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Tag: succession planning

Key Components to Successfully Selling Your Law Firm

Posted on by Tom Lenfestey

Selling a law firm involves more than just passing the torch; it’s about shaping a legacy and turning years of legal expertise into a tangible transition. As attorneys take on the role of entrepreneurs managing a complex business, selling a law firm becomes a strategic venture laden with ethical considerations and crucial steps that demand meticulous attention. 

The process of selling a law firm is a complex task that requires careful planning and execution. It’s akin to parting ways with a lifetime of achievements, but it also offers a chance for advancement and evolution. To embark on this journey successfully, one must understand and embrace the intricacies of the process.

From detailed succession planning and the pivotal role of goodwill to strategically presenting future revenue potential and emphasizing client caseload transitions, we’ll explore each aspect with a professional lens.

The Importance of Succession Planning

Central to selling any law practice is a well-thought-out exit plan, playing a pivotal role in ensuring a smooth transition. Succession planning is more than just a legal formality; it’s the linchpin in selling your firm without causing disruption to your clients. This involves identifying someone competent enough to take over client files seamlessly. A robust succession plan safeguards your legacy and ensures continuity in client representation. These steps are crucial when succession planning is brought to the fore:

  • Identifying the Right Successor

Choosing the right successor is a nuanced process. It goes beyond finding someone with legal prowess; it involves assessing their ability to understand and maintain the unique culture and values of your firm. A successful transition requires a successor who can seamlessly step into your shoes, fostering trust with existing clients and carrying the torch of your legacy forward.

  • Client Transition Strategies

The transition of clients is a critical aspect of succession planning. Ensuring that clients feel comfortable and informed during this process is essential. Clear communication and obtaining client consent for the transfer of case files are crucial steps in navigating this phase smoothly.

Recognizing Goodwill

The intangible asset that sets your law practice apart, goodwill is a cornerstone in negotiations. Understanding how to leverage and showcase goodwill enhances the perceived value of your firm, giving potential buyers confidence in their investment. 

When it comes to goodwill, there are a few points to note:

Goodwill isn’t just a byproduct of your legal victories; it’s a cultivated asset that reflects the positive relationships and trust you’ve built over the years. Showcase the goodwill of your firm by highlighting client testimonials, positive case outcomes, and community involvement. By emphasizing these elements, you not only add value to your brand but also create a compelling narrative for potential buyers.

During negotiations, explicitly communicate the value of goodwill to potential buyers. Help them understand how the positive reputation you’ve built translates into a loyal client base and a solid foundation for future success. When buyers recognize the intangible benefits of goodwill, they are more likely to perceive your firm as a valuable investment.

Steps to Showcase Future Revenue Potential

Potential buyers will not just be interested in the revenue your firm is currently generating. They will want to get a full grasp of the future revenue potential, too. This involves demonstrating recurring revenue opportunities, referral sources, and active marketing initiatives that are in place to attract new business to the firm. To demonstrate a robust pipeline when preparing to sell your law practice, strategic planning takes center stage. This approach, framed as showcasing future revenue potential, not only allows law firm sellers to extract value but also serves to engage the interest of a wider set of potential buyers. 

Client Assurance with Caseload Transition

Transitioning client caseloads isn’t an ethical consideration; it’s an assurance of continuity. Dive into the mechanisms your firm has in place to handle this transition smoothly. From client communication strategies to ensuring uninterrupted service, demonstrate that clients aren’t just transferred; they’re nurtured. Utilize case studies or testimonials to underscore your firm’s commitment to professionalism and reliability.

Professional Assistance in the Selling Process

Considering professional assistance during the selling process, such as through the services offered by The Law Practice Exchange, can provide significant benefits.

Professional advisors, reframed as strategic partners, offer expertise that is challenging to match. They extend beyond basic guidance, ensuring a smoother succession process. Preserving confidentiality, evaluating potential successors, and securing favorable terms during negotiations become integral aspects of their support.

Selling a law firm is a meticulous journey that requires strategic planning and execution. From showcasing future revenue potential to navigating ethical considerations, every step matters. The importance of a strong pipeline, ethical practices, and strategic planning cannot be overstated. Informed clients are the key to a successful transition, and professional assistance, such as that provided by The Law Practice Exchange, can be the guiding light through the complexities of selling a law firm, ensuring a seamless and valuable experience for all parties involved.



