The Financials of a Law Practice Value Determination Explained

Many – not all, but many – deals turn on the purchase price. The rest can typically be worked out if the purchase price is agreed upon. Obtaining an accurate valuation of the practice, therefore, is one of the most important things you can do as a seller to help you actually sell the practice. In most cases, the valuation by a law practice broker will determine the purchase price. Additionally, having that valuation can help a selling attorney avoid issues presented by an emotional overvaluing of the practice, obtain the necessary financing, and find the right buyer.

From the buyer’s perspective, the valuation is important because it perhaps takes some of the “leap of faith” out of the deal. Buying a practice is a huge investment of, among other things, time, money, and emotional, mental and physical well-being. It could ultimately be a bust; the buyer just doesn’t know. But, if he or she knows the value of the practice, and can review those factors that went into reaching that valuation, he or she can rest a bit easier.

So what goes into determining the value of a practice? In a nutshell: goodwill. Goodwill is typically calculated though by a comprehensive look at the historical, current and projected financial outlook of the practice as well as other characteristics specific to that practice, practice areas, geographic area or client-base. Practically speaking, this means putting together the necessary documents and value indicators, identifying unique valuation factors, identifying issues and solutions to those issues, selecting valuation methodology and applying all of the above to that methodology.

Documents/Evidence of Value: Your practice broker or other valuation expert will provide you with a specific list of items. It will be a long list. Here are some items that will likely be on that list:

  • Annual financial statements and tax returns for last 5 years
  • W-2s/K-1s
  • Interim financial statements through last period
  • Copies of any forecasts or projections
  • Copies of business plan
  • Schedules of compensation for employees and seller
  • Appraisals and lists of specific hard assets
  • Specific Owner Benefits being paid for by practice
  • Reports of other consultants
  • Brochures, information, website, ads
  • Resumes or summary of background and experience
  • Client Fee Guidelines/Schedules
  • Engagement Agreements/Representation Letters
  • Breakout of revenue mix by percentage, including: Direct selling; Referral driven; Advertising; and Repeat clients
  • Total number of client matters over last 24 months
  • Details of significant leases, loans and notes
  • Copies of partnership agreements or associate agreements
  • Copies of any buy-sell agreements
  • Details of key employees employment contracts
  • Details of any litigation, including pending claims
  • Details on any employee benefit plans

 

Factors: There can be a massively long list of factors that are considered in any given practice valuation. But on a transaction-to-transaction basis, the most common are the following:

  • Recurring Revenue: What are the historical revenue, current revenue, and likelihood of revenue on an ongoing basis? This includes a detailed analysis of the clients of the firm, nature of legal representation and likelihood of repeat business.
  • Size of the Practice: Revenue; Number of Employees and Partners; Number of Clients; etc.
  • Assets to Liabilities: What are the debts and obligations of the practice? In relation to its assets?
  • Type of Practice: Practice area, particularly in relation to other similar practices in the geographical region and zone of service provision.
  • Location: Is it in a major metropolis? A rural area? What is the population of the area? Demographics?
  • Dependency of clients on attorney: This again goes back to repeat business.
  • Profitability: Historical and current review of the profits and margins of the practice. Is the practice’s overhead justified by its revenue?
  • Billing Rates & Realization: A detailed review of A/R and collections. Do the practice’s clients pay their bills?
  • Employees: Number, nature and skill.
  • Technology: Review and analysis of the technological infrastructure of the firm.
  • Age of Clients: This again goes back to repeat clients.
  • Concentration Mix of Fees: How diversified or, alternatively, concentrated is the nature of the fees charged and collected?
  • Terms of Sale: The specific deal terms can have a dramatic impact on valuation, including intended purchase price allocation.
  • Buyer type
  • Hard assets to be transferred (vehicles, computers, etc)
  • Fee Agreements or ongoing revenues guaranteed
  • Transition time

That is a long list of factors. And there can be several more. In summation, they can be boiled down to some key items, including net worth, current value, cash flow and projected future cash flow, and identifying those items that most drive the practice’s value, including:

  • Human capital and customer base, including the impact of diversification, AR, and relational health;
  • Product and service offerings, including the impact of market saturation/share, the existence and extent of continuous improvement; and
  • Repeatability of business.

