Have you ever considered buying a law firm? Here are the most common questions asked and answered.
Why Buy a Firm?
There are four practical reasons to buy a law firm: (1) to increase your firm revenues; (2) to expand your geographic footprint; (3) to increase your area of practice; or (4) to jumpstart your practice with a firm that already has an infrastructure and clients in place.
If you decide that any of these reasons make sense for you, the next step is to explore how the process works.
How Will I Pay for It?
Buyers are often pleasantly surprised to learn that the full purchase price is not required up front. Most buyers prefer to pay over time to ensure the revenue continues as projected. This provides incentive for the seller to continue to market the firm, make introductions, assist with transition of clients, and connect referral sources.
The typical law firm buyer will get a bank loan, an SBA loan, or use a version of seller financing with money down and payments over time. Your broker will have banking relationships if needed. The process of getting a bank loan is not for the faint of heart so be patient and prepared.
Negotiating the Terms of the Deal
This is a negotiation. Yes, the seller has a price in mind, as well as how they would like to receive payment, and a timeframe. However, as the buyer, you are making a long-term investment and the terms must work for you as well.
Outside Experts on Your Team
Don’t be afraid to ask questions.
Your law firm broker has prepared the firm valuation. As the buyer you may want to consult with an appraiser about the value of the real property or consult with a CPA about the cash flow and value of the firm.
While these will be additional costs for you, it may provide peace of mind. You will feel comfortable moving forward with negotiations and due diligence.
There are many business documents that must be generated such as articles of incorporation, d/b/a documents, corporate resolutions, and leases. Hire a business attorney (and a real estate attorney if you are purchasing real estate) as your broker will not act as the lawyer in the deal.
Transition to the New Firm
Most buyers are still working. In effect, they are working two full-time jobs as scheduling calls, Zoom meetings, paperwork, visiting the new office space is necessary but time consuming.
Keep in mind, everyone wants the process as smooth as possible, but show grace and mind your manners, as these are your new team members.
You’ve completed negotiations and you have a closing date in place. If you are still employed at another firm, you may have resigned but you can’t start work until you are the new owner.
Budget in advance for living expenses during this period. Consider you also may be moving to a new city, looking for a home, and finding a school for your kids.
Timeline for Retirement
Communicate with the seller to set a retirement date. Ideally, the seller will be available during the transition for 6-18 months. It’s better to have realistic expectations from the outset than to be blind-sided when the seller wants to come into the office every day, even in retirement.
Conclusion
Buying a law firm is exciting and the reward can be great. This is a practice that is already running, with a support team, infrastructure, and clients. Consider buying a law firm as part of your strategic plan for growth.