A checklist for transitioning leadership in a law firm

Posted on by Tom Lenfestey

A law firm is a complex business. Whether you are buying a law firm or selling a law firm, it is crucial that you have a well-developed strategy to protect your rights, your financial interests, and the future operations of the practice. Transitioning leadership within a law firm can be challenging. With a proactive approach, you can take the right steps to facilitate a smooth and successful transition of a law firm’s leadership and/or ownership. 

You may have questions about the best way to accomplish a transfer of leadership for a law firm. In this article, our seasoned legal team at The Law Practice Exchange will discuss what to consider when transitioning leadership in a law firm, and we include a detailed checklist for doing just that. 

Know Your Purpose and Objectives

As a starting point, it is crucial that you have a clear view of your purpose and your objectives—both on a personal level and on a professional level. Many people run into problems when transitioning to a law firm because they see the ultimate goal. Here are some key things that should be considered: 

  • Do you know why you want to buy, sell, and/or transition the leadership of a law firm?
  • Are you confident that all key players—inside and outside the firm—are on the same page?

Develop a Comprehensive Plan for the Practice 

A well-thought-out plan for the practice can provide clarity and direction during the leadership transition. In many ways, you could think of this type of strategy as an “estate plan” for the law firm. Among other things, a plan for the future of the practice may need to address the following: 

  • A complete list of all current (and recent) clients of the firm
  • A detailed account of the case file/legal strategy for all ongoing matters
  • A clear chart that clarifies the current and future organizational and management structure of the law firm
  • A complete account of the financial position—income, assets, liabilities, etc.—of the legal practice

Create a Strategy for Client Transfer/Transition

One of the most complicated and most important aspects of a leadership transition in a law firm is the client transfer process. You need to figure out which, if any, clients will transition to new legal representation. How exactly this works depends on many different factors. Key steps include: 

  • Create a profile for each client
  • Develop a more comprehensive client map
  • Create a client service checklist
  • Ensure that administrative matters (billing, etc.) are handled
  • Develop a plan for communication changes with clients
  • Create a comprehensive accountability plan for the transition 

Ensure a Business Succession Plan is in Place

Every law firm should have a business succession plan. The University of Washington (UW) defines a business succession plan as “the process of identifying the critical positions within your organization and developing action plans for individuals to assume those positions.” The plan should be updated during and after the transition of leadership. Important considerations include 

  • Safeguarding client information and client assets
  • Ensuring compliance with record-keeping requirements
  • Closing out trust accounts and client accounts (if applicable) 
  • Developing a new plan for the future leadership of the law firm

Provide the Knowledge and Tools to Empower New Leaders

Taking on the responsibility of running a law firm is never easy. A lawyer who assumes the position of leadership must be empowered with the right knowledge, resources, and tools. This is an area where two law firms run into problems during a transition. Among other things, this part of the process may involve: 

  • Proving all relevant financial information about the practice in appropriate context
  • Ensuring that technology services and digital accounts are properly transferred
  • Preparing staff and other key players for the transition of new leadership
  • Promptly notify all vendors and suppliers of ownership/leadership changes 

Pay Careful Attention to Insurance Coverage 

Insurance is a vital part of owning and operating a successful legal practice. It cannot be overlooked. It is imperative that all parties involved in a law firm’s leadership transition review insurance coverage before transitioning leadership to avoid any potential legal issues.

  • TAIL coverage
  • Malpractice coverage 
  • Business life insurance coverage (if applicable)

The Law Practice Exchange are Leaders in Law Firm Brokerage and Exit Strategies
At The Law Practice Exchange, LLC, we are proud to be the leading law firm brokerage. If you have any questions about exit strategies or the transition of the leadership of a law firm, we are here to help. Contact us today to set up a fully confidential initial consultation. Our team helps clients with the buying, selling, valuing, and transitioning of law firms nationwide.

The Importance of Law Firm Succession Planning

Posted on by Tom Lenfestey

Every business needs to be prepared for the future. Law firms are no exception to the rule. A crucial part of planning for the future of your legal practice is putting a comprehensive business succession plan in place. Law firms without a well-crafted succession plan are vulnerable. At The Law Practice Exchange, LLC, we are committed to helping lawyers and law firms plan for practice transitions. In this article, you will find an overview of the importance of law firm succession planning. 

