Selling a firm is no simple task, especially if you are a sole practitioner. Not every firm is meant to be sold, as not every firm has transferable assets that might appeal to buyers: a “book of business” carrying reliable revenue from steady clients with ongoing legal needs; effective, ready-to-use office systems and support staff; tangibles like buildings and office equipment; and intangibles comprising “goodwill” – the firm’s reputation, location, name recognition, and overall ability to generate income through referrals, returning clients, and new clients. Unless you invest in particular assets or a successor who builds a relationship with your client base, some of the value you created as a solo will vanish when your firm loses its most valuable asset: you. Take a look at these aspects of a sale to gauge whether it makes sense to form a long-term sale plan, attempt a more abrupt sale, or simply close the door when the time comes.
The Book of Business
Your “book of business” (a list of all current and former clients) is only valuable to buyers if it will bring them money in the future. Current clients with ongoing legal needs (e.g., hospitals, schools, businesses) could make your firm attractive to buyers, but many clients engage firms for a single case or transaction and never return. Even if current clients don’t oppose the proposed sale after receiving notice required by ORPC 1.17(b), the buyer has no guarantee they’ll stay with the firm after the sale is final. Clients are more likely to stay if they have a relationship or familiarity with the buyer, perhaps because the buyer worked in the firm, was brought on board in anticipation of the sale, or at least met with you and your clients together to discuss the future. Buyers will want assurance that clients won’t follow you once you walk out the door, and ORPC 1.17(h) does allow the sale to be conditioned on a non-compete agreement, whereby you refrain from practicing in a certain area for a reasonable period. If you use a non-compete agreement to add value to your book of business and make your firm more salable, make sure the sale price reflects your sacrifice.
Office Systems and Support Staff
Your office systems and support staff could be valuable to a buyer who lacks both, but many buyers have established systems, knowledgeable staff, or no need for staff. If your firm created forms, processes, or procedures, these products may hold value: think of a streamlined intake process with customized forms, a library of templates that can quickly generate pleadings, or a detailed office procedures manual that clearly explains how to perform tasks. With staff members, someone who knows every office system and can resolve issues without oversight will be more valuable than a recent hire whose office knowledge is limited to discrete tasks like answering calls and handling mail.
Unless you own an office building, tangible assets might not contribute much to your firm’s value. As is true with office systems and staff, some buyers will already have what you’re trying to sell: office furniture, equipment, and books. Your volume of case reporters makes a lovely backdrop for photographs, but other assets are more likely to make your firm salable.
“Goodwill” refers to the firm’s value above and beyond its tangible assets, and not all goodwill lends itself to sale. Business goodwill refers to value attached to an institution itself. One source of business goodwill is a firm with a recognizable name that can draw clients regardless of which individual attorneys work there. Personal goodwill refers to value attached to an individual within an institution. You may have personal goodwill in spades, but this asset may have little to no value for certain buyers – especially once you walk out the door. You could transfer some of your personal goodwill to an attorney who builds relationships with your clients and referral sources and then buys your firm, but such a transfer requires time and planning. It won’t occur if you sell abruptly to a stranger.
For solos considering a sale, honestly assess what goodwill (if any) can be transferred to a buyer via sale. Whereas personal goodwill is transferred via relationships, a solo’s business goodwill is only transferable through very particular assets: think of a generic but well-known business name (e.g., “Downtown Legal Services”), a distinct and desirable office location, an easy-to-remember phone number attached to a catchy ad campaign, or a heavily trafficked website.
A business valuation can provide a sense of your firm’s value, but the consultation could cost thousands only to reveal that it isn’t worth your time and money to hunt for a buyer and try to effect a sale. Because law firms are particularly complicated businesses to value, vet your valuation analyst carefully if you decide to hire one. Valuation analysts with experience appraising professional services businesses are preferable, and those with experience appraising law firms are ideal. In addition to experience, look at credentials. Are they a CPA? Are they accredited in valuation or appraisal by a national organization (e.g., the ASA, the AICPA) based on training, education, or experience? Although it’s not required, you and the buyer will ideally agree on the valuation analyst. A buyer is less likely to question the valuation of a neutral, qualified, agreed-upon party. To get your money’s worth from a business valuation, you may want to first identify and communicate with potential buyers about a specific valuation analyst rather than paying for the valuation then approaching potential buyers with valuation in hand.
Finding an Outside Buyer
If you don’t plan to groom a successor who can capture your goodwill from within the firm, you may need to advertise directly to potential buyers in the same or similar practice area. As a business valuation analyst could tell you, your firm holds the most appeal to a buyer who’s in a position to replicate your success. This highlights the difference between your firm’s value to a hypothetical buyer (the “market value” model) and its value to a specific buyer (the “investment value” model). If your firm occupies a specialized practice area with a niche client base, a buyer who has no experience in either can’t glimpse the future by looking at your average gross receipts for the past several years. Rather than relying on classified ads to attract outside buyers anonymously, try reaching out to firms with identical or complementary practice areas, geographic proximity, and interest in expansion. Without potential buyers who fit this description and can see transferable value in your firm, selling to an outside buyer might not be realistic.
You can run a great solo practice of immense value to you, your clients, and the community, and it still might not be possible to sell your firm. A successful sale requires transferable assets at a minimum, and that transfer often requires a long-term strategy to capture the value you bring to the firm and pass it on to the buyer who takes over. If a sale isn’t practical, there’s nothing wrong with simply closing your office. Just because you can’t sell it doesn’t mean it wasn’t a great practice that provided a livelihood to you and your