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.
- 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:
- Why is the current owner selling their legal practice?
- How did the seller determine the value of their law firm?
- What is the net projected cash flow for the next 12 months? 24 months?
- What transition help after closing can the seller provide?
- 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:
- You fully understand the law firm that you are considering buying.
- You are able to identify any conflicts of interest or other potential problems.
- You have all of the details that you need to negotiate the best deal.
- You have all financials and operational items that you need to manage the law firm after purchase.
- You and seller have worked out a solid transition plan to implement at closing and after.
- 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.
- 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.
- 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.