What is Law Firm Succession Planning?

Investopedia defines business succession planning simply as a strategy that “ensures that businesses continue to run smoothly and without interruption after important people move on to new opportunities.” In other words, a succession plan for a law firm is a strategy designed to transition the legal practice—as a business—from one group of leaders, partners, and decision-makers to another. Exactly what a business succession plan for a law firm will entail always depends on the specific needs of the legal practice.  

Why Succession Planning is Essential for Law Firms 

Every law firm needs a comprehensive, customized business succession plan. Whether you are a partner at a mid-sized law firm or a solo practitioner, it is imperative that you have a plan in place that adequately protects your rights, interests, and your business. Some of the most notable benefits of law firm succession planning include the following: 

  • Provide Clarity of Purpose: What would happen if you or another key partner suddenly left your law firm? Would the firm still be able to continue operations? Would someone else be able to step in and fill the role? A law firm succession plan brings much-needed clarity to potentially uncertain situations. It can make things a lot easier. 
  • Reduce the Risk of Conflict: With law practice transitions, there is a serious risk of conflict. If everyone is not on the same page, the differing expectations have the potential to cause significant problems. A well-thought-out law firm succession plan reduces the risk of conflict in a practice transition. 
  • Smoothly Continuance of Operations: If a law firm partner or other key player left the practice, would a firm’s clients still be able to get top-quality legal services? A law firm succession plan helps to ensure that operations continue as smoothly as possible through any transitions.  
  • Ensure Financial Security & Protection: Law firm succession planning provides financial protection. It helps ensure that adequate funding is available to transition the practice to the next stage—regardless of unexpected circumstances. 

Every law firm succession plan is different. Whether the ultimate goal is for the law firm to be sold to another party, ownership interests to be transferred to existing partners, or near partners are to be brought into the practice, a law firm succession plan can help make the transition as easy as possible on everyone involved in the process. 

Three All-Too-Common Mistakes to Avoid With Law Firm Succession Planning

Succession planning is crucial. At the same time, a law firm succession plan will only be truly effective in protecting your financial interests and the future of your business if it is well-designed. In too many cases, law firm partners make avoidable errors in business succession planning. Here are three common law firm succession planning mistakes that you need to avoid: 

  1. Waiting Too Long: With law firm succession planning, it is always best to be proactive instead of reactive. Waiting too long to get started on your business succession plan is a mistake. The right time to begin law firm succession planning is now—ideally, well before there is any immediate need. 
  2. Poor Communication: Ultimately, successful law firm succession planning is about communication. Poor communication can undermine even the most well-considered succession plan. Make sure that everyone is on the same page. 
  3. Failure to Update the Succession Plan: It is best to think of a law firm succession plan as a living document. A succession plan that is perfect for today may no longer be nearly as effective three years down the road. It is crucial that succession plans are kept up to date. 

We are a Leader in Law Firm Succession Planning  
At The Law Practice Exchange, LLC, we are a trusted national leader in the buying, selling, and transitioning of law firms. If you are preparing to purchase a law firm, we are here to offer support and guidance. Contact us today to set up an initial confidential consultation. We can help you meet your objectives. Our experienced law firm brokerage team works with clients nationwide.

Selling Your Personal Injury Practice: What You Need to Know

Posted on by Tom Lenfestey

Personal injury law is a highly competitive field, and as a personal injury attorney, you may find yourself at a point where you’re ready to move on and sell your practice. Whether you’re looking to retire, take on a different type of legal work, or simply move on to a new chapter in your life, selling your personal injury practice can be a great option for exit and monetizing the value you have built. However, having the right approach is key to ensure a smooth transition and secure the future of your practice.

Before you begin the process of selling your practice, it’s important to understand the value of your business. Personal injury practices are typically valued based on a multiple of their adjusted net income along with a strong focus on case inventory and projected future intake from brand assets. However, there are other factors that can affect the value of your practice, such as the size of your client base, the types of cases you handle, and the strength of your reputation.

It’s also important to consider the terms of the sale. Will the buyer be purchasing the entire practice, or just a portion of it? Will you be able to remain involved with the practice in some capacity, such as a consultant? It’s important to have a clear understanding of these terms before entering into any agreements.