It is also important to note that the legal field is based largely on relationships, which come and go. Market changes and factors, client transitions, real estate issues, employee retention and profitability, and other contract needs all have major impacts on the relationships of a practice, including those with its clients and referral sources. And they all have a material effect on the current and ongoing value of the practice. All practitioners should identify and incorporate specific steps to address, improve and protect relationships for the good of the practice and its value.

With all this knowledge of what information to gather and what factors may impact the most important step is applying the appropriate valuation methodology to the results of the above review and analysis. In the legal field, that often means identifying and applying a particular multiple of profit, with a typical baseline of a multiple of profit (2-3 times), or a percentage (50%-80%) of annual revenue. The results of each approach could be similar or significantly different, and which one that is used will depend on market factors, primarily including the negotiations between the buyer and seller.

Looking for Law Firm Growth? Consider Buying a Law Practice.

Purchasing an existing law firm may be ideal if you are looking to grow your existing practice or law firm, or if you are an in-house or a lateral looking for immediate stability in revenues along with the flexibility and independence that comes with firm ownership.

The upward climb from starting from scratch to sustainability may be too great or too financially risky.

Where attorneys once locked the front door when they were ready to retire, today they are instead looking to sell or transition their practices to maintain the value that has been built and demonstrated by the ringing phones, systems, clients, firm reputation and overall practice knowledge base.

Check out our current listings here: https://thelawpracticeexchange.com/listings-sale/

THE BUYING PROCESS

1. Self-Assessment. Is now the right time to take on the work and responsibility associated with buying a firm? Is there anything in your personal life or your current firm’s structure that could benefit from additional time instead? As a buyer, what would be a good fit for you or your practice in terms of practice area(s), size, location, culture, etc.?

2. Get Help. While you are an experienced attorney, this isn’t something you go through every day. It is a unique process and the right advisers can ensure the transition is successful. Assemble your advisory team and connect with a qualified law practice broker (I know a good one) who understands the unique nature of law practice transitions as compared to other business transitions.

3. Consider Opportunities. The law practice marketplace is mostly hidden due to confidentiality concerns. Most transactions go unnoticed. To discover firms for sale, contact a law practice broker, complete a confidentially agreement, and get preliminary information on potential firms. The broker will coordinate initial conversations with seller(s) to discuss how transition may work, your questions, and to get an overall initial comfort level.

4. Get Engaged. If you and the current owner believe it’s a good fit, you’ll need to agree on the value of the law firm, the structure of the transaction, transition plan, and other important deal terms while conducting due diligence.

5. Closing & After. A fixed date will be chosen for the ownership to change and the purchase and ancillary agreements to be executed along with the financial exchange. At this point you should also feel confident about the post-closing plans for a successful transition plan with the transferring attorney.

THE STEPS

1. What’s the Key To Your Success? It’s a well-prepared transition plan for the buyer and seller. You both will need to agree on the goals of the transition such as the time which will be required of the seller, and the benchmarks of a successful plan. Your goal in practice acquisition is for the selling attorney to remain or become part of the buyer’s practice post-closing.

2. How To Value? The value of a law practice is typically calculated based on historical cash flows, adjusting for factors personal to the seller or that practice as well as deal terms that impact value (shorter transition timeline, etc.). The sale price, and practice cash flows should be reviewed during the due diligence period to ensure the selling price is justified and the payments are sustainable with your projected future cash flows.

A law practice broker or CPA who is knowledgeable in the buying and selling of law firms can be vital in assessing the key value-drivers of a law practice along with the expected post-transition retention. Net income may be a great line item to use in determining the purchase price, but cash flows post-closing are a more accurate way to ascertain the firm’s value. As well, consideration of tangible asset value, accounts receivable and post-closing seller compensation should all be considered and calculated.

3. How Does Payment Structure Work?  A typical payment structure is for you as the buyer to finance or pay a certain amount at closing and for seller to finance some or structure the remaining portion as a percentage of revenues earned out over time. This allows buyer and seller to share the risk, focus on making the transition plan a success. For younger attorneys, an abundance of cash on hand is not typically the norm, so considering all financing options with lenders and payment structures is key. For more established firms or attorneys cash may be more readily available, but some form of a seller earn-out is typically still desirable.

IS IT THE RIGHT CHOICE FOR YOU OR YOUR FIRM?

Success and growth are not guaranteed if you purchase an existing practice.  Careful planning, due diligence, and self-evaluation should be performed before you buy a law practice. It is a unique process and having the right advisors can help ensure the transition is smooth and successful.

