You’re a solo practitioner in rural North Carolina. You’ve been a fixture in your small town for years. Your practice is personally identified with you. As a result, you think it will have little to no market value when you retire.
Think again. You could be sitting on an asset worth more than you imagine.
“All practices have some value,” says NC attorney Tom Lenfestey, who runs The Law Practice Exchange. “The client base, employees, processes, checklists, knowledge base, software and other elements that make up your daily operations. All of those resources have value. However, the biggest impact on value is the ongoing and future access to contacts, referral sources and clients, along with the trust and comfort they have with you, your team and your overall practice.”
The exact dollar value will depend on many factors, primarily the type of practice and where it’s located. Growth potential and solidity of the brand are also key. Then there are external variables like economic conditions and interest rates.
“Selling a law practice is a very different process than other business sales,” says Lenfestey. “Most law practices, especially the solo practitioners and small partnerships tend to be very dependent on the owner-attorneys for not just management, but also for production of revenues through the legal knowledge and client relationships they personally maintain.”
Lenfestey – in conjunction with Camille Stell, president of Lawyers Mutual Consulting & Services – will be leading the workshop “Transferring Ownership of Your Law Firm to the Next Generation” on April 8-9 in Raleigh.
What is Your Practice Worth?
In some respects, buying and selling a law practice is similar to any other business transfer. In other respects, it is quite different. For one thing, clients are not commodities. Ethical and professional considerations apply.
For another, lawyers have not only a financial interest in their practices, but a personal one as well. They’ve worked hard. They’ve invested their time, sweat and money. They want to protect their professional legacy.
“We try to take what an attorney or group of attorneys has built and preserve it for the future,” says attorney Tom Lenfestey.
The Law Practice Exchange provides listing and brokerage services to help selling attorneys:
- Preserve client goodwill
- Provide exit strategies and retirement options
- Promote mentorship
- Provide alternative growth options
- Serve clients continuously
- Prepare practices for change and transition
- Develop succession strategies
- Search for potential buyers confidently and confidentially
Two Paths to Law Firm Transfers
Broadly speaking, there are two ways to transfer ownership of a law firm:
- Internal transfer to someone inside the firm through succession planning.
- Marketplace sale to an outside attorney or law firm.
The April 8-9 program will cover both options. Lenfestey and other experts will help lawyers design the best approach. This will include valuing the practice, based on the following factors and more:
- Financial performance
- Growth potential
- Management and personnel
- Brand identity
- Size of practice
- Repetitive client revenues
- Practice structure and owner involvement
- Client satisfaction
- Practice area
- Client diversity
- Geographic location
Lenfestey, Stell and the consulting team will assist attorneys in the transition process, including dealing with hurdles that inevitably arise.
“Selling your law firm doesn’t mean you are done practicing law,” says Lenfestey, who points out that both internal succession-based plans and external sales require some time to make a smooth transition. “If you just want to transfer ownership, but keep practicing for additional years beyond the transition plan most all buyers would welcome you as a continued practicing attorney under a better, more flexible practice schedule.”
Rule 1.17 Sale of a Law Practice
More than 20 years ago, NC Rule of Professional Conduct 1.17 was adopted. The rule sets out the ethical requirements – from notifying clients to collecting unpaid fees – that must be met in a law practice sale.
“The practice of law is a profession, not merely a business,” says Comment 1 to Rule 1.17. “Clients are not commodities that can be purchased and sold at will.”
Jay Reeves practiced law in North Carolina and South Carolina. During the course of his 35- year career, he has been a solo practitioner, corporate lawyer, legal editor, Legal Aid staff attorney and insurance risk manager. Today he helps lawyers and firms succeed through marketing, work-life balance and reclaiming passion for what they do. He is available for consultations, retreats and presentations (www.yourlawlife.com). Contact firstname.lastname@example.org or 919-619-2441 to learn how Jay can help your practice.