Hey, wanna buy a law practice?

 Dan Heilman, The Daily Record Newswire

It might sound a tad morbid, but what will become of your solo law practice when you’re retired or dead?

A surprising — or maybe not-so-surprising — number of solos have spent little or no time considering what’s to become of their book of business when they’ve moved on one way or the other. But business succession is just as important a consideration in a solo practice as it is in a CPA firm or a construction company.

“Attorneys who are thinking of scaling their practice back or passing it on to someone else are thinking of the mechanics of business succession,” said Kimberly Hanlon, an estate planning attorney in Minneapolis. “Most who are still growing or maintaining their practice aren’t — and they should be.”

When a solo lawyer dies prematurely, it’s common for his or her heirs to take what they can get for the practice, or just let it wither. The two most common business succession strategies for solos are selling the practice outright and passing it on to a colleague or protege for free — the latter of which is usually only done when an attorney has no interest in going through the selling process.

“Some lawyers decide that it’s more bother than it’s worth — and there are some practice areas where the practice isn’t worth much,” said attorney coach/consultant Roy S. Ginsburg, who has written extensively on strategies in selling a law practice. “It’s just as common for people to simply close down shop and let their clients scatter.”

Even if it might be years before you anticipate getting into the mechanics of business succession, say attorneys who work in the area, you run create your practice in such a way that makes it a viable entity with value.

That means having systems and processes in place somewhere than in your own head. Get into the habit of documenting how your practice runs, write down the nuts and bolts of your marketing strategy, and make notes about the special qualities and quirks of your steadiest (that is, most valuable) clients.

“When people want to buy a practice, they want something that’s operating so they don’t have to re-invent that wheel,” said Hanlon.

What’s it worth to you?

If you are considering the eventual sale of your practice, of course you’re going to want to know what it’s worth. Valuating a law practice isn’t like figuring the worth of another professional service business, mostly because the ongoing worth of a business such as a dentist’s office is easy to predict, according to Ginsburg.

Not so with legal practices. Unless your practice is strictly relationship-based — say, you’re a contract lawyer who works with the same handful of companies regularly — you probably deal with most of your clients only once or twice. For that reason, nobody’s going to want to buy a personal-injury practice, for instance.

And even if you’ve worked with the same dozen clients for the past decade, there are no guarantees that you’ll be able to successfully transfer them to another attorney.

“A buyer needs time to get to know your clients,” said Hanlon. “When I sell my practice, it’s possible that my clients will say, ‘I don’t like this (new lawyer); I’m going somewhere else.’”

For that reason, lawyers caution against a common tactic of business succession: Bringing in a younger associate and grooming him or her to take over your practice. For one thing, pointed out Ginsburg, finding the ideal candidate to take over your practice can be difficult. Your clients — who might be, like you, much older than your successor — might not like who you’ve picked.

Also, Ginsburg said, “most solos barely make enough money to satisfy their own financial needs. How are you going to pay a second person? I’m not sure how you can come out ahead. I think it’s a terrible idea.”

Chris Shorba, a partner with Kern, DeWenter, Viere, said he once had a client who went to work for an older solo as a 10 percent owner of the practice, and ended up selling back his share at a loss because the relationship was one-sided in terms of income split and workload.

“I don’t know if I’ve seen a case where an older solo took in a younger associate and made it work,” said Shorba.

If you’re near the point of seeking someone to take over your practice, Ginsburg advises selling it the way you would a house: By setting a fair price for your book of business while considering your location and practice area. He also noted that the buyer you find might prefer to pay for a practice on an earn-out basis — paying a percentage of future revenue for a set amount of time.

In anticipation of that, advised Hanlon, make your practice into something that someone will want: “Create it in such a way that it’s a viable entity with value — where it’s more than just your job.”

Comments

  1. No comments
Sign in to post a comment »