Whether you are venturing out on your own and plan to start your own law firm, or your current firm is expanding, you may be considering buying a law firm. Purchasing a law firm is a bold move and one of the biggest decisions you will make in your career, so it is important to first consider a few important factors. Below, we’ll show you how to buy a law firm and the key things to consider before your purchase, including the time of sale, due diligence, and more.
The Right Time to Buy
Of course, you want to take market conditions into consideration when planning to buy a law firm. However, you also have to consider whether now is actually the right time for you to buy. What are the market conditions for law firms nationally and in your area?
It takes a certain amount of confidence and business savviness to run a successful law firm, so you need to understand your strengths, and weaknesses, in order to set yourself up for success. You also have to consider if you or your team can handle the additional workload, responsibility, and risk that will come with the increased revenue.
Perform Your Due Diligence
Valuing a law firm is not easy, but when done correctly, can provide a great roadmap of the benefits buying the firm will have. Before pursuing or negotiating with a firm, you’ll have to do your due diligence in law to determine how much a legal practice for sale is worth before purchasin. You should review the following to start:
- Financial statements for the past three (3) years, including tax returns, profit & loss statements, and balance sheets
- Billable hours, and rates, by employee
- Salary history of at least three (3) years for any employees that will be retained
- Compensation and employment agreements
- Lease agreements
These are just a few of the important documents you should have in order to properly value a business. It’s a lot for one person to collect and review, but an experienced professional, like a business broker, can help collect and analyze due diligence materials to ensure that you aren’t missing any other important documents that can help with the evaluation.
The Firm’s Culture
There are many different cultures among law firms, and not all may be the culture ideally suited for you. Some have high employee turnover while others have mostly tenured employees. Some firms prioritize repeat clients, while others concentrate more on marketing for the future. You may already know the practice and the partners, but if you do not, you should get a feel for the firm’s culture throughout the entire purchasing process. This will help you determine whether the culture is a good fit for you if you will need to make changes and if it is worth it to make those changes.
A Plan for the Transition
Before entering into final negotiations, what’s the plan for when a deal is agreed to and the sale closed? Early on in the due diligence process, you and the attorney from the law firm for sale should create a documented plan for the transition. This should include certain timelines and transition goals that will keep both sides on track throughout the process. This will help streamline the sale and avoid any potential problems.
Speak to a Business Broker
As an attorney, you know a lot about the law, and you may even understand the basics of buying a law firm. However, you still should not do it alone. At Private Practice Transitions, our Washington-based business brokerage can help ensure the entire transition goes smoothly, and that you end up with the law firm that is right for you. If you are considering acquiring a law firm, call us today at (253) 509-9224 or contact us online to learn more about how we can help.
