» valuing

Most self-valuations rely on rules of thumb or informal comparisons that do not hold up in a real negotiation.

The risk is not just being off. It is how that number lands:

• Price it too high: You risk insulting a serious buyer or associate and shutting down discussions before they begin
• Price it too low: You leave hard-earned money on the table without even realizing it
• Lack of credibility: If you cannot support your number, your position weakens the moment it is questioned
• Internal deals: You may try to sell a portion of the business that is not yours to sell

Typically, you will need:

• Financial reports (3–5 years)
• Revenue breakdown by source
• Client and referral information
• Staffing and overhead details
• Practice area and case mix

Timelines vary with the size and complexity of the practice, but most appraisals can be completed within a few weeks of gathering the necessary financial and operational information.

It’s definitely a good idea. Pricing can be sensitive in internal deals. A neutral, professional appraisal helps remove emotion and provides a fair starting point for both parties.

An appraisal is not intended to produce a single “perfect” number. It provides a well-reasoned range based on experience, data, and judgment. That range serves as a practical starting point for negotiations; it is rarely the final number.

Roy’s professional appraisal process goes beyond a simple formula. It evaluates:

• Your firm's financial performance
• Client sources and referral relationships
• Practice area and case mix
• How revenue is likely to transfer to a new owner
• Deal structure and market conditions

Law firm owners often need a valuation in situations such as the following:

• Preparing to sell the practice or explore a transition
• Bringing in a new partner or structuring a buy-in
• Buying out an existing partner
• Planning for succession, even if a sale is years away
• Evaluating a potential merger or combination with another firm
• Making strategic decisions about growth, compensation, or the future direction of the practice

First, the marketplace for law practices is very immature. There is no meaningful database due to the low number of deals occurring in the industry.

Second, and even more problematic, is the fact that most lawyers complete deals confidentially—no one but the lawyers themselves know the terms.

Finally, even if a sufficient base of knowable transactions existed, you would be hard-pressed to find a worthwhile multiple due to incomparable data—practice areas are too different. For example, comparing a million-dollar family law practice to a million-dollar estate planning practice is like comparing apples to oranges. They are two fundamentally different businesses. The only thing they have in common is that their owners are licensed attorneys.