Buying a Small Law Firm
If you want to get into a small practice and are looking for a great opportunity where there are great opportunities to make a great return on your invested capital, I think it is hard to go past the opportunity presented in buying a small law firm.
If you refer to my blog of 6th September 2012 “How to Increase the Value of a Small Law Firm”, you will see that small law firms that are advertised in the media are being offered for as low as 20c in the dollar of gross fees, as compared to accounting practices in the metropolitan centres that are often around $1 in the dollar and financial planning practices at $3 in the dollar.
What this means, is that if you are looking to buy a law firm, you can buy an existing practice for a fraction of what you would have to pay to buy an accounting practice or financial planning practice.
Now you may think that this would mean that the law firm is much less profitable, as if you have looked at how businesses are generally valued ( refer to my “How are Businesses Valued” blog) profitability is usually a key variable in determining price.
Not so with small legal practices. I really do believe that the money making potential of a good small law firm is much the same as a good small accounting practice.
Of course many firms have poor legal practice management, but if you are a buyer, this is exactly what you want, providing the underlying clients of the practice are of good quality.
If the firm has poor legal practice management, then there will be immediate opportunities to substantially increase the profitability of the practice. I would suggest to you, that for many small firms where the underlying clients are of good quality, you should be able to expect to double profit in the first year. This of course makes your practice purchase, ridiculously cheap when you look at your return on investment.
You will notice that I have referred to the quality of the clients several times. If the client base is for example, a predominantly Legal Aid type practice, then logically none of the above would apply, as you are dealing with a poor quality of practice.
I talk over and over to practitioners who have gone into practice themselves and just started from scratch, often with no clients as all.
I suggest that in many cases, these practices will struggle for years to build up a quality client base.
Why do that to yourself, when you have practitioners who are quite prepared to sell you their practice for nearly nothing and you can hit the ground running and start making great money from day one.
The information presented in this article is of a general nature only and does not represent specific advice tailored for your circumstances and should not be relied upon as an indication of the value of a specific accounting, financial planning or law practice.
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