Attorney/CPA at NC Planning and Accredited Business Intermediary at The Law Practice Exchange, LLC

Tom Lenfestey, Attorney, CPA, ABI with The Law Practice Exchange LLC. Tom Lenfestey is the managing member of The Law Practice Exchange LLC as well as a North Carolina attorney and CPA. The Law Practice Exchange aims to curb the lack of knowledge in the profession by educating and advising attorneys on the number of different options available in the legal marketplace for succession of a law practice and also serving as a confidential adviser to seek and provide connections for those right opportunities between an existing attorney and a growth-focused attorney or firm. Contact The Law Practice Exchange at (919) 789-1931 or info@TheLawPracticeExchange.com for a confidential conversation.

 

Acquiring a Law Firm May Be Smarter Than Starting From Scratch

Purchasing an existing law firm may be ideal if you are looking to grow your existing practice or law firm or if you are an in-house or a lateral looking for immediate stability in revenues along with the flexibility and independence that comes with firm ownership.

The upward climb from starting from scratch to sustainability may be too great or too financially risky.

Where attorneys once locked the front door when they were ready to retire, today they are instead looking to sell or transition their practices to maintain the value that has been built and demonstrated by the ringing phones, systems, clients, firm reputation and overall practice knowledge base.

THE PROCESS

1. Self-Assessment. Is now the right time to take on the work and responsibility associated with buying a firm? Is there anything in your personal life or your current firm’s structure that could benefit from additional time instead? As a buyer, what would be a good fit for you or your practice in terms of practice area(s), size, location, culture, etc.?

2. Get Help. While you are an experienced attorney, this isn’t something you go through every day. It is a unique process and the right advisers can ensure the transition is successful. Assemble your advisory team and connect with a qualified law practice broker (I know a good one) who understands the unique nature of law practice transitions as compared to other business transitions.

3. Consider Opportunities. The law practice marketplace is mostly hidden due to confidentiality concerns. Most transactions go unnoticed. To discover firms for sale, contact a law practice broker, complete a confidentially agreement, and get preliminary information on potential firms. The broker will coordinate initial conversations with seller(s) to discuss how transition may work, your questions, and to get an overall initial comfort level.

4. Get Engaged. If you and the current owner believe it’s a good fit, you’ll need to agree on the value of the law firm, the structure of the transaction, transition plan, and other important deal terms while conducting due diligence.

5. Closing & After. A fixed date will be chosen for the ownership to change and the purchase and ancillary agreements to be executed along with the financial exchange.

At this point you should also feel confident about the post-closing plans for a successful transition plan with the transferring attorney.

THE STEPS

1. What’s the Key To Your Success? It’s a well-prepared transition plan for the buyer and seller. You both will need to agree on the goals of the transition such as the time which will be required of the seller, and the benchmarks of a successful plan. Your goal in practice acquisition is for the selling attorney to remain or become part of the buyer’s practice post-closing.

2. How To Value? The value of a law practice is typically calculated based on historical cash flows, adjusting for factors personal to the seller or that practice as well as deal terms that impact value (shorter transition timeline, etc.). The sale price, and practice cash flows should be reviewed during the due diligence period to ensure the selling price is justified and the payments are sustainable with your projected future cash flows.

A law practice broker or CPA who is knowledgeable in the buying and selling of law firms can be vital in assessing the key value-drivers of a law practice along with the expected post-transition retention. Net income may be a great line item to use in determining the purchase price, but cash flows post-closing are a more accurate way to ascertain the firm’s value. As well, consideration of tangible asset value, accounts receivable and post-closing seller compensation should all be considered and calculated.

3. How Does Payment Structure Work? A typical payment structure is for you as the buyer to finance or pay a certain amount at closing and for seller to finance some or structure the remaining portion as a percentage of revenues earned out over time. This allows buyer and seller to share the risk, focus on making the transition plan a success. For younger attorneys, an abundance of cash on hand is not typically the norm, so considering all financing options with lenders and payment structures is key. For more established firms or attorneys cash may be more readily available, but some form of a seller earn-out is typically still desirable.

IS IT THE RIGHT CHOICE FOR YOU?

Success and growth are not guaranteed if you purchase an existing practice. Careful planning, due diligence, and self-evaluation should be performed before you buy a law practice. It is a unique process and having the right advisers can help ensure the transition is smooth and successful.

