Tag: succession planning

Thinking of Exiting Your Law Practice? Should You Consider an Internal Sale First?

If you are one of the law practice owners who is looking at setting plans for retiring from your law firm or selling your law practice you have more options than you think for exiting for value. Over the last several years the external purchaser marketplace has continued to gain popularity, but many times owners of law firms should look to the internal candidates, but should do so while also exploring the marketplace at the same time in case the internal path doesn’t work out.

There are several things to consider in deciding between an internal and external sale for succession and exit from ownership of your law practice:

1. Financial Considerations – Your practice may be positioned and strong enough to seek some outside prospective buyers who are willing to pay a higher price than internal candidates, but this is not always the case. For many practices, the internal associate or junior partner candidate understands the practice, the people, the clients and is more comfortable taking an additional financial risk in a purchase. Additionally, they are ensuring their compensation so many are more motivated than an external.
2. Practice Considerations – Each option will impact your team, your clients, and the community you serve differently. An external option may be more knowledgeable, stronger financially, or have more experience, but may not understand ‘how things work’ in the practice or community. As well, some employees may resist change and rather see a known person take control than the uncertainty that comes with an external.
3. Personal Considerations – Paint the picture in your head of what a perfect exit and transition looks like for you. Do the financial needs outweigh the practice aspects or do you like the idea of being able to have a tested successor who you have worked with for years before making the decision. These personal goals and objectives are the key drivers in making sure you see the exit as a success after the implementation.
4. Timeline Considerations – Sometimes timeline is not just about you or your path to retirement. The timeline that may be important is for your internal successor. Where are they in their career timeline? How long have they been with your firm?

Overall, the key is that you can’t be sure whether an internal sale or succession will work. It may look like it would or that it should and you may even have had conversations about it which seem promising, but don’t put all your eggs in one basket. Instead, make movement on your plans and keep the internal and the outside/marketplace options open to find success for you and your firm.

5 Ways You Can Sell Your Law Practice.

So you’ve decided to plan for exit and sale of your law practice? Congratulations! Great first step. Now what? Now, you must go forward and choose the best exit strategy for you and your practice.

Consider these options noted below as a starting place.

Then get your key advisors, do some goal setting and choose the best path for you.

1. Selling to an internal candidate. Even if you don’t have someone within the firm at present the idea of hiring or recruiting your successor should always be considered. Internal sales tend to be smoother and can be on a more controlled timeline for your plans and client needs.

2. Transferring to a trusted attorney or firm. You may know some good attorneys or firms out there that would be interested. If you are worried about confidentiality, then consider hiring a law practice broker to maintain confidentiality and guide the parties through the process.

3. Selling to a marketplace buyer. The number of buyers looking for quality law firms in all sorts of practice areas and locations continues to grow. This is a great option to maintain confidentiality and bring in a successor for value when internal options don’t exist.

4. Partnership, join a firm, or merge. You have built a good practice. You are a good attorney. Most firms would be happy to have you join them in a partnership, merger, or lateral move structure. Financials and your ultimate exit plan should be agreed upon, but this is a great option when others don’t fit.

5. Do nothing. It will happen. One day you will no longer be running your practice. The question is what that even will look like if you have not taken action and seen it through. Did you get the financial needs required upon exit? Are your clients going to be taken care of? Employees?

Law Practice Succession Planning – Set Your Goals and Take The First Step.

The reality is that every lawyer at some point in time needs a plan for when he or she steps away from the legal field and the options for buying or selling a law practice should be considered. 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.

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. If those options are being considered in your exit or growth planning, then know your personal and practice goals and get ready to take that first step.

Set Your Objectives

The most important question: “What are my exit or transition objectives?” In looking to sell, transition, merge, groom the associate or even in buying a practice for growth, there are right reasons and there are wrong reasons. Any attorney must first reflect on his or her practice and determine if it is ready for such a transition or acquisition. Is now the right time, or is it better to put the plan in place for a transition or acquisition down the line?

