The Motivation for Selling Out

Published January 6, 2009

Ever since the financial crisis first hit, my phone has been continually ringing. More than ever before, lawyers want to know how to sell their practice, how to value it (a requirement before selling) and then how to transition into life beyond the law. See Selling Your Practice: The Profitable Exit Strategy. Yes, not everyone is in panic mode. But, everyone is impacted one way or another. One could view the current situation with the attitude that whenever there is change (a much over-used word today), there is also opportunity.

If the stock market hits a low, there will be those with the cash ready to buy and make a great deal of money in the long term when the market rises. The same likely holds true for law practices. Those law firms that are well run and free of debt will also be positioned to take advantage of many opportunities to be offered by purchasing other practices. And when a law firm is wary or unsure of its current efficiency and effectiveness, a review or audit of the firm from a law practice management consultant may be a good prelude to either a sale or purchase.

When coaching lawyers on selling their practices, I typically start with several questions that, in my opinion, set the stage for all further deliberations. How do these questions resonate with you?

  • Why do you want to leave your practice?
  • What do you want to do with your life once you leave practice?
  • Do you want to retire, or start a new adventure?
  • Can you achieve the same objective without selling your practice?

In discussing the value of his law practice as a prelude to selling, one client mentioned to me the figure given to him by his financial planner, a number designed to assure his standard of living. This was the number he wants for the purchase price of his practice. I suggested that the two numbers were unrelated, and that the value of the practice may be more or less than the number his financial planner wanted for his style of life.

This caused us to return to the reason he wants to sell his practice and the time frame for achieving a sale. The more urgent is the desire to sell, the lower will be the price; the less urgency, the greater will be the price. Neither number has much to do with what it will take to reach and maintain your desired standard of living. Such a number may impact your decision to complete a transaction, but really has nothing to do with an objective valuation of the practice.

Not every law practice is salable. Some practices are so small and so personal in nature that the purchasing attorney might not succeed in keeping the clients. This, however, is a rarity. Even the smallest and most personal practices might be saleable for the right price and under the right terms. A business is worth only what someone is willing to pay for it, and time is an important consideration. The value may be different at different points in time. But determining value and price are the prerequisites for a sale.

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Audience type: Administrators, Associates, Large Law Firms, Small Law Firms, Sole Practitioners