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. © 2015 The Law Practice Exchange, LLC. Reproduction in whole or in part is strictly prohibited.

The information and advice provided in this publication is general guidance and is not necessarily specific to your individual situation, objectives or other needs. Make sure you seek a qualified expert opinion before proceeding with your transition objectives.

 

Top 10 Practice Exit Planning Mistakes

If you are considering exiting your law practice in the next few years make sure to plan ahead and avoid these costly mistakes.

1. Failing to Consider All Your Options – Should you sell your practice internally? Have you considered an external sale? Is your Associate or junior partner ready to pay?

2. Not Getting Help – We are lawyers and we of course can do everything, but sometimes getting help from those who are experts is the right thing to do. Consider having an initial meeting with your financial advisor, CPA and of course, your practice broker to walk through best options for you.

3. Being Too Reactive – If you wait till the market feels right or the practice is exactly at the right number you may miss the best opportunities to transition. Just like you can’t time the stock market picking the exact right time to exit is not always achievable.

4. Not Understanding The Timeline – Selling a law practice is about transition and preparing, finding and implementing the best exit option takes time even before that transition begins. The more time you give the process the better the value and the outcome.

5. Failing to Consider Your Financial Needs – Don’t forget that your personal financial or retirement plan are dependent on the cash flow or exit value from your law practice. Make sure you have a clear understanding of what amounts you need for your personal plan post-exit.

6. Not Knowing Your Value – What is your practice worth now? Make sure you have done your own due diligence and have a complete understanding of a realistic and defendable value for your practice.

7. Getting Distracted – We are emergency responders for our clients and some days there are just too many client fires to handle to allow you to also continue the plan for your exit. See (2) above and consider getting someone in place to make sure the planning continues when you aren’t able to.

8. Not Considering the Taxes, Taxes, Taxes – Review any exit options or potential deals with your CPA and make sure taxes are calculated and determined to predict your true net number.

9. Making it Too Complicated – Exiting your law practice does not have to be complicated. Don’t get overwhelmed with the tasks ahead. If you have chosen an experienced team they will walk you through the steps and get you to the finish line.

10. Forgetting What Is Next – If you are successful in exiting your practice make sure you have a plan for post-transition. This profession has been your life for many years and now it is onto the next stage. Have a personal plan and be ready to implement.

Rewards and Risks of Buying a Law Practice

Buying a law practice isn’t something that is commonly discussed, but if you haven’t considered the financial and professional opportunities that may come with purchasing a law practice it may be time to do so. Attorneys have been buying law practices, whether internal transfer (partner to associate) or external (firm acquisitions and mergers) for years, but the marketplace is continuing to build with more sellers looking to exit their practices for value and more attorneys considering the buying of a practice as a way to grow and solidify revenues in a constantly more demanding legal marketplace.

Buying a law practice is probably one of the biggest decisions an attorney may make in his or his career. As a result, it is important to make sure the right information is gathered and the proper advisors are consulted before taking that leap.

If you are moving in that direction of buying a law practice consider these rewards and risks as part of your evaluation:

-Common Rewards 

-Financial Freedom
-Flexible Schedule
-Sense of Accomplishment
-Proven Practice Model
-Acquire Trained Employees
-Predictable Revenues
-Geographic Expansion
-Improved Systems and Process

-Common Risks 

-Financial Commitment
-Failed Client Transition Plan
-Management and Legal Time Capacity for Increased Workload

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. © 2015 The Law Practice Exchange, LLC. Reproduction in whole or in part is strictly prohibited.

The information and advice provided in this publication is general guidance and is not necessarily specific to your individual situation, objectives or other needs. Make sure you seek a qualified expert opinion before proceeding with your transition objectives.

 

5 Things to Consider Before Buying a Law Practice

5 Things to Consider Before Buying a Law Practice
If you have been considering the benefits of buying a law practice in order to expand or grow your client base, be sure to ask yourself the following questions at the beginning of the process before going too far. Buying a law practice could be one of the biggest decisions an attorney makes in his or her career.


As a result, it is crucial to prepare and make sure this potential purchase is right for you.