Openly, you must first establish your objectives, weigh the costs and potential benefits, and then strive to determine the best path for your sale or purchase that has given those goals. And while personal aims may differ, in preparing a transition plan, it can be helpful to consider the following goals and rewards of practice transition planning:

– Better Prepare Practices for Change – Promote Lawyer Focus on Client Value

– Preserve Client and Practice Goodwill – Provide Alternative Growth Options

– Provide Exit Strategies – Continuous Service to Client

– Promote Mentorship – Increase or Expedite Retirement Options

Where to Start?

1. Look Around. Regardless of whether you are looking to sell your practice or acquire another’s, the first step in any transition is to look at your practice and determine if it is in good order and capable of sustaining a transition. Focusing on how one will perceive your practice’s value or considering the potential of doubling your client matters overnight is great motivation to help you tackle those lingering items you have wanted to address for years. 
2. Put Your Team Together. Next, continue your education on getting ready to sell or buy by seeking assistance. This includes putting together your transition advisors, which typically include your CPA, financial advisor, insurance advisor, valuation expert and law practice broker. Yes, a law practice broker. This type of advisor focuses on the buying and selling of law practices, bringing guided expertise to navigate and exploit the marketplace even when you can’t see the for-sale signs. Confidentiality is key, so contacting and engaging someone to act on your behalf, but properly, helps make sure the transition is successful for all involved.
3. Set Specific Goals. Once you have your team in place it is time to start developing your strategy for selling, buying, merging, or other transition. Set and review your goals and define your desired transaction terms; and, then your practice broker will confidentially seek out and search potentials as well as sort through the non-opportunities. 

When to Start?

Now. Time has a way of working against us, especially in the legal profession where time is our typical exchange for compensation. Don’t be the lawyer who forgets to focus on his legal contingency plans when advising clients of the need of their own. Take the time today to jot down some of your objectives for a potential transition, whether selling or buying, and some tasks to do tomorrow to see what options are out there for you. Seek a resource to help you with your best next step.

A Law practice has transferable value and that value can provide options to an attorney looking to exit his or her practice or to gain the goodwill of another. Knowing your options and the likely financial outcome can greatly impact your professional and personal finances and can also provide tremendous opportunities for those firms or lawyers looking to see continued client service through a transition. Recognize that these options exist and begin exploring which may be best for you today. 

The Benefits of Using a Broker in Selling a Law Practice

Regarding the sale of a law practice, it is reasonable to say that there is a distinct lack of communication,  opportunities, and knowledge in the professional marketplace. While you may know that you want to buy or sell a practice, you may not know where or how to start. Speaking with a law practice broker may provide you with the right tools to accomplish this goal and overcome knowledge deficiencies.

What is a law practice broker? The goal and purpose of the law practice broker are to help organize, prepare, value, promote, negotiate and package a deal for the sale of the practice. What does this entail? Generally speaking, a broker will use his or her skills, expertise, connections, and other tools to promote and develop your knowledge, awareness of market opportunities, and overall ability to get the deal done. More specifically, this includes:

• Listing the practice, finding the right practice to buy, and otherwise exploring the marketplace;
• Connecting you with key advisors;
• Developing marketing and listing strategies;
• Assisting in practice valuation and valuation improvement strategies;
• Assisting with preserving and transferring goodwill;
• Negotiating, and facilitating the negotiation of, key deal terms and otherwise bringing the parties to the table;
• Reviewing and discussing exit strategies and opportunities;
• Providing alternative growth options;
• Ensuring confidentiality in the sale process;
• Expediting the process and keeping it moving;
• Allowing you to focus on your business;
• Assisting in practice transition;
• Facilitating closing and accomplishing checklist items; and
• Developing an overall plan for transferring the practice.

The broker is motivated and incentivized to help you make the sale, so you may question the motives of or need for the broker. But the simple truth is that the broker can often be the difference between closing the deal and it falling through. Buyers and sellers often have substantially differing opinions on what constitutes a “fair” deal. From price amount, structure, and allocation, to limitations and qualifications of representations and warranties, to post-closing transition requirements, there are many opportunities for discord among the parties. And while it is typically the job of the attorney to hammer out these terms and prepare and revise the purchase agreements, it is the broker that often can get past the recalcitrance and get the parties talking.

