» Selling a Law Practice

What are the mechanics of buying and selling a law firm? First, let’s go back to law school for a moment. For those of you who have never done transactional work during your career, law firm buyers purchase the firm’s equity or assets. In the former situation, the entity remains in place. In asset deals, buyers acquire assets that are then placed in the buyer’s existing entity.

The number of attorneys practicing after reaching the age of 65 has grown by more than 50% in the past decade. Roughly 15% of all practicing lawyers are 65 or older. As a group, we also seem to work longer than others. Only 7% of the general workforce stays employed beyond 65.

I’ve written before about how buying a law firm can be a very effective, low-risk, and low-cost means to grow a practice. That said, what is it about the legal profession that, on occasion, makes it more challenging to sell a practice than hoped? As a consultant and coach, I’ve worked with hundreds of lawyers of all shapes and sizes in virtually every state and practice area. From that experience, I’ve become somewhat of an expert in understanding the DNA of those in our profession. Here are three fundamental truths in the DNA that impact buyer behavior. I call them the “do-nots.”

With so many lawyers contemplating retirement, your law firm succession plan has never been more important. Take a careful look at your law firm’s most influential leaders and biggest rainmakers. Chances are good that these individuals will be retiring over the next decade. Is your law firm prepared for this seismic generational transition? The impact will be felt well beyond the law firm itself.

I recently worked with two elder solo attorneys in excellent health. They wanted to work 2-3 more years at almost a full-time pace. However, they were old enough and wise enough to know that a sudden health issue could derail all of that if they didn’t make a plan soon. I’ve written before about the risks of dying at your desk. Suffice it to say that if that occurs, you leave a mess for clients, staff, and especially grieving spouses and children. Further, selling a practice is way more difficult without the owner around. And even if it can be done, it is usually at fire sale terms.

For years, selling a law practice was prohibited because ethics regulators believed clients, files, and a firm’s goodwill were not something that could be sold. Regulators feared that clients would be treated like merchandise. Other ethics worries included the possibility of sharing fees with a non-lawyer (spouse of a deceased lawyer) and the ban on payments to anyone for recommending the lawyer’s services.

If you’re a solo or small firm owner thinking of selling your law firm, for certain practice areas, transitioning repeat clients to the buyer is key. Indeed, the primary reason your firm has value and has a willing buyer are those client relationships that took years to build. Transitioning clients successfully requires managing and finessing human relationships, a task that—even with the best of intentions—is never easy. Everyone has the same goals, including quality, predictability, and trust. Will your successor meet your existing clients’ goals?

It should come as no surprise that the question most prospective clients ask me is, “What is my law firm worth?” My response is always as follows: Imagine it’s Friday afternoon and you ride off into the retirement sunset never to return to the practice of law. Then, on Monday morning, the phone rings at your old desk, and your successor answers.