The sales process when selling your legal practice

In our previous article, we discussed valuing your law firm. Here, we look at the sales process and what you need to do to make your firm sale ready.https://www.lawmergers.co.uk/what-is-your-law-firm-worth-a-guide-to-valuing-your-practice/

Getting sale ready really boils down to ensuring your firm can survive without you and any other principals. This could mean expanding client relations in good time, so they are not affected by the transition of fee earners. It may involve professionalising the support and management functions so that the managing partner is no longer needed to run the practice. Whatever your circumstances, the acquiring firm needs to see how the practice will continue without you.

Beginning the sales process

If you are thinking about selling your law firm you want it to look its absolute best. You should think about:

• Engaging professionals. Specialist consultants like Law Mergers & Acquisitions will help you decide if now is the right time to sell and how to get your practice in the best shape before you do. We can also help you with the complex process of valuing your firm, prepare a statement of indicative value regarding the business, and recommend appropriate marketing activities and channels. And, when the time comes, assist you to negotiate the best deal.
• Settle any outstanding disputes with employees, clients, or suppliers. Broadly speaking, if you have any unresolved complaints or pending insurance claims, it is sensible to deal with these before marketing your firm – although, occasionally, professional indemnity insurance notifications or claims do arise.
• Get all your leases and contracts in order. Most buyers want to continue the business with the same office structure in order to ensure the least disruption.
• Reduce your personal expense, because any historic personal expenses will be reviewed by buyers as part of due diligence.
• Prepare up-to-date accounts and make sure your accountant knows of your decision to sell the practice.
• Gradually pass ownership responsibilities to the management team. Ideally, you should have your management team in place and functioning for at least six months before exit.

 

Sales prospectus

It is advantageous to prepare a Profile/Prospectus of your law practices detailing its unique selling points. This document should be completed by experts, and typically includes a brief summary to grab buyers’ attention, which focuses on the headline points including the work undertaken by the firm, the team, any USPs, management structure, WIP, the reasons for the sale, turnover and its potential for growth.

 

The prospectus then goes into greater detail about your premises, operations, leases, equipment and other assets it holds. It will also continue to be updated as necessary within the process based on the information you provide.

 

Finding a buyer

There are many ways to find a buyer: specialist websites that list businesses for sale and mergers and acquisition experts such as our firm can find a buyer for you. The best solution is to engage the experts who will work with you and approach law firms they think will be interested in buying your firm. We also communicate with potentially interested parties on a “no-names” basis to gauge their interest.

Due diligence

Seriously interested buyers will want to undertake meticulous due diligence to make sure your firm is what you are saying it is. You should be prepared for this; any glitches or gaps is likely to put them off, so it is beneficial getting a specialist legal sector expert to manage the process for you. Here are some key areas to be aware of:

• Liabilities and loans: be transparent about them or pay them off
• Financial statements: your annual accounts should date back at least three years
• Statutory registers: make sure Companies House and any other registers are current and up to date
• Assets and properties: provide clarity about what is included in the sale and prepare lease documents if there is one in place
• Shareholders: create clear information about the shareholder position
• Intellectual property: make sure copyrights, trademarks, company name and domain name are properly protected
• Contracts: review supplier, employee and client contracts to ensure they are all clear and up to date
• Insurance: ensure you have the necessary professional indemnity insurance in place. You may need to consider purchasing run-off cover.

Negotiating the deal

In most cases, your buyers will want to obtain a lower price or a deal on terms that suit them better. This is done by negotiation. You should:

• Have room in your valuation for the price to go down, but keep a minimum amount you want to achieve in mind.
• Research your buyer, see what their priorities are, and focus on the USPs that could be particularly valuable to them.
• Many buyers already own law firms, so look out for similarities between both practices to help convince them yours is the one they’ve been searching for.
• Ensure your buyer has the necessary funding in place to buy the practice. This will help the sale go through with no issues.

Once an agreement has been reached, your consultants should assist you with putting everything in writing to form the ‘heads of terms’. Make sure you follow up all telephone discussions with emails so you can refer to them if necessary. It is also a good idea to ask any potential buyers to sign a confidentiality/non-disclosure agreement to ensure your business is protected.

Drafting the sale and purchase agreement

Here at Law Mergers & Acquisitions, we can help you draft and review agreements and work towards an agreed sale date. The main agreements involved include:

• Sale and purchase agreement covering the terms of sale/purchase
• Lender documents if the buyer is borrowing money to finance the purchase
• Lease agreements are required if there are leased premises or equipment, the lease will need to be assigned to the buyer
• Bill of sale. This transfers the business assets to the buyer
• Non-compete agreement. You could be asked to agree not to open a new law firm in direct competition.

 

Selling a law firm is a complicated and challenging task, with many tax and legal implications to consider. We have worked on many law firm sales, and our excellent team is here to help guide you through the process.