Once you’ve found a buyer, it’s important to ensure that the transition is smooth. This includes transferring client files, transferring any retainers, and ensuring that all legal and ethical obligations are met. It’s also important to inform your clients of the sale and ensure that they are comfortable with the new attorney handling their case.

Selling your personal injury practice is a significant decision that requires careful consideration. By understanding the value of your practice, finding the right buyer, and ensuring a smooth transition, you can secure the future of your practice and move on to your next chapter with confidence. It’s also important to seek professional advice from a law firm valuation and brokerage expert (we know some…hint, hint), as it will help you to navigate the process and ensure that your rights and interests are protected.

Buyer Financial Pre-Qualification – What, Why and How?

Posted on by Jenny Magallen

You’ve decided that it’s finally time to take the step and move forward in exploring a purchase of a law firm. You have located one or a few potential law firm listings that you think may be the right choice for you or your law firm’s needs and you are ready to get things moving. However, there is one thing you should do before diving into a review of the law firms, financials, calls, and meetings to see if one is the right opportunity for you –  you should get pre-qualified for the purchase of a law firm.

What Is Pre-Qualification?

If you’ve ever gotten a home mortgage before, you may already be familiar with the process of pre-qualification. Pre-qualification is a preliminary commitment from a lender to give you a set amount of money that you can use to fund the purchase. The lender will supply you with a pre-qualification letter or document that you can present to brokers or to sellers when you reach out expressing interest in the law firm(s).

Why Get Pre-Qualified?

If you are going to require financing for any portion of the purchase of the law firm, it is crucial to get pre-qualified before you take any further steps. Even if your needs are only for working capital and not related to the acquisition price of a firm you would still want to make sure that key piece to the equation can be fulfilled. Doing so at the beginning of your search will provide a number of benefits:

Saving Time – By applying for pre-qualification, you’ll know up front whether or not you’ll even be able to obtain a loan of the type, the amount or for the purpose needed. In the event that you can’t obtain pre-qualification with your current lender due to that lender’s industry focus, you’ll have time to connect with a lender which is focused on law firms and move things forward for you as needed.

More Focused Search – Your pre-qualification will let you know precisely how much you can spend on the purchase of a law firm and what works for your goals, needs and overall financial risks.  As a result, you’ll be able to focus on the law firm that you can afford. The improved focus will make for a more streamlined search process and help you find the perfect law firm to buy much faster.

Expanded Options – Some prospective law firm buyers are pleasantly surprised by their pre-qualifications and find out they will be able to afford a different scale of law firm than they anticipated. Once you know how much you will be able to borrow, you may be able to expand your search to more profitable or larger law firms that may be better fits for you or your firm in the long run.

Credibility – Having a pre-qualification letter from a lender will show sellers that you’re the real thing. By establishing financial credibility from the start, you’ll be in a better position to negotiate. When sellers take you seriously, they’ll be more cooperative and eager to work with you.

How to Get Pre-Qualified?

To get pre-qualified, you’ll need to approach lenders and complete an application. Lenders may want to see proof of income, bank statements or tax returns, so it’s helpful to have those documents together.

If you’re looking for assistance with pre-qualification or want to line up your next steps so that you can begin searching as soon as you have your qualification paperwork, The Law Practice Exchange can help! Contact us today and we can provide law firm marketplace lenders and other resources to help you expedite this process.

Your Options When You’re Ready To Retire From Your Law Firm

Posted on by Tom Lenfestey

The legal industry is aging and replacement law firm owners and leaders are needed. According to data from the American Bar Association (ABA), a record high percentage of active attorneys are senior citizens. While more and more lawyers are working later in their life, a significant share of the lawyer population is expected to retire in the coming years. 

This raises an important question: What options do law firm owners have when they are ready to retire? The answer is that you have several different choices, including selling your firm which can take many different structures depending on your specific goals. 

Be Proactive: Ensure a Strategic Exit from Your Law Firm

For lawyers, preparing for retirement can be challenging. Owning and operating a law firm is complicated and the client demands take priority. You do not want to simply wake up one day and leave the business without warning. Many unique issues need to be considered and addressed when transitioning a legal practice—from client notification – to file and case transfers – to insurance coverage. 

