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Buying a practice lets you accelerate the growth of your book of business rather than building it from scratch. Depending on the seller, you may also gain an instant mentor during the transition. If structured properly, the deal may not require significant upfront capital as well.
A smart buyer will look to finance the purchase using the firm’s future revenue through an earnout. In an earn-out, the seller is paid based on a percentage of future revenue over an agreed-upon period, rather than receiving the full price upfront. This reduces risk for the buyer since payments are only made if clients actually stay and revenue materializes. How much of the price should be tied to an earn-out varies by deal, but it is one of the most important negotiating points in any law firm sale.
Many lawyers already pay referral fees, and when viewed through that lens, structuring a deal this way becomes much more realistic.
This depends on two key factors: the nature and extent of the exiting lawyer's goodwill, and how well the transition is handled. In most cases, the more thoughtful and well-prepared the transition, the more likely clients are to stay with the buyer.
Not typically. Reviewing client files is usually one of the final steps in the due diligence process. Due to attorney-client confidentiality, this stage must be handled carefully and can occur only after certain protections are in place.
Most selling lawyers are retiring with little incentive to “un-retire” and compete and agree to that.
In some cases, the seller may stay on in an of counsel role instead, continuing to work with clients in a limited capacity while remaining aligned with the firm, which further reduces the risk of competition.
Some firms run on outdated systems that need updating, while others already use modern practice management tools. This is something to evaluate during due diligence. At the end of the day, technology can always be upgraded; what matters most is the quality of the practice you’re acquiring.
Rarely are law firm deals paid as a lump sum. Instead, they are structured as earnouts, where payments are tied to future revenue to help align incentives and reduce risk for the buyer, or as financing, paid over time.
Sellers usually remain and continue working for buyers in some capacity after a transition for everyone’s benefit. The length of time varies according to the preferences of both the seller and the buyer.
Valuation in small law firm sales is very often subjective and based on future earnings potential rather than hard assets. Working with an experienced advisor can help you assess whether the price reflects reality or inflated expectations.
The biggest risks are client attrition, overpaying for goodwill, and poor transition planning. A well-structured deal and a thoughtful transition can mitigate most of these issues.
Many well-intentioned but naive buyers end up overpaying for a practice based on unrealistic expectations set by the seller. I help buyers avoid costly mistakes by assessing a practice’s true value and recommending deal structures that reduce risk.
Just as importantly, I bring an objective, experienced perspective to the process so that buyers can move forward with clarity and confidence.
This is ultimately up to you and the buyer and can vary significantly depending on the practice area and the nature of the clientele. Most sellers remain involved for at least a few months to ensure a smooth transition for both clients and remaining staff.
In some instances, staying on often benefits everyone involved, including you, since a longer transition can help the firm perform well and increase what you ultimately receive from the sale, especially if there is an earn-out.
If you have people working for you, the first thing to consider is an internal transition. The next options are to sell to an outside buyer or move into an of counsel role with another firm.
The final option is to either downsize or wind down. You may leave some sale value on the table, but this path allows you to continue generating income for as long as you choose to practice.
Systematizing as many operations as possible will minimize hiccups during a transition. Also, consider hiring a CPA to clean up your financials. Buyers need an accurate picture of the money coming in and the money going out. Finally, don’t do anything risky or unnecessary. For example, if you’re 75, don’t sign a long-term lease.
Most states have adopted some version of Rule 1.17, which governs the sale of a law practice. The rule is relatively straightforward and is designed to protect clients during the transition.
Beyond Rule 1.17, lawyers must ensure the buyer is competent, protect client confidentiality throughout the process, and respect client autonomy, including obtaining consent where required.
If you love what you do, can’t imagine stepping away, and your goal is to maximize profits, this approach may make sense at times. The most important thing is to have a contingency or emergency plan in place. Someone should know all the passwords, where key files are, and who needs to be notified in different situations.
You can do it yourself, though it takes time and risks confidentiality. The best option is to work with a consultant who can help you determine the best exit strategy, guide the process, and identify the right buyer.
Some local business brokers can assist as well, but if you go that route, make sure they have experience working specifically with law firms. Most do not.
This is typically negotiated on a case-by-case basis. For hourly matters, WIP is often collected by the seller or credited to the buyer as part of the transaction.
In contingent-fee cases, the usual approach is to allocate fees between the seller and buyer based on who did the work and who carries the case forward.
Tail coverage for solo lawyers typically costs about 1.5 to 3 times your last annual malpractice premium as a one-time payment. While the cost can be high, it is usually worth it, as it protects you from malpractice claims that may arise years after you retire.
The best approach is to send a clear, professional letter or email to clients, informing them of the transition and introducing the new lawyer. Clients should be told when the change will happen and reminded that they can choose other counsel or request their file. The goal is to reassure them that their matters will continue smoothly.
In today’s tight labor market, most buyers will keep staff because they provide continuity and help maintain client relationships. However, staffing decisions ultimately depend on the buyer and the deal structure.
One of the most common mistakes selling lawyers make is approaching potential buyers directly before any formal process is in place.
From the first inquiry to the final stages, a good advisor manages the flow of information at every step. That includes ensuring the NDA is in place before any meaningful detail is shared.
Just as your clients rely on your legal expertise, you deserve the same advantage when navigating your exit. Roy has decades of experience practicing law and more than a dozen years advising on succession planning. He can help you:
In all, Roy can make your exit as beneficial and trouble-free as possible.
How's this for an answer? “Whatever someone is willing to pay.” If you need a more precise answer, consider this: the literature, written primarily by CPAs, describes a wide range of valuation methods. Many are difficult to comprehend unless you have a strong finance background. Even then, the formulas typically have little or no bearing on what is actually paid for a law practice.
Primarily because law firm revenues are relatively unpredictable. Other professional service businesses that are frequently bought and sold, like accounting practices and medical or dental practices, have fairly predictable books of business.
The transferability of an attorney’s book of business is much harder to predict, largely because many legal services are one-time or, at best, sporadic. In addition, certain ongoing client relationships may not be as easy to transfer to a new attorney as the seller and buyer hope.
Many lawyers try to apply the “Rule of Thumb” valuation method because of its simplicity. Under this method, a firm’s value is expressed as a multiple of revenues—usually gross revenues. In most other industries, you can derive the multiple statistically from the sales of many businesses of the same type.
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.
Law firm owners often need a valuation in situations such as the following:
Roy’s professional appraisal process goes beyond a simple formula. It evaluates:
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.
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.
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.
Typically, you will need:
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:
Law firm valuation requires more than general business knowledge. It is best handled by a professional who is both a lawyer and a broker, with direct experience valuing, selling, and transitioning law practices.
If you're considering valuing or transitioning your law firm, don’t leave it to guesswork. Work with Roy Ginsburg, who understands both the legal and business sides of the process. Contact us today to get a clear, accurate valuation and guidance tailored to your firm’s next step.
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