Law Practice Management Asked and Answered Blog

Category: Sale of law practice

Mar 26, 2013

Sale of Law Practice – Proper Timing

Question:

I am a sole owner of a 4 attorney law firm located in Washington, D.C. Our practice concentrates on estate planning and administration. We have 6 support staff members. I just turned 60 the first of the month and am beginning to think about what I will eventually do with the practice. None of the associate attorneys are interested in partnership or in purchasing the practice – they just want jobs – they are not interested in owning a law practice. When is the best time for me to sell my practice?

Response:

You really have to give some thought to your timeline – how long do you want to work? Do you plan on pursuing another career? Have you put enough money away so you can simply retire without concern about the need to generate additional income?

If you need revenue for an additional ten years – a way to earn it – and if you enjoy what you are doing – then it will not be in your interest to sell the practice too early. Let's say you could sell your practice for one million dollars – this might equate to two years of earnings. If you worked another ten years – you could have earned five million dollars.

To a large extent owning a law firm is in essence a job where you work for a living where you have provided employment for yourself. It might be hard to find a job that pays as well as your firm. So if you need revenue for another ten years and your enjoy your work – you should probably plan on working another ten years. Build you timetable to sell your practice around your future work timeline. Things change – you may find that your associates change their mind or down the road you may end up with new hires that will have an interest in partnership.

Start with planning out how long you want or need to work and go from there.

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

 

Sep 05, 2012

Selling Your Law Firm – Readying It For Sale

Question:

I am a sole practitioner in Bloomington, Illinois. My practice is general practice and most of my clients are either individuals or small businesses. I have one legal assistant and one paralegal that works for me. I am 62 and am starting to think about what to do with my practice and what I need to be thinking about concerning selling my practice. I would be interested in your suggestions.

Response:

I would start by asking yourself when you actually want to retire or quit. Do you really want to stop practicing law or do you want to work forever? Over two thirds of the solo and small firm lawyers that I speak with advise me that they want to practice forever – maybe not full throttle – but on a continued but scaled back schedule.

Review Rule 1.17 – Illinois Rules of Professional Conduct to insure that you understand the method and the restrictions involved in sale of a law practice.

If you want to continuing practicing determine whether selling your law practice is your best option given Rule 1.17. Some of our clients are exploring other options including bringing in other attorneys and forming partnerships or merging with other firms.

If you determine that selling the practice is the route you want to go here are a few ideas to begin readying it for sale:

  1. Decide when you want to retire and leave your firm.
  2. Determine who your would like to transfer the practice.
  3. Determine the your goals for sale of your practice and the priority and what is most important to you. (clients, staff, money or sweat equity, etc.)
  4. Determine how much the practice is worth today.
  5. Begin finding way to institutionalize the firm so the client and other relationships are less uniquely you.
  6. Begin implementing management practices that will systemize your firm and improve it's future value. (written procedures and policies, checklists, forms, automated case management systems, organized client files, accounting systems, etc. ) Document everything.
  7. Draft and implement a succession/exit plan and implement same. Insure that it incorporates safeguards for your clients, employees, and family if the unexpected happens to you.

Click here for our blog on succession topics

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Click here for our article on valuation

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

 

 

Apr 18, 2012

Law Firm Succession: Using Affiliation As a Phase I Pilot Test

Question:

I am sole owner of a law firm in Chicago with an elder law practice. I have two paralegals and two legal assistants. Although I want to continue to practice as long as I can I am in my late 60s and am beginning to think about what to do with my practice. I have recently had several discussions with another sole owner that is interested in buying my practice. Since I want to practice as long as I can I am concerned about the timing of selling my practice due to the current ethical rules. I also want to insure that the other firm would be the right fit for my clients and staff. Do you have any thoughts or suggestions?

Response:

Making the right decision concerning the "Who" is usually more important than the "What" or the "How". Take your time to do the proper due diligence regarding the other firm. Get to know the owner as well as the employees of the other firm. Ascertain practice, client, and cultural compatibility. If you both determine that a a deal might make sense – then move to the "How". Even though you have done the best due diligence you can – you won't really know about the other firm until you try working together. So before you jump – consider taking a few baby steps first. You might start with an affiliation arrangement (Of Counsel) as a Phase I pilot test for six months. Under this arrangement you can both refer work to each other as well as have the other attorney work on some of your client matters at your office. Outline the details of the relationship in an affiliation (Of Counsel) agreement. After six months review the success of the arrangement and whether it makes sense to take the next step. If it does – a Phase II step might be to enter into a more formal practice continuation/transition arrangement with the other firm. Phase III would be either the eventual sale of your practice or merger with the other firm. Taking a phased approach allows you learn more about the other firm which will increase your odds of a successful transition and buys you time before actually selling your practice if that is the direction you should go.

Click here for our blog on succession/exit strategies

Click here for our blog on mergers

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

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