Buying a Small Law Firm – It is a buyers market but sellers are just happy to get anything at all
Just the other day one of my small law firm clients was buying a small law firm with fees of annual $200,000 to add to their existing practice. They paid the seller exactly $1.
Both buyer and seller were happy with the price.
But surely at that price there must be a winner and a loser you would think. How can they both be happy?
Let’s look at the buyer.
They paid $1 for the practice, but what did they really get?
A bunch of old files in filing cabinets and old, out of date versions of everything.
In short, the type of practice that a seller would beg someone to take it off their hands…and they did.
But surely you think, at $1, it has to be a good deal, doesn’t it?
Maybe. There was a reason it was worth $1. The practice was rubbish ( I would usually use stronger language, but this is a blog after all) , unfortunately like many small practices you see.
Do you think there was any meaningful database?
Do you think there were any meaningful client relationships?
At a price of $1, you know the answer to those questions.
No this was a “Just do whatever comes in the door” type of practice. The type of practice that no one really wants, but many lawyers seem to have.
You can imagine some of the clients a firm like that would have. It makes you shudder just thinking about it.
It will only be a good deal for my client, if they change everything about that practice and I mean everything.
So you see, at $1 maybe it wasn’t such a bargain after all.
Why was the seller happy with getting $1?
If you had an asset that really was a liability and someone offered to take it off your hands and actually paid you for it, wouldn’t you be happy?
As the seller, she could walk away free as a bird and line up at the welfare office (Centrelink in Australia, Social Security in USA) to apply for some Government handouts to enjoy her retirement, having been paid $1 for her life’s work.
Now of course it didn’t have to be that way.
The seller had bought into the “Cruel Joke Being Played on the Legal Profession” and she had bought it, hook, line and sinker.
When you know something to be impossible, you don’t even try.
She expected her practice to be worth nothing, so to get $1, on a Walk In Walk Out basis, even saved her the trouble of taking an office full of old furniture to the dump.
If you run a one person type law firm, please don’t let this be you, when you sell!
Unfortunately, it is unnecessarily the case with many sole practice type firms.
Make sure you read the blog on the cruel joke being played on the legal profession and start today to create a practice you can be proud of, not one that you heave a sigh of relief, when you finally convince some sucker to take it off your hands.
It is not difficult, it is all about choice.
So what is your choice going to be?
Colin Ritchie passionately believes in the future of the legal profession and knows that helping firms to dramatically improve profits and practice valuation is his way of ensuring that the legal profession has a bright future.
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