  1. IS NOW THE RIGHT TIME TO BUY? The first step should always be conducting an assessment of yourself and your firm when determining if you are ready to buy. A certain amount of confidence is needed in your strengths and the ability that you and your team can handle the transition and increased workload that will accompany the increased revenue stream. If you, the lawyer, and your law practice are ready, give some considerations to the personal aspects as well. Is this time right for you to take on more work, responsibility and risk? Or are there things in your personal life that should require such time?
  1. IS THE PRICE RIGHT? All law practices have value, but determining the exact amount of value is the real challenge. An analysis should be completed on the sale price and practice cash flows should be reviewed during the due diligence period to ensure the selling price is justified. Make sure someone who is knowledgeable in this area is providing this opinion and taking into account the key value-drivers of law practices.
  1. WILL THE SELLING FIRM’S CULTURE BE A GOOD FIT? If you don’t already know the attorney or practice, you will have the opportunity to get a glimpse of the firm’s culture throughout the due diligence period. Are there tenured employees or is there constant changeover? How much of the firm’s focus is on marketing for the future and getting clients as repeat customers? These and many other factors can help determine if it will be a good fit for you and your practice.
  1. IS THERE A DOCUMENTED TRANSITION PLAN? Whether the purchase you are considering is an internal transaction between attorneys of the same firm or an outside purchase, a documented and well thought out transition plan should be agreed on and a timeline should be specified. What transition goals should the exiting attorney focus on in the first few weeks? Next two years? Ultimately, you will want to know that you and the selling attorney agree on the goals of the transition, the time which will be required and the benchmarks of a successful plan as it is implemented.
  1. DO YOU HAVE ALL THE ANSWERS? You don’t. We promise you. Even though you are an attorney, this isn’t something you personally go through everyday. It is a process and having the right advisors from step one can ensure the transition is successful and missteps are avoided. Assemble your advisory team and connect with a qualified Law Practice Broker, your CPA and your Financial Advisor to help guide you through the process. Make sure these questions are asked and answered!

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. © 2015 The Law Practice Exchange, LLC. Reproduction in whole or in part is strictly prohibited.

The information and advice provided in this publication is general guidance and is not necessarily specific to your individual situation, objectives or other needs. Make sure you seek a qualified expert opinion before proceeding with your transition objectives.
 

 

ARE YOU PREPARED FOR THE FUTURE?

As attorneys, we are called on from time to time to advise and advocate for clients’ needs while also anticipating items they may not be thinking about on the road ahead in life or business. Many attorneys will also advise those same clients, businesses and individuals on contingency and succession planning they should consider if certain events should happen. Solid advice and the implementation handled by that attorney and other advisors on behalf of the client can work perfectly. The client gets to walk away knowing they have a great contingency plan in place and things will be alright upon disability, death, retirement and many of the other curve balls life could throw their way.


How about your plan? Have you been through the same level of planning with your team of advisors that you recommend to your clients? Have you spent the time, money and effort on your own personal contingency plan? Make sure you aren’t projecting “Do as I say, not as I do” as it applies to the succession plan for your law practice and for you personally.




Follow these next steps to get prepared for your future:

  1. Stop Procrastinating! – No seriously, stop putting it off! Set aside some time to get out of the office and start considering the ‘what-ifs’ for you as a person and how those situations will impact your practice.
  2. Schedule Those Meetings – Not with your clients, you are the client now. Reach out to your financial advisor, your own trusted attorney, your CPA and a law practice consultant or broker (like us!) to start the discussion. No idea who to start with? Anyone. Make a list. The key is to start and the pieces will begin to fall into place.
  3. Document Everything– You are an attorney after all!…So make sure you are taking notes and preparing a war chest of information, goals, ideas, disaster planning info and all those other items you or someone else would need to complete your succession plan.  It could be helpful to create an organized list of where all your important documents are stored as well.
  4. Get Informed – Talk to your advisors. Open up about what your goals are and what your personal and financial needs are so that you can lay out a plan that truly works for you.
  5. Address the Contingencies – Have you heard of a Will? Do you have one? How about one for your law practice? It’s called an assumption, buy-sell or partnership succession agreement. Some form of agreement should be in place so that your practice, your clients, your family and most of all your professional legacy is not lost by just a winding down and shuttering of the client matters.

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. © 2015 The Law Practice Exchange, LLC. Reproduction in whole or in part is strictly prohibited.

