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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.
To get a sense of Roy's method, go through this little exercise:
Imagine it is a Friday afternoon. After years of hard work, you’re ready to ride off into the retirement sunset. When Monday morning comes, will existing clients or prospective clients still contact your office and agree to work with your successor?
If your answer is “no,” your practice is probably worth little to nothing. If your answer is “yes,” you’ll need to ask two more questions.
No. But thinking about future predictable revenue in the context of referral fees is a concept that lawyers can wrap their heads around.
He appraises practices by taking a percentage of predictable revenue over a timeframe. For many deals, Roy’s appraisal methodology is an excellent starting point for negotiations. Depending upon the circumstances surrounding the transaction, however, it may not be the ending point.
If you’d like more information on other market realities, as well as a more comprehensive discussion of Roy’s appraisal method, consider reading Roy’s eBook, Exit Strategies for Lawyers. It’s only about 60 pages long and it will tell you everything you’ve ever wanted to know about how to value a law practice and some things you probably never thought to ask!