Selling your law firm
Selling your law firm
A law firm is a business unlike any other, with much depending on reputation and personal skills. An obvious first step if you are thinking about selling your law firm is to look towards what acquirers are aiming for and achieving it.
Most lawyers are not professional managers, and many firms still operate obsolete internal structures, so it is worth considering turning to professionals such as Law Mergers & Acquisitions to help you strategise the sale and answer any questions you may have. This article addresses some common queries.
Do I have to sell the whole firm?
You do not have to sell the whole firm and can instead sell work in progress (WIP) or perhaps a particular department or office. It often comes as a surprise that sales of WIP are fairly commonplace, especially in sectors such as personal injury. Carving out an office or department is more complex to bring about, nevertheless, it is still possible to accomplish.
Is it possible to buy a share in a law firm and continue the partnership?
If you are considering bringing a new partner into the firm, their financial input may pay for the exit of others. Such a “succession” model is prevalent for internal promotion opportunities, where it is accepted that the new partner is essentially paying for the retirement of the incumbent.
What method should be used to determine the firm’s worth?
Finding the value of a firm is not a straightforward task, and seeking professional guidance is essential in this regard. Conventionally, the firm’s value can be calculated based on a multiple of its sustainable earnings (adjusted profit), turnover, or assets. It’s important to differentiate between the assets’ book value in the financial records and their actual market worth. However, in reality, the firm’s value is subjective and relies on mutual agreement between a willing buyer and a willing seller.
Is goodwill still valued in law firm acquisitions?
Goodwill remains a factor in many cases, yet its prevalence varies significantly depending on the firm’s characteristics. Even in instances where goodwill isn’t a factor, several considerations come into play. These include finalising ongoing projects and partners’ financial accounts, ensuring a smooth transition for clients and staff, and mitigating potential liabilities like redundancy payments, burdensome leases, and insurance coverage for future claims.
What is the significance of work in progress valuation during a firm’s sale?
According to accounting standards, the book value of work in progress (WIP) tends to be low, as it requires a high level of certainty regarding its recovery. This often excludes matters in early stages or those under conditional fee arrangements. Ideally, work completed under your management should influence the consideration received, but determining its value poses challenges. Questions arise regarding completion status, the likelihood of success in court, client payment, and potential write-offs for recorded time.
Navigating this area is complex and typically involves extensive due diligence and examination by specialised accountants to establish a “fair” representation of WIP’s true value.
How do we optimise the firm’s value?
The ultimate goal is to excel in your field and ensure profitability. Achieving this involves various strategies, some directly tied to finances, such as controlling overhead costs, while others are more intangible, such as maintaining motivated and well-trained staff.
Regardless of the approach you choose, maximising the firm’s value for a potential exit shouldn’t be a last-minute consideration. It’s essential to have a five-year plan in place, enabling you to exit the firm at a peak moment. This allows potential acquirers to recognise the existing value and envision the enhancements they can bring to propel it to the next level.
How can we prepare the firm for a sale?
While profitability and success are fundamental, it’s crucial to ensure the firm’s ability to thrive independently of its principals—an aspect that might require some nuanced adjustments. This could involve early cultivation of client relationships to minimise disruption during a transition period. It might also entail professionalising management and support functions to reduce reliance on the managing partner. Whatever the specifics of your situation, it’s essential for potential acquirers to envision the firm’s continuity without you at the helm.
Apart from the price, what are the essential terms we should negotiate in the sale agreement?
There are numerous intangible aspects to take into account, such as organisational style, cultural alignment, and the provision of ongoing support for staff and clients. Certain elements may hold greater significance for you than others. Additionally, it’s crucial to consider other variables alongside the price. These include arrangements for ongoing employment, such as the duration and compensation if you’re retained, as well as deferral terms if the consideration is to be paid gradually.
Ready to take your law firm to the next level? We specialise in facilitating seamless transitions for law firms looking to sell or merge. With our expertise and extensive network, we’ll help you navigate the complexities of the process and find the perfect match for your firm. Don’t wait any longer to unlock the full potential of your practice. Contact us today and start your journey.