The information and advice provided in this publication is general guidance and is not necessarily specific to your individual situation, objectives or other needs. Make sure you seek a qualified expert opinion before proceeding with your transition objectives.

 

Can You Really Buy or Sell a Law Practice?

Can You Really Buy or Sell a Law Practice?

Have you ever thought about your exit plan from your practice? Retirement, family demands, a new career, or some other career pursuit may be calling. But the typical question that holds many lawyers back from entering the next phase is, “how can I afford to live without the income and resources from my practice?” For many, there are retirement savings, alternative opportunities from a second career or other options available to replace practice income. However, few attorneys actually consider the option of selling their practice as the precursor to that next step or even know that doing so is an option. Selling a practice through a law practice transition can be a great way to benefit from the value built up over years of work. In addition, there are probably even fewer growth-focused attorneys who consider the potential of purchasing a practice as a way to grow client base, income and revenue streams, and overall firm health and sustainability.


The Reality Is That Every Lawyer At Some Point In Time Needs A Plan.

Thanks to life’s multitude of unexpected events, that time may be sooner than you think. And when you throw in the current state of evolution of the legal profession, it becomes more and more apparent just how important it is for each practicing professional to understand the challenges and opportunities that accompany this type of transition. For instance, do you have a succession plan? A practice continuation plan? If so, have you implemented such plan, put the tools in place or sought the counsel needed for implementation? If not, you’re not alone. Few lawyers, particularly, solos and small firm members, have a signed succession or practice continuation plan in place and many don’t think about it until too late to fully recoup the practice value.

With this state of flux in the legal world and the potential impact of major life events, the rules of law practice succession are still being rewritten. Gone are the days of whipping together a succession strategy, transitioning the clients to the next generation of lawyers, and sailing off into a retirement funded by the new partners at the firm. From big-firm shakeups to increasing client competition among small firms, lawyers today must contend with unprecedented financial, cultural, and marketplace changes and, as a result, each attorney must be open to transition strategies with a longer reach than those employed in the past. These broader and more modern strategies include realizing the value of a law practice through a sale or acquisition.

So, How Does One Go About Buying A Selling A Practice?

The knowledge of the process is somewhat complicated by the fact that law practice sales are nearly invisible to the public market. Look down the street and around town and you see house-for-sale signs everywhere. A quick web search yields any number of results detailing homes values and prices and identities of the parties involved. Established markets, like the residential real estate market, give the general public an excellent idea of how and for how much to buy and sell all sorts of items, including real estate, stock, and cars. Buying or selling a business (especially a law firm) is a different story; potential buyers and sellers need to work a bit harder to find and utilize the resources and opportunities available in the law practice marketplace.

Self-education is a good place to start. A potential buyer or seller typically doesn’t know whether any given attorney wants to exit his practice or buy someone else’s, what his practice looks like, what the process or the price to purchase or sell may be. Therefore it becomes important for any lawyer to put in some time, do some research, and learn the basics about the law practice marketplace, how it works, the resources available and how it may help a lawyer looking to transition or grow. Putting the right team of advisors in place is also an important step. The buying or selling of law practices isn’t new, but the approach and need to maximize the practice’s value through an active marketplace search and proper transition structure are setting new benchmarks for lawyer transition success stories.


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. © 2015 The Law Practice Exchange, LLC. Reproduction in whole or in part is strictly prohibited.

The information and advice provided in this publication is general guidance and is not necessarily specific to your individual situation, objectives or other needs. Make sure you seek a qualified expert opinion before proceeding with your transition objectives.

 

Excuses Attorneys Use to Avoid Exit Planning

Like every person and business owner, you will one day exit your law practice. That day doesn’t have to be today, but whether voluntarily through transition and retirement or involuntarily through disability, death or other unplanned event the day will come. When it does, you will want to make sure you have planned to achieve certain professional and personal goals.

Believe it or not, most attorneys and law firms have done absolutely nothing to plan and set out a process for making sure succession can occur from one attorney or one firm to another. Here are some excuses attorneys use to justify the delay or failing to put a transition plan in place:

Excuse Number One: My law practice doesn’t have any value without me in it. Yes, this may very well be true, but typically there is little to no value in practices where the attorney has passed away or had a sudden event not allowing them to be in the practice. In the succession of a law practice it takes time and transition steps which help preserve and transfer the value of your firm to the next successor.

