
“Amanda and Tom introduced me to a buyer I would have never met otherwise.  Throughout the process, they were available, helpful, and experienced in keeping us on track toward closing.  The entire process went better than expected, and I have Amanda and Tom to thank for that.”

-Bankruptcy Firm Seller LPE#541

The Law Practice Exchange

-Bankruptcy Firm Seller LPE#541

“Amanda and Tom introduced me to a buyer I would have never met otherwise.  Throughout the process, they were available, helpful, and experienced in keeping us on track toward closing.  The entire process went better than expected, and I have Amanda and Tom to thank for that.”
“Thank you again for all of your help. I didn’t think it was possible to get money for our practice and you proved me wrong.”

-Residential Real Estate Seller LPE#522

The Law Practice Exchange

-Residential Real Estate Seller LPE#522

“Thank you again for all of your help. I didn’t think it was possible to get money for our practice and you proved me wrong.”
The Law Practice Exchange
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