By Camille Stell
With an ever-growing number of Baby Boomers considering retirement, have you ever considered buying a law firm? Maybe you should.
- Why Should You Buy a Firm?
You’re a recent graduate. Someone else has taken the time and effort to build a practice from scratch. From the very first client. It’s a long, hard process. They have perfected the relationships, the staffing, and the firm management. Rather than start from scratch yourself, consider buying the practice of a retiring lawyer as a way to jumpstart your practice. And make sure the seller stays on board for a transition to help you learn the ropes.
To expand your geographical footprint. Buying a practice is a great way to move into a new market. Again, a transition period will be important to connect you with the seller’s clients, prospects, and referral sources, but easier than establishing an outpost from scratch.
To expand your area of practice. Buying a practice can be a great way to build resiliency into your firm. When one practice area booms, perhaps another contracts. This provides continuity. It is important to learn your new practice by working with the successor through a transition period, or bring in someone with experience in the practice area.
To expand your revenues. Buying a profitable law firm will expand your revenues. It’s important that you work through the valuation to make sure that the practice is profitable and to make sure that you have the capital you need for expansion.
- Is the Price Right? Tom Lenfestey, owner of The Law Practice Exchange has this to say about law firm valuation, “All law practices have value, but determining the exact amount of value is the real challenge. An analysis should be completed on the sale price and practice cash flows should be reviewed during the due diligence period to ensure the selling price is justified.” You will want to hire a broker with expertise in law firm valuations who will take into account the key value-drivers of a law practice.
- Will the Selling Firm’s Culture Be a Good Fit?
Firm culture is an intangible, but when it doesn’t work, it impacts everything from office morale to productivity. Taking time to know the seller, to understand the client base, to meet the staff is an important part of the due diligence necessary to buy a firm.
- Is There a Documented Transition Plan?
The best plan is a documented plan. It doesn’t need to be a 50-page tome, but a spreadsheet with responsibilities and deadlines will keep everyone on track.
- What About the Ethics?
Did you know there is an ethics rule that addresses sale of a law practice? Review NC RPC Rule 1.17 – Sale of Law Practice. Also, review 98 FEO 6 which addresses sale of a law firm to lawyers employed by the firm.
- Engage a Team of Professionals
If you are considering buying a practice, it will be helpful to gather some valued experts on your team. You will need financial guidance, a valuation expert, and a transition / succession expert at a minimum. Here are other roles to consider:
- Business broker
- Valuation expert
- Succession expert
- Law firm management consultant
- Accountant / CPA
- Financial advisor
- Marketing consultant
- Executive search consultant
- Business lawyer
Buying a law firm can be a great way to build or expand your practice. While 2020 was the year of the pandemic, according to Lenfestey, it was also a year for expanded interest in purchasing a law firm. The pandemic has caused some Baby Boomers to rethink their plans, increasing the inventory of law firms available. Now is a great time for you to consider buying a law firm.
Camille Stell is the President of Lawyers Mutual Consulting & Services and the co-author of Designing A Succession Plan for Your Law Practice: A Step-by-Step Guide for Preparing and Packaging Your Firm for Maximum Value. Continue this conversation by contacting Camille at camille@lawyersmutualconsulting.com or 800.662.8843.
About The Author
Camille Stell
Camille Stell is the President of Lawyers Mutual Consulting & Services and the co-author of Designing A Succession Plan for Your Law Practice: A Step-by-Step Guide for Preparing and Packaging Your Firm for Maximum Value. Continue this conversation by contacting Camille at camille@lawyersmutualconsulting.com or 800.662.8843.