By ensuring a strategic exit from your firm, you can do right by yourself, your family, your associates, and your clients to keep what you have built going even after you are done running the firm. A proactive approach can make a big difference. Give yourself time to develop the right strategy. The sooner you start preparing for retirement from your firm, the better position you will be in for a smooth transition. 

Know the Three Main Options If You are Ready to Retire from Your Law Practice

For the owners of law firms, there are many different ways to retire from legal practice. Every situation is unique. Some attorneys may want a clean break from the law. They may be ready to sell their law firm and move on to the next stage of life. Other attorneys may be interested in keeping some part-time role with the firm, perhaps as an of-counsel lawyer or a consultant. The options for lawyers who are ready to retire from their firm typically fit into the following three broad categories: 

  1. Transfer the Law Practice to a Successor (Family Member, Junior Partner Associate, etc): Upon the retirement of the primary owner, many law firms are transferred to an internal successor. It could be a child, a long-time associate, or someone who joined the law firm relatively recently. Transferring a law firm to a successor requires a well-considered succession plan. The plan should ensure that the successor—or multiple successors—has the funding, resources, and knowledge that they need to take over the firm. 
  2. Sell the Law Firm on the Open Market to a Third Party: A law firm is a marketable asset. It can be sold on the open market to a third party. Indeed, many law firms are sold to outside parties each year. You do not have to have any pre-existing relationship with the buyer. Selling a law firm on the open market to a third party is often the best approach for retiring attorneys who are looking to get the most out of the business that they built. That third party may be another law firm or an individual attorney. The sale may be structured as a merger, joinder, of counsel relationship, or others, but the financial and exit strategy goals remain the same.
  3. Close Down the Law Firm: A final option that is always available is to simply close down the law firm. While it may be a sensible option in some limited cases, closing a law firm is less advantageous than selling the firm or, at the very least, selling its assets. Building and developing a law firm takes a tremendous amount of work and sometimes closing it down requires a significant amount more. Retiring lawyers should consider the value of their firm before closing it down and see if instead of taking on the burden of shutting it down themselves, they may be able to sell or affiliate with another firm to save some of that time and expense in closing it down. Even a solo practitioner’s small law firm has a market value. 

For retiring lawyers who own small or mid-sized practices, transitioning to the next stage of life can be complicated. You do not have to figure everything out on your own. The Law Practice Exchange, LLC is a brokerage firm dedicated to helping attorneys value, sell, and buy law firms. We are available to help you understand and evaluate all of your available options and help you decide which is right for you. 

Ready to Retire from Your Law Firm? The Law Practice Exchange Can Help

At The Law Practice Exchange, LLC, we were created by attorneys for attorneys. With an exclusive focus on helping clients buy and sell legal practices, our team has the knowledge, experience, and professional expertise that you can trust. If you have any questions about your options when you are ready to retire from legal practice, we are here to help. Give our resourceful law practice brokers a call now or connect with us online to find out more about how we can help. We provide nationwide law firm brokerage services. 

Five Pitfalls To Avoid With A Law Firm Succession Plan

Posted on by Tom Lenfestey

According to a recent American Bar Association report, over 65% of law firm partners will retire in the next eight years. Baby boomers, who have dominated law firm management for decades, are retiring, and millennials are taking their place. Is your firm ready for this change?

The legal sector is undergoing significant upheaval, and the greatest protection you can have is a robust succession plan.

Regardless of where you are in your legal career, law firm succession planning is critical to your company’s survival. According to a 2018 Thomson Reuters study, just 37% of legal firms had (or were developing) a detailed succession plan.

It isn’t always easy to imagine a circumstance in which your law firm exit plan would be required. The unexpected can, however, occur at any time. If something happens to you, a succession plan provides you peace of mind and assures that your clients and partners are in a great spot to succeed. You can ensure that your clients won’t be caught off guard regarding their legal needs by planning ahead of time.

However, law succession planning is often not an easy task, and many law firms make mistakes when developing one. When planning for succession at your law firm, don’t leave it to chance – the team here at The Law Practice Exchange are succession planning and law firm M&A experts and can help you make sure your firm is set up for success if or when an attorney exits the practice.

Common Pitfalls to Avoid When Developing a Law Firm Succession Planning

The following are some of the common mistakes we’ve seen law firms make when coming up with a succession plan:

Not Mentoring Upcoming Partners

If you employ young talent, but don’t coach them well to become partners, you’ll be in a predicament. You should be grooming younger partners toward management long before your older partners announce their retirement. 