Excuse Number Two: I’ll just keep working and earn out my value. You can definitely continue to work in the practice for so long as desired, but life throws curve balls at you and if that day comes when you can’t, but your needs dictate otherwise then the problem arises. Instead, focus on transferring ownership under a succession plan or sale and if you want to keep working then do so for so long as desired. Having a transition plan does not mean you will stop practicing law. As well, exiting at a higher value instead of in wind-down phase will always yield the best financial results for you.

Excuse Number Three: I have tried that before. A number of attorneys we have spoke with have started, stopped, started again and then things fizzled. Or they have hired an associate with the thought of a successor and associate(s) have left. Openly, if you have tried it without success it is probably because the client demands, the legal work and life in general have taken precedent over the planning. Its okay. It is understandable. For most of our clients our true goal is to push through those time constraints and keep the process moving to get to implementation. Having an outside advisor for accountability and knowledge helps greatly in this area.

Excuse Number Four: I don’t want to stop being a lawyer. You don’t have to and no one wants you to, even your successor or buyer. All law firm ownership exits should be based on transitioning over time. Even when that is complete most successors would be delighted to keep you involved and associated with the firm, but you have gained the flexibility to do so when desired and without fear of the unknown. You shouldn’t be done and with the right transition and exit plan you never have to be.

Estate Planning for the Small Firm Partner or Solo Practitioner

Time to Plan!
Estate Planning for the Small Firm Partner or Solo Practitioner

The fundamental principal of estate planning is to anticipate and prepare for the major life events, particularly, what will happen to one’s property upon disability or death. The same train of thought can and should be applied to your law practice. Preparing and implementing a concrete backup plan should be a major priority for any practice owner.

The reality of the situation is that so very often professionals spend most or all of their waking hours working on or in their practice. The seemingly endless needs of one’s clients tend to get in the way of this sort of planning. But it is too important to ignore. What were to happen, say, if the sole owner of a practice passed away without a succession plan in place? Trouble, definitely. Chaos, most likely. Missed opportunities, certainly.Every practice owner should take the time to adopt a plan for his or her practice that will properly provide for ongoing client management and representation upon his or her passing. Call it an emergency plan, a disaster plan, or otherwise, it should be well thought out and hands-on in the event of the practitioner’s passing. Here are some key elements to consider as part of that planning:

  1. Prepare. Prepare a law practice knowledge base with key disaster info and checklist for what steps should be taken in such an event.
  2. Ethics. Consider your ethical requirements for each event and how they may impact your plan.
  3. Personal Needs. What are your personal needs regarding exit value for you, your family or otherwise?
  4. Plan for Each Event. Review and implement a transition plan for:
    • Retirement
      • Are you going to sell your practice, close it down or transition it to a new associate?
      • Is time on your side to accomplish this planning?
      • Will the law practice purchase price meet your retirement planning needs?
    • Disability or Death
      • Do you have an Assumption Agreement with an outside trusted peer attorney or a Buy-Sell/Partnership Agreement with other partners of the firm?
      • How has the purchase price in these events been calculated and is it properly funded to ensure payment?
      • How can you prepare clients to ease transition in such an event?
    • Relocation or Other Transition
      • How would an accelerated timeline impact your plan?
      • Would your potential transitioning attorney be able to manage the increased client demand?
  1. Ask For Assistance. Seek out those who focus on practice transitions or these types of events and ask for advice in putting together your plan. There is an abundance of resources out there with your insurance providers, state bar associations. In addition, key individuals such as CPAs, financial advisors and law practice consultants and brokers can help you make quick work of your practice’s estate plan.

Just like the saying in estate planning goes; it is not a matter of ‘if’, but ‘when’ this same mindset should be used to motivate your planning. Whether you control the decision or not when retirement, disability or your passing occurs make sure you have a plan that takes care of your practice, your clients and preserves the value built for your loved ones.

One works tirelessly to build a successful practice and a plan should be in place regarding what would happen if the founder were to become disabled or pass away. One’s law practice succession plan and estate plan should work hand in hand to ensure that there is a smooth transition from leadership to leadership and your responsibilities and goals are met.

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. © 2015 The Law Practice Exchange, LLC. Reproduction in whole or in part is strictly prohibited.

The information and advice provided in this publication is general guidance and is not necessarily specific to your individual situation, objectives or other needs. Make sure you seek a qualified expert opinion before proceeding with your transition objectives.