Law Firm Acquisition – Acquiring a Founder’s Practice

Question:

I am an associate working in a small family law practice located in Chicago. There are two attorneys in the firm – the owner/founder who is 74 and me. I have been out of law school for seven years and have worked with the firm since I graduated. Virtually all of the business that comes into the firm is originated by the owner. The owner of the firm has advised me that he wants to retire and would like me to take over his practice. I am interested. What are the potential issues and how should I proceed?

Response:

I assume that the owner plans on selling you the practice and has or will be providing you with a proposal outlining the purchase price or earnout arrangement, terms, etc. However, sometimes owners ask the potential successors/buyers such as yourself to provide the initial proposal. You have probably never seen the financial statements of the firm. This would be your next step:

I would initially ask the owner for the following:

Five years profit and loss statements and balance sheets and tax returns.
Current hourly and flat rate fee schedule if you are unaware of rate and fees charged.
Copy of leases (space and equipment).
Copy of malpractice insurance policy and last application.
Salaries and benefits for attorneys and staff members.
List of the matters that he is handling, status of the matters, and fee arrangements.

This will give you a good idea of what you are dealing with and whether the opportunity is worth pursuing further. If you decide you want to pursue this opportunity you can ask for additional information as the discussions unfold.

Since you have been working in the firm for seven years you are aware of the nature of the clientele that you would be acquiring. Since your practice is a family law practice you need to give some thoughts as to how the firm get’s it’s clients. Internet and other forms of marketing, word of mouth referrals, or from other referral sources. Owner dependency can be a real problem if after the owner retires past clients no longer come to your firm, no longer refer clients, or referral sources no longer refer new clients to the firm since the owner who had the relationships is no longer there. If the owner has relationships with referral sources and you do not, you need to determine how much business comes in from those referral sources. You need to determine whether the owner is interested in remaining with the firm for a period of at least one year so you can get plugged into his referral sources, acclimated to his clients and files, and trained on office management and administration. If the owner’s clientele are older, what will their reaction be if they were represented by a younger attorney? People chemistry is very important. It has often been said that clients hire the lawyer and not the firm. While this is not totally true – there is some truth in this statement. A successful client and referral source transition and retention is crucial, and the value of the firm is dependent upon such.

Some form of an earnout or combination of a fixed price with earnout would be in your best interest. What you would be buying are the future cash flows from future clients if they materialize. Another approach might be a fixed price with a reduction of price if certain revenue targets don’t materialize. If the owner is interested in selling out and leaving the area, then you may consider proceeding with the transaction with payments which would be based upon subsequent collections during a period of three to five years after the acquisition. In other words, the more the owner participates during the first year to retain certain clients, the more he should receive.

The worst scenario is if the owner dies unexpectedly after signing the agreement. This recently happened to one of our clients, and he had to spend a great deal of time and effort trying to retain clients that he never had contact with.

You must also review the financial records to determine the profitability of the practice. Many owners of small law firms do not keep adequate time records, don’t have automated practice management systems, and are not paperless. What is the shape of his client files and how well are they organized? Certain data is stored in their heads. In many cases, the hourly rates or flat fees are low and could be raised during the first year to make the practice more profitable. However, this increase must be one that will be accepted by the client. The next question would be whether family members are involved in the practice, if they are, there may be problems in the future. The clients know the family, and if there are any remaining family members working in the firm, they may leave your firm empty-handed. For example, if a paralegal who is a family member leaves the firm after the acquisition is consummated, several clients could follow the paralegal to their new place of employment. In such situations I have had client law firms that have had such persons execute non-compete agreements. In one situation the deal was aborted by the acquiring firm due to the paralegal not willing to sign a non-compete agreement. This was a situation where the paralegal in the firm actually had the client contact relationship. The owner’s contact with the client was limited. The paralegal had the relationship.

Finally, there should be other safety valves for the purchaser in acquisition of this nature. On a positive note, the situation could present a fine opportunity for growth. Just ensure that the buy sell and other legal agreements provide the appropriate safeguards.

The above issues such as non-compete and practice sale agreements should be addressed with your business attorney.

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John W. Olmstead, MBA, Ph.D, CMC

Posted at 09:11 AM in Practice Sale, Succession/Exit Strategies

Aug 19, 2026

Law Firm Acquisition – Acquiring a Founder’s Practice

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