Place them on panels to watch how they behave and respond in different scenarios. Make them a part of the firm’s management, client proposals, client relations, and vision. 

This aids junior partners in assuming leadership roles and aids other firm members in seeing them as leaders and feeling more at ease when their leadership status is established.

Not Giving Plenty of Time for Transition

Giving yourself enough time is probably the most crucial thing you could do to ensure a smooth leadership transition. Law firm succession planning should be a continual component of the company culture for large and mid-sized firms, where there may be numerous departing senior partners. 

Even in a small firm where just one lawyer is transferring, succession planning should begin at least five years ahead of time. It’s not a procedure that can be started when a senior partner wants to retire in a year. There’s always a need to hunt for lawyer “stars” to strengthen your roster and safeguard your firm’s long-term viability.

Not Valuing A Retiring Senior Partner’s Contribution to the Firm

Senior partners are encouraged to hang onto their rank for as long as feasible by the existing compensation system, which rewards attorneys for billable hours and origination for a legitimate reason. Seeing that your years of hard work have resulted in huge amounts of money for the firm fills you with pride, so it’s no surprise that when it comes to succession planning, the most common concern from senior partners is, “What about my compensation?” 

Compensation is a sensitive and frequently contentious discussion. However, one tried-and-true technique to make it go more seamlessly is to compensate older partners for their immense contribution and for their continued teaching of rising partners. There’s no use in creating a succession plan if your firm is not prepared to compensate transitioning senior partners for their contributions.

Not Involving Business Development Teams and Marketers

Whether working in-house or as consultants, legal marketers and business development experts play a critical role in attracting the best candidates. Law talents with leadership capabilities are in demand, so having a recruitment staff that can uncover them and sell them on your firm is priceless. 

Once these talents have been employed, they must be trained and coached to become rainmakers, another job for the business development team. Business development is a firm’s lifeline; if lawyers can’t generate business, everything crashes. That’s why your firm’s succession plan should include a vital company growth component and input from experts in the field.

Not Monitoring Your Law Firm’s Progress Enough

A succession plan’s schedule is self-evident: the senior partner will depart their role on a specific date. However, how you prepare for the change in the meanwhile is critical. To ensure that objectives are reached, essential team members should meet regularly. 

Stakeholders in your firm should meet every three months, as doing it less often raises the chances of the transfer failing. These panel discussions allow everyone to track their progress and enable top partners to receive public acclaim for their achievements. 

Regular meetings keep individuals responsible, as succession planning is about altering people’s behavior, which can be a challenge.

Contact Our Law Firm Succession Planning Team

Planning for the succession of your law firm can be a daunting undertaking that requires a significant amount of time. Setting aside time to organize your firm’s succession plan might be challenging, from ensuring you’re following your state’s requirements to drafting the proper documentation and choosing what to do after retirement.

If you’re having trouble keeping up with your succession planning checklist, start small and continue expanding your strategy. Succession plans are systematic, and failing to have one puts you, your business, and your clients at peril. Because you can never know when a catastrophe may occur, the best policy is to be prepared.

The Law Practice Exchange has the experience and the expertise to help with succession planning for your law firm, whether that’s bringing in a junior attorney and training them to manage the firm, or whether it’s exploring options to sell your law firm in the future. Call us today or fill out our online intake form to take the next step in securing your future.

How To Sell Your Law Firm: An Overview

Posted on by Tom Lenfestey

When you have worked at your law practice for many years, weariness often starts to creep in and manifest itself in many ways. For some attorneys, this is a sign that it may be time to consider selling their firm. While most professionals begin exploring succession avenues at some stage of their career, many lawyers don’t realize that selling their firm is an option.

Whether you’re a solo or a larger firm, it’s worth researching your firm’s value if you’re considering moving to another venture or starting to plan for retirement or succession.

Should You Sell Your Law Firm?

If you’re considering selling your law firm, odds are it is worth more than you think. Many lawyers don’t totally appreciate the value of what they’ve created throughout their professional lives. A lot of time, work, and money go into building a law practice, and that all combines to give your firm a transferable value of its own.

