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What To Do Before You Sell Your Law Firm (7th June 2013)

You might have some idea that the time is approaching to sell your practice. The difficulty is that it is hard to predict exactly when that moment will arrive - the moment when you know the time is right for you to move on to a new phase in your life or career. Sometimes that moment arrives unexpectedly. 

What if it were today?

Is your practice in the right shape to sell? Is there anything you could have done to prepare it for a sale? What is the smart thing to do?

The introduction of sound and well tested management strategies as well as a number of internal office systems will help maximise the price achieved when selling.

Proper Management Strategies and Policies

You should have a set of key Policies that without them make the smooth running of a law firm almost impossible, these include:

A Time Recording Policy

A Credit Control Policy

A Client Engagement Policy

A Career Path Policy

These policies need to be framed to suit your firm and introduced to the staff properly beforehand in order to get a proper understanding of them and the rationale behind them. As well you should introduce proper fee budgets and measure performance based on budget and actual figures. This needs to be done not only for fee income but also new work, month on month.

Being unable to produce reports as part of your normal monthly performance analysis will suggest to the buyer that either a deeper due diligence is warranted at the least but it’s more likely that negotiations will be at a lower financial level.

Get your database sorted and ensure it is properly maintained.  This is how you organise your firm’s marketing if you don’t currently do any.

You need Marketing Plans and they need to be written, measured and properly set out in a co-ordinated manner for each area of law. 

The new work performance measuring tools need to be of a sophisticated nature and need to be flexible so they can be analysed many ways (what interests you may not interest your purchaser). It needs to be based on actuals and if any forward projections are made they will need to be logically based with sensible assumptions.

Consequences on the practice sale price

Peter Frankl, a specialist legal practice valuer and broker with 12 years of experience, says good systems in law firms help maximise the sale price for three reasons:

  1. They increase a prospective buyer's confidence in being able to achieve a smooth ownership transition. A buyer will not need to use detective work to discover how things are done in the practice, and then document it all from scratch. When someone buys a practice they want to focus on clients, marketing and legal work and not on setting up systems.
  2. Good systems produce information about your practice that buyers want to know. They want to know things at the macro level and the micro level. At the macro level they want to know what percentage of fees are generated for different fields of law. At the micro level they want to know how the firm prices and bills for its services.   
  3. Good systems make the sale process a lot easier for all involved. They can avoid confusion when a buyer looks at information you have provided. They can avoid misunderstandings and accidental losses of trust during the sale process.

How does this actually maximise sale price?

Peter Frankl says "it reduces uncertainty for a buyer. Uncertainty is the enemy of maximising sale price. Financial and management reports, that good systems produce, can increase the potential pool of buyers. Not all buyers have had decades of experience running a legal practice. The reports and information you provide will be used to help buyers understand essential features of the practice.

"These are all factors that contribute to maximising the sale price."

Be realistic… and smart!

A clever barrister once commented to me about a highly competent solicitor we both knew and respected, that he was objective about every case except his own.   What’s this got to do with selling your firm?  The point is that if you are thinking about selling your firm in the future then contact an expert to get an idea of its worth and what needs to be done in the next couple of years to give you the best opportunity to secure the best price.  If you don’t then you may not be acting objectively and frankly just kidding yourself about its value or the level of interest it will attract.  If so, that’s a tough way to find out!

At Smart Law Marketing, we have these Performance Tools, the Policies as well as the necessary Marketing Software that deals with all of these issues and more.  Any investment you make now will pay dividends when it’s time to sell. Call us for a confidential no obligation discussion, should you be interested in learning more.

For further advice from Peter Frankl about practice valuation see http://www.peter.frankl.name/pages/show/id/6

By Peter Heazlewood
Smart Law Marketing Pty Ltd
www.smartlawmarketing.com.au