When selling a law firm at first glance you may not think that your firm’s IT or working capital level may affect your ability to sell it for the price you want.

While they are not the most important issues, ( I recently I wrote an article titled “Selling a Small Legal Practice – The Most Important Issue that Buyers are concerned about”) they nevertheless are issues that you should consider and potentially address before you put your practice on the market.

In a recent discussion I had with Trevor Willoughby who is a Melbourne based practice broker, on issues that buyers were concerned about, somewhat surprisingly both of these issues came up.

Let me explain why:

Issue 1 – Selling a Law Firm- Is your practice up to date with technology?

The issue of technology is perhaps more important when selling a law firm than you may at first think.

For a start buyers of small legal practices tend to be younger lawyers. Younger people generally have a good grasp on technology and are keen to utilise it in their new practice.

If your practice has not been regularly updating technology, then your staff as well as your office technology will also be out of date.

The problem with this for the buyer, is that they are likely to encounter staff resistance to change, as they will invariably be keen to get in and comprehensively update the practice in this area.

Staff who have been left behind by technology are also much more likely to leave when confronted by the changes that will inevitably follow.

So while on one hand the outdated systems may present an opportunity for the buyer, it also presents potential staff problems. These are problems that many buyers may not want to take on, particularly if there are other legal practices for sale that are more up to date.

Practice Selling Tip: Make sure that your practice is up to date with technology

Treat any technology investment just as you would for any investment. In other words you need to get a commercial return for your hard earned money.

Some things are simply “No Brainers”. For example using two screens for each computer is an investment that will likely cost $150 or so per staff member. Some lawyers have told me that they have recovered the cost on the first day!.

Issue 2 – Selling a Law Firm – What is the level of your Law Firm’s Debtors and Work in Progress?

Just like technology, law firm working capital management doesn’t sound like something that would affect a buyer that much.

Let me explain. Trevor Willoughby told me that some practitioners can get a bit lazy with billing and collection practices as they approach retirement. Consequently he said that it is not unusual to find debtor and WIP balances at unusually high levels.

While the outgoing practitioner may be collecting the debtors, the buyer is stuck with a client who has been trained to pay slowly.

Who wants that?

The problem then becomes that when the buyer looks to change these arrangements, they risk losing the client who gets upset at the change. (Note a similarity to the technology issue with staff potentially leaving)

Practice Selling Tip: It is critical to keep your debtors and WIP as consistently low as possible. If you can demonstrate to a buyer that they don’t need to tie up much in working capital, they can afford to pay you more for your practice.

As the seller, you will ultimately want to collect the debtors and WIP to add to your retirement capital. The older it is, the less likely you are to collect it. Simple as that.

Clients have short memories. Their recollection of the fantastic job you did for them diminishes very quickly. The longer you take to bill, the more likely they are to complain or request a discount or slow pay or no pay.

Further reading

If you would like increase the sale price of your legal practice to help build your retirement funds and be better paid for your lifetime’s work in building your practice, I encourage you to read our report “Retirement Planning for Principals of Small Legal Practices”. ( Click on the title)

A recent reader stated:

“I found it very interesting with a few points to implement” Lower North Shore,  Sydney Principal

Want to read more?

What buyers are Looking for When Buying a Law Firm

The Key to Increasing the Valuation Multiple for Small Law Firm Goodwill

Valuation of Law Firm Goodwill