Even if you’ve built your practice on your own name and reputation, you should realize that your practice will carry value for someone else, even long after you’ve retired or moved on to something else. In addition to tangible assets such as your office and technology, you likely have a solid track record and goodwill in the community that another firm or lawyer may be willing to pay for.

Key Elements You Need To Consider As You Prepare To Sell Your Practice

A key consideration is the law governing the sale of practice within your state. California was the first state to develop and implement rules governing the sale of law practice back in 1989. Today, the American Bar Association (ABA) Model Rules of Professional Conduct Rule 1.17 (enacted in 1990) guides the sale of a law practice. 

This has been absorbed into the state laws in most of the jurisdictions in the United States. Part b of the rule establishes that the practice or practice area must be sold in its entirety. Regarding its pricing, one of two prices is attached; either a fixed price calculable from an analysis of the firm’s past performance or an earn-out (based on future revenue).

The sale of the practice essentially translates to the selling lawyer losing practice rights in the firm. Nevertheless, the law remains rather vague on the window of time leading to when you, as the seller, need to cease practicing. Likewise, no such requirement prompts such a transition to be immediate. 

As a matter of good faith between parties to a contract, the selling lawyer must give notice of sale via certified email to all its clients. This letter can be used as the announcement of merger, joinder with a firm or other positive announcements as well. 

When a lawyer comes to buy a practice from you, they are looking to grow their revenue by adding your clients to their client base. Even though the property, office furniture, and technology are of some value, they do not offer the financial security equivalent to regular client traffic and the network that the firm has been able to build over its lifetime. This is why it is very important to gain clients’ consent, agree on the proper message with the buyer and develop the right transition plan before making a sale – the value of the firm strongly depends on them.

How A Law Firm Valuation Works

The valuation of a law firm typically takes three forms; asset, market, or income valuation. Asset valuation is done on the tangible assets of the company. Most law firm assets owned depreciate over time so the values are low. So, the calculation for the cost valuation is done by deducting the depreciation accumulated from the original price of the items. This figure is known as the book value. Asset value can also include case inventory, receivables, billings in progress and other assets in law firms which can drive the value up.

A market valuation is conducted to arrive at a fair market value. In essence, this is the estimated value of the firm based on its comparison to peers in the industry. The ideal scenario would be to find a firm of similar profile and financial standing to compare with and ultimately settle on a figure, similar to a real estate comparison. 

However, it is rare to find another firm along these lines to compare to since business operations vary, affecting the overall value of individual firms. This is one of the reasons it’s important to hire a M&A firm experienced in your vertical like our team here at The Law Practice Exchange – our experience helping lawyers buy and sell firms gives us data that is peerless in the industry. 

The third method of valuation is cash flow valuation which looks at revenues or income of the firm. A cash flow valuation example would be if you take your gross income (averaged over the past 3 to 5 years) and use a multiplier to come up with a value. The appropriate multiplier is often determined by a number of different variables, including:

  1. The client base – do you have one big client that’s 50% of your revenue, or a good distribution of client income across many clients?
  2. The stability of the revenue of the practice – is it growing, shrinking or staying the same?
  3. How long has the practice been in business?

How Can You Get Prospective Buyers For Your Firm?

Marketing a law firm for sale is an arduous process, mainly because of the difficulty to package your product well enough to attract the best buyers. While some lawyers choose to advertise on their own, the best choice is to find a broker to guide you through the transaction as they will often already be connected with potential qualified buyers. 

An experienced law firm broker like The Law Practice Exchange can help find and vet qualified buyers for the firm, and in many cases can get a higher valuation for your practice than if you had elected to go it alone or work with a general business broker.

What Paperwork Do You Need to Sell Your Law Firm?

You’ll first need to appraise and package the structure of your legal practice when selling it. You’ll also need any legal documentation pertaining to the sale of a business in your jurisdiction. While the specific paperwork you’ll need may depend on your circumstance and location, you’ll almost certainly require the following:

  • An offer-to-purchase agreement 
  • Cash flow statements
  • A note of seller financing (if offered)
  • Past and current financial statements (about 2 to 3 years)
  • A statement of the seller’s discretionary income

Some Tips To Keep In Mind During The Transition

While you may be burned out and ready to sell your practice or retire, it’s critical to keep some things in mind throughout the process to make sure everything goes smoothly.

