Are you looking to sell your legal practice at some stage in the next few years?
I recently interviewed two practice brokers ( Peter Frankl in Sydney – see link below and Trevor Willoughby in Melbourne – see link below) both with many years of experience in selling smaller legal practices, to see just what buyers were currently looking for.
In those discussions, it quickly became clear that there was one critical issue that legal practice buyers were most concerned with, above all else.
For most small practices, the goodwill value is simply a monetary representation for the practices ongoing client and referral relationships.
It stands to reason therefore, that if the buyer is paying hard earned money for those client/referral relationships, they want them to continue.
Logically then, the more likely those relationships are to continue, the more a buyer may be prepared to pay for the practice.
Peter Frankl made the point that buyers feel more comfortable with practices where the client relationship is with the practice as well as an individual lawyer.
While in a large firm this may more easily achieved, with multiple lawyers dealing with different aspects of a large client’s needs, it can be achieved even within very small firms by ensuring that a team approach is taken to dealing with the client.
Key Selling Point: Think how you can build client relationships with your team, not just the principal.
Trevor Willoughby pointed out that the client transition period is also key to minimising client attrition. Where the outgoing practitioner has long standing relationships with key clients, ensuring that the retiring practitioner continues in the practice for a period, with a clear strategy for introducing the new owner, is likely to minimise attrition.
By contrast, simply writing to clients to tell them that the practice has been sold could be akin to asking the clients if they know of another firm to take their future legal work to.
Key Selling Point: To maximise your practice value on sale, be prepared to offer a generous transition period where you are available to work in the practice
Peter Frankl pointed out that sellers should be thinking about ways to strengthen the relationship that the firm has with the client. A starting point may simply be that the practice knows “everything” about the client. (Authors note: That knowledge needs to be recorded in the firm’s database. It is no value to the buyer in the sellers head)
By contrast, Trevor Willoughby mentioned a recent discussion with a potential seller who was looking for a buyer to pay him good money for a strong room full of deeds. In this case, while they knew how many deed packets were in the strong room, they knew little else, including even basic information such as whether the wills were even the current one.
This strong room full of deeds still had a value but it was significantly reduced because the client relationships represented by the deed packets, were so poor.
Of course situations like that represent great opportunities for a legal practice buyer to acquire potential clients for a minimal outlay and then develop a strategy to build the client relationships. This is however of little help to the seller who has missed a golden opportunity to get well paid for their lifetime of work in building the practice.
Key Selling Point: Develop a strategy to collect and record key information about your clients
As a general rule, businesses that generate recurring income from their clients/customers are almost always valued significantly higher than similar businesses that don’t. A quick perusal of stock markets literature will invariably be filled with glowing references to “recurring income” or “annuity style income”
Really this “recurring income” is simply a representation of a strong client relationship, where the client is returning over and over again to the same business.
Peter Frankl made the point that small legal practices that can demonstrate relaible recurring income would naturally be more attractive to buyers due to the quality of the client relationships and accordingly they would pay more for them.
Key Selling Point: Explore avenues to build recurring income in your practice and be able to demonstrate this to a buyer of your practice.
A powerful way of doing this is discussed in my report “Retirement Planning for Principals of Small Legal Practices”
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”.
A recent reader stated: “I found it very interesting with a few points to implement” Lower North Shore – Sydney practitioner
Even More Reading:
What Buyers are Looking For When Buying a Small Law Firm
Valuation of Law Firm Goodwill in Small Law Firms
You can visit Peter Frankl’s website at www.peter.frankl.name
You can visit the Wollermann & Assocciates website where both Trevor Willoughby ( now retired) and Gary Lay specialise in selling legal practices at www.wollermann.com.au
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