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Pasadena, CA 91101
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Seven Things To Consider Before Selling Your Practice
August 1, 2012
Filed under: Selling Your Law Practice — @ 1:06 pm
Because I lived through the process of selling my law practice, I get a lot of questions about how I did it. I thought I’d share my “Top Seven” list of things I discovered during the process of preparing my practice for sale.
1. Branding Makes a Difference. I spent a lot of time and money branding the practice, and got professional help. Apparently it worked. Because my practice was known and our brand respected, the buyers perceived our business as something of value.
2. Get to Know Your Competitors. We spent a lot of time talking to other estate planning attorneys in our area. Ultimately, we sold to a firm headed by someone I met twelve years ago.
3. Run Your Practice Like a Business. No one is going to take on an enterprise that doesn’t make money or when the only person who knows what’s going on is the person who is retiring.
4. Effective Pricing is the Quickest Route to Profitability. Our practice was profitable because we charged enough for our services. If you don’t know how to do this, get advice from others who do.
5. Find a Way to Generate Recurring Revenue. That’s what a real business does, isn’t it? A buyer wants above all to see a dependable stream of revenue extending into the future.
6. Think About How You Want to Be Paid. Most attorneys sell their practices in return for a stream of revenue generated by their clients over a period of years. This cedes all control to the buyer. Is this what you want? If not, you need to figure out how you do want to be paid.
7. Selling a Practice Takes Time. It took three full years for us to actually find a buyer — and we had been working on packaging the firm for sale for much longer than that. If you’re considering selling your business, give yourself a long lead time. You’ll be in a better position to evaluate offers and consider different options. It took you a lifetime to build your practice — don’t rush the process of selling it.
Please let me know how this helps you!
Ten Questions About the Future of Your Practice – Part Four
July 22, 2011
I’ve previously posed eight questions about the future of you and your practice. Here are my final two questions:
9. What do you need to do to implement your exit strategy? Even if your strategy is to never retire and let others pick up the pieces when you die, you still need to think about the effect your exit will have on the people who depend on you. There will be unfinished business. Will anyone be able to figure out what you were doing? Will there be enough money to pay final salaries and to take care of your family? Who will provide legal services for your loyal clients?
10. Do you have protection for your exit strategy? Another thing to consider is professional liability exposure on your exit. Some companies offer free tail coverage after you have been with them for a certain number of years. Have you considered this? It might be worth a chat with your insurance professional.
Hopefully, I’ve raised some questions here that have you thinking — you don’t get answers unless you ask questions first! The point of this and my last three postings is that no matter where you are in your life — even if you just opened your practice — it’s time to make emergency plans in case of your death or disability. If you are farther along in your career, consider what has to happen for you and your family to live happily ever after!
Let me know how this helps you!
Ten Questions About the Future of Your Practice – Part Three
July 20, 2011
Filed under: Selling Your Law Practice — @ 1:04 pm
In my previous two blog postings, I wrote about questions to ask yourself about your future and the future of your practice. Here are three more things to consider:
6. What is your plan? If dying at your desk is not your plan, it makes sense to think about what your strategy should be.
Another thing to consider is your compensation when you leave your business. Just how do you want to be paid? A common way to transfer a law practice is for the purchaser to pay you a percentage of new work derived from your current clients. That puts all the risk on you. Is it what you want?
7. Is your business worth selling? This question goes to the salability of your practice. Is it worth anything? I mean, would you buy it? If not, why not? I realize I am asking a nasty question here, but until you answer it you won’t be able to implement the strategies for an exit plan that makes sense for you.
8. If it’s worth selling, who’s going to buy it? Do you want to keep your business in the family? Do you want to sell it to your partner(s) and/or associate(s)? Is the best option to sell it a third party? If so, when?
Let me know how this helps you!
Ten Questions About the Future of Your Practice – Part Two
July 15, 2011
In my previous posting, I suggested that if you are unsure about the future of your practice, you might want to ask yourself some questions to help you organize your thoughts. Here are three more questions to consider:
3. What would you change? What do you like and not like about your practice? Are you working too many hours? Do you enjoy your clients? Do you have a good staff? Do you enjoy what you do, or do you go to bed on Sunday evenings dreading the upcoming week? If your answer is the latter, maybe it’s time to consider fixing things to make your practice more enjoyable or, alternatively, getting out.
4. Are you making enough money? Of course, this is a key question. Shouldn’t you be making money? If you aren’t, why not? Are you charging enough? Are you doing too much of the work yourself? Are your collection procedures sloppy or nonexistent? Do you see a profitable future for your practice? Do you have the necessary energy to improve your profitability?
5. Do you have an exit strategy? Even if you have no immediate plans to leave your business, how you will exit is something you should think about. After all, you will leave in one way or another, even if it’s to die with your boots on. What do you want your exit to look like?
Let me know how this helps you!
Ten Questions About the Future of Your Practice – Part One
July 13, 2011
Filed under: Selling Your Law Practice — @ 1:03 pm
As attorneys, most of us spend time talking to our clients about their exit strategies. I’ve had personal experience with two kinds of business exit strategies. I sold my estate planning practice, effective January 1, 2010. I shut down my father’s medical practice eight years ago. My experiences have caused me to think a lot about questions that arise when someone leaves their professional practice. Since all of us are going to transition out of our businesses at some point, I thought I would share some of my thoughts with you.
1. Are you happy? We get engrossed in our professions. Our obligations keep us busy, sometimes to the point where we don’t seem to have the time to think about anything else. I talk to a lot of attorneys and they don’t sound happy with what they do. Does this apply to you?
As difficult as it might be, it may make sense for you to step back to consider if you are really happy with what you are doing. Do you want to practice law forever? Or is it time to do something else?
2. What do you want? What do you want from your professional life? For that matter, what do you want your professional legacy to be?
It can be hard work to answer these questions. However, if you do the heavy lifting you’ll realize what it is you want, and you’ll get the clarity to actually accomplish your goals. If you don’t, you’ll never know!
Let me know how this helps you!
What’s a Law Firm Really Worth, Anyway?
March 16, 2011
Filed under: Selling Your Law Practice — @ 1:30 pm
When I tell people — especially other lawyers — that I sold my law firm, I often get the question, “how did you value it?” Because law practices generally have very few hard assets, and since used furniture, computers, and telephones are pretty worthless, the value of a practice depends upon the nature of the firm’s work, the strength of its processes, and its profit margin.
Altman Weil, Inc., the legal consulting firm, recently released “Law Firm Valuation,” a three-part article by William F. Brennan about how to value a law practice. In the article, Brennan goes through various methods of valuing law firms and concludes that the best way to do so is to use a combination of approaches, based upon the law firm’s balance sheet (including work in progress and accounts receivable), coupled with an analysis of the firm’s ability to generate future cash flow.
Brennan’s article is impressive in its thoroughness. However, what I learned from the real life experience of selling my firm is that the value of a law practice is its “fair market value” — that is, “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.” United States v. Cartwright, 411 U. S. 546, 551 (1973) (quoting from Treasury reg. § 20.2031 1(b)).
In other words, analysis is great and essential, but, in the end, the price will come down to what a buyer is willing to pay, and what the seller is willing to accept.