Things To Remember When Selling Your Practice
Deciding which option is best for you is a personal decision based on life plans, financial needs and your type of practice. While there are many different considerations leading up, during and after the sale process, here are a few to which you should pay particular attention.
Valuation and Increasing Purchase Price
It is common to highly value our own work. This is particularly true for business owners, and lawyers are no different. As such, we may be prone to overvaluing the business. Unrealistic or unsupported sales prices can hamper or outright quash a deal. So it is typically a good idea to bring in a valuation professional to accurately value the practice. However, it would be beneficial to review some of the key factors of valuing a practice as they pertain to you own. These include historical financial performance and growth, reasonable expectations of future revenue, likelihood and extent of repeat clients, geographic location of the practice, saturation of practice areas in local and regional marketplace, and others. There are many factors that come into play, so getting a formal opinion from a valuation consultant will almost certainly benefit you in the long run. But make sure you are educated about your practice’s valuation prospects. And there may be certain things you can do to improve the value of your practice leading up to the sale. Whether this involves retaining a consultant or self-education and implementation, if there is a certain purchase price you need to hit for retirement or any other next stage in your life, knowing what you need to do to get the value of your practice to that price, and then doing those things, is incredibly important.
Due to the nature of legal malpractice insurance coverage, maintaining proper coverage through and beyond the sale of your practice is vital. Based on the “claims made” nature of malpractice insurance, what policy is in effect at the time the claim is made is the key consideration. So keep yours up to date with adequate coverage. Coverage details will likely be a key point in the sale transaction deal, with the seller responsibility likely taking the form of “tail” coverage, which provides a certain period of time of extension of coverage for claims made during the original life of the policy; remember, it does not cover claims that have not yet arisen (i.e. the facts and circumstances on which the claim is based haven’t yet occurred) at the time of termination of the current policy. Furthermore, in situations involving post-closing transition from the selling attorney in the form of actual legal representation and services (which will probably be the case), then the selling attorney should probably be added to the buyer’s policy. As you can see, consulting with your malpractice carrier during the negotiation process is a must. Source: Lawyers Mutual Liability Insurance Company of North Carolina.
As an attorney, you are subject to a myriad of legal and ethical duties on an ongoing basis. That doesn’t change just because you sell you practice! You can’t just say, “Thanks for the money, here’s the practice, I’m out!” Rule 1.17 of the North Carolina Rules of Professional Conduct is the seminal authority on your responsibilities during and after this process, laying out certain conditions precedent to the ability to sell and providing guidelines on the post-closing transition. Read this rule. Review it. Study it. Learn it. Know it.
Make Sure You Are Ready
Selling your practice can be very draining: mentally, emotionally, physically and financially. It is important, therefore, to make sure you are ready, on all of these levels. Mentally: you will be going from owning your own business to a new phase in life. Perhaps that will be another practice, another career or retirement. Regardless, it will represent a major change in your day-to-day life and your perception of yourself and others. This holds true on an emotional basis as well. While you may be able to rationally process the changes, go through the checklist, and take all the necessary actions, this won’t necessarily prepare you for the emotional impact. Take the time to talk it through with your loved ones. What are their expectations? What are yours? Are they reasonable? Does it matter? Physically: the legal profession is not known for being the most conducive to physical fitness. Many are desk-jockeys, work long hours, sleep little, drink and eat too much. So in some instances, selling the practice may have a positive physical impact! Nevertheless, there will be a change and you should prepare yourself for it. Financially: if the practice represents your sole or primary source of income, this obviously poses a large issue. If you are moving to retirement, you and your financial planner should assess what price will get you to your retirement goals. Do you have other income or financial needs or goals? Charitable intentions? Make sure you are fully prepared for these and other transition consequences.