The benefits of having the right law practice broker to guide and assist you through the purchase and sale process often more than justify the commission. How do I find a buyer? Is the seller asking too high a price? Does the buyer have the right qualifications? Is the market share and growth outlook of the seller the right fit for your practice goals? These are complicated questions that often take a qualified and experienced broker to help you fully understand. And while you may feel comfortable or qualified to or sell a practice based on your experience as an attorney, you can still benefit from speaking with a broker.

As you begin considering purchasing or selling a practice, take the time to speak to a law practice broker. Whether you move forward with his or her services, you will almost certainly benefit and learn from the experience.

Six Steps to Prepare Your Practice for Sale

So you’re ready to sell your law practice. That’s great! Selling your law practice can be an excellent way to realize the value built up over years of practice and to generate income as you transition into the next phase of your career or life. But where do you start? Listed below are a few steps to review and help you prepare for the transition and sale process.

1.Set a Time frame.  When do you want to sell? Knowing this (flexible) date in mind, and factoring in a post-transition assistance period, is important in readying the practice for sale and maximizing sale value.

2.Self-Education.  Spend some time researching the process, the applicable laws and rules (including NCRPC 1.17), and the practical concerns of putting practice for sale on the marketplace.

3.Get Your Team in Place. You can’t go it alone, although it may be tempting: as a lawyer, you may have helped sell many businesses, but that does not mean you are necessarily qualified to best conduct the sale of your own. Having the right people to help you through the process will not only make it easier but can also have a dramatic effect on the bottom line. Additionally, you are trying to run a practice, so your time and focus are limited. Find yourself a law practice broker and CPA, and consider consulting or retaining a financial advisor, an insurance advisor, and a valuation expert.

4.Value your Practice. It is a good idea to have a verifiable idea of your practice’s value before placing it for sale. And while we are all likely to place a high premium on the work that we do, a potential buyer may see things differently. Consult with your practice valuation expert on current value and ways to increase value.

5.Analyze and Initiate Steps to Make Your Practice More Valuable.  Get your practice in the best shape possible. Client management, practice areas, intended timeframe for sale, billing and realization rates and procedures, and employee management and transition are some of the factors that go into valuing a practice. There may be ways to improve efficiency and results in any or all of these areas. If you give yourself enough time, these improvements may make the practice more appealing to potential buyers and may lead to increased sale price and take-home profits.

6.Develop Your Strategy. Consider the type of intended buyer, your financial needs for retirement or next phase (consult your financial planner and CPA), necessary sale price to provide for those needs, tax strategies, internal communication, and transition needs, and other desired terms of sale. Prepare your strategy. It may and likely will change, but don’t adlib the sale process.

Selling your practice does not happen overnight. It takes months of prep as well as months, if not years, of post-transition assistance. You have to start somewhere, however. Just as you may advise a client preparing to sell his or her business, start by getting your house in order. These steps should help.

Tom Lenfestey is the Managing Member of The Law Practice Exchange, LLC, as well as a practicing North Carolina attorney 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. © 2021 The Law Practice Exchange, LLC. Reproduction in whole or in part is strictly prohibited.

Specific Things to Remember When Selling Your Law Practice. While many different considerations are 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 value our work. It 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 critical factors of valuing a practice. These include historical financial performance and growth, reasonable expectations of future revenue, likelihood and extent of repeat clients, geographic location of the firm, a saturation of practice areas in the local and regional marketplace, and others.

Many factors 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 know about your practice’s valuation prospects.

Insurance Considerations. Coverage details will likely be a pivotal point in the sale transaction deal. Maintaining proper coverage is vital due to the nature of legal malpractice insurance coverage.

Coverage details will likely be a critical point in the sale transaction deal, with the seller’s responsibility probably taking the form of “tail” coverage, which provides a certain period of extension of coverage for claims made during the original life of the policy.

Ethical Considerations. 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 your practice!

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 the ability to sell and providing guidelines on the post-closing transition.

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.