First, is that you must continue conducting business normally during the process. This means servicing clients, supporting your team, and continuing to grow revenue if possible. This continuity will help put your buyer’s mind at ease, and anything unexpected during the sales process could either derail the sale or lower your valuation.

Second is that there is almost always a period (can be as long as several years) where you will be required to stay at the firm to help with the transition. This period is often tied to compensation in some form or fashion (an earnout).

Make Your Plan

While the specifics of your strategy may vary depending on your circumstance and the ethical regulations in your location, you should consider the following:

  • A timeline for transitions:  How long do you plan on staying following the sale? Plan the stages in detail and estimate the time it will take to transfer ownership to the buyer.
  • Transfer of essential information:  You should have a strategy to appropriately pass on crucial knowledge about your law firm. This could include passwords, account details, insurance information, and vendor contacts.
  • Training: Will you have to train the new owner or employees? Factor all this into your strategy to ensure a smooth changeover.

Contact The Law Firm M&A Experts

Having a deliberate transition strategy when selling a law practice is just as important as having a business plan when beginning one. A transition strategy guarantees that everyone involved, including you, your clients, and your buyer have a smooth and seamless transition.

The successful sale of a law firm requires experience and preparation. From valuation and preparation to finding your buyer and executing the sale, you will need expertise on your side. The Law Firm Exchange has the experience and expertise to help you navigate the complexities of selling your law firm. Contact us today for a free confidential consultation and find out your options!

Have You Saved Enough To Exit Your Law Practice?

Posted on by Jenny Magallen

Have You Saved Enough To Exit Your Law Practice?

Most attorneys made their law practices their largest source of income for themselves and their families. The dependency on that income may become less over the years, but there is always the question of what things would look like if the law practice salary, profits, and benefits ceased upon retirement.

For attorneys who find themselves asking the question of whether they still need the practice, there are a few ways to reduce this dependency and ensure your long-term financial security.

  • The first step is to get a clear picture of your total personal financial situation. What do spending and savings look like post-law firm ownership? Is there a gap in needs with what you have saved?
  • Get help from your financial advisor or retirement planner to make sure there is a gap that you can fill with income or from the sale of your law practice.
  • Look at life after given your spending, giving, and other financial expenditures to determine how many are provided by the business and which you will be responsible for personally. It may make sense to stay with the new practice owner or firm for longer after closing to receive health insurance or other benefits for of-counsel work.
  • Remember that your law firm can provide financial benefit to you even after your ownership or retirement through a sale, merger, or other sale-type transaction, but you need to take the steps early to plan to do so. We can help!

Overall, this analysis can be done fairly quickly with the right help and should be done regardless of your desire to sell or exit in the immediate future. Knowing your number and any gap in funding your goals will help you have confidence in preparing the timeline for transition and those financial goals needed for the value of the practice upon sale or otherwise.

What Does ‘Selling’ A Law Practice Really Mean?

Posted on by Jenny Magallen

What Does ‘Selling’ A Law Practice Really Mean?

Different ideas come to the minds of attorneys when they hear ‘selling a law practice’. Some think of just the sale of their fixed assets to an up-and-coming attorney or new firm in town and shutting down their actual law practice. Others think maybe they could sell the phone number and that may have some value.

In today’s marketplace selling a law practice takes many forms which are from the basic and lowest value to the more strategic with a higher value to both seller and buyer. Typical sale transactions take various structures, but are usually one of the following:

  • Outright Sale. An outright sale of assets (including your personal and firm brands) to another attorney or law firm as a buyer to continue your firm under their ownership.
  • Merger/Joinder. A merger or joinder by your firm or you with another firm to continue your firm’s services and provide a financial incentive for allowing them to be your firm’s successor as you slow down.
  • Affiliation With Succession. An Of Counsel or other affiliation with a law firm where you personally join the successor firm to continue your practice with the support of their resources until you decide you want to retire.

Each of these are done with your financial and overall succession goals in mind to allow you to transfer what you have built for value, but allow us to work with a buyer or successor to take different structures depending on your goals, the practice transition needs and the potential buyer or successor who may be interested. 

Selling a law firm or selling a law practice can take on several shapes and forms, but the key to remember is it involves your transition and that takes time. If you are pondering “should I sell my law practice?” then contact us today to discuss your options and which structure may work best for you.