Law Practice Management Asked and Answered Blog
Category: Law Practice Acquisition Proposal
Mar 21, 2018
I am a partner in a three partner six attorney in Chicago. We have been having discussions with another law firm in the city regarding us acquiring their practice. The owner is seventy years old and wanting to retire and exit his practice. My partners and I have looked over the numbers and believe this would be an excellent opportunity for us to expand our client base. The practice handles the same type of work that we do. We are unsure what our next step should be? Do you have any suggestions?
I would start by asking for all the due diligence information that your can get your hands on. For example:
- Profit and loss statements and balance sheets for the past five years
- Income tax returns for the past five years
- Copy of office lease
- Copy of all equipment leases
- Copy of most recent malpractice application
- Equipment and furniture inventory list
- Personnel list with current compensation and benefits paid, length of time with the firm, current job duties, etc.
- Information pertaining to benefits offered employees.
- Copies of marketing and business plans.
- Reports showing billable hours, fees collections by timekeeper, etc. for past five years.
- Reports showing fees collections by clients and practice areas for past five years.
- Current work in process and accounts receivable report.
Insure that you have done a thorough conflict of interest check and insure that you review the Illinois rules of professional conduct concerning sale of law practice. Give consideration to the value of the firm and what you are willing to pay for it and how? What assets do want to purchase – just the goodwill or will fixed assets be included? What about work in process and accounts receivable? Is there a building involved and if so do you want to purchase the building and real estate? Do you want to take on any of the employees? Do the numbers work for you? What terms would be acceptable to you?
The next step is to prepare and present a proposal. Some of the following elements would be included in a proposal:
- Overview or executive summary
- Assets to be included in the sale
- Liabilities excluded in the sale
- Effective date of the acquisition
- Specific details and terms
- Of Counsel status and arrangement for the owner
- Purchase price
- How the purchase will be financed and paid
- Non-compete provision and effect on sale agreement if breached
- Assumption of existing office lease. Yes or no?
- Key man life insurance policy on the the partners in your firm
- Professional liability insurance – tail coverage – who pays premium
- Provision for adjustment of purchase price if revenues go below or above a specified threshold
- Existing employees that will be hired by acquiring firm
- Client notifications required
- Sign-off page
Once you have prepared the proposal present it to the owner of the firm and go from there.
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John W. Olmstead, MBA, Ph.D, CMC