Selling your law firm is not a one-and-done, it’s a process, said Tom Lenfestey, managing member of Raleigh-based The Law Practice Exchange. Speaking at a CLE entitled, “Law Firm Succession: Secrets to A Successful Transition or Sale of a Law Practice” hosted by Lawyers Mutual, Lenfestey said the process can take anywhere from six months to five years.
“You can’t just toss your keys on the desk and leave,” he said. “The seller needs to take time to introduce the buyer to the practice’s clients, judges and other attorneys. The buyer should be someone who will fit well into the local community. It’s your legacy, you built it, and it’s your reputation.”
The buyer also needs transition time to get familiar with the practice’s case management system and office operations. A well-executed transition plan preserves the client and professional goodwill of the practice.
The sale of a law firm is a process dependent upon the training of and transitioning to a prospective buyer. This is why it is important to create a transition culture at your firm.
“You need to set a culture for transition,” added Camille Stell, vice president for client services for Lawyers Mutual. “The first people you need to talk with are your family. Then gather your team which might include your transactions attorney, your financial adviser, your CPA and law practice consultant and a broker.”
“A successful transition plan should include an efficient exit planning process, a facilitator to drive the process, a written plan and a plan for implementation and accountability,” explained Rachel Blunk an attorney with Sharpless & Stavola, P.A.
Creating a culture for transition is key to preparing your firm for transfer to a potential buyer.
There are a multitude of motivations someone may have for purchasing a law firm and as such potential buyers come in many forms.
“The attorney selling their practice probably already knows the buyer. It might be a partner or an associate,” said Lenfestey.
Recent law school graduates are potential buyers, said Julie Beavers, director for career services at Campbell Law School.
“Recent law school graduates are looking for mentorship and training in the buy-sell transaction. But you also have to understand their financial situation coming out of law school. Some graduates are saddled with significant education debt,” said Beavers. “The ideal candidate may be a recent law school graduate who is on their second career. They have business savvy, access to capital, and their major life decisions such as getting married, having kids and home ownership are behind them.”
“Pricing your firm begins with looking at what the buyer could take out of the firm. Then the value is between one and four times that cash flow,” said Lenfestey.
“The price for a small practice is influenced by the firm’s value drivers including human capital, the customer base and the product or service offered by the firm,” said Blunk.
“The buyer wants to know if they can grow and expand on your practice. The buyer’s motivations rule the day,” said Lenfestey. “Other factors include how streamlined the office setup is and how organized the financial statements are.”
His final piece of advice to sellers, “Don’t wind down your practice then try to sell your firm. As cash goes down, so does the value of your practice. You should have a plan and start sooner than later.”