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:
- 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.
- 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.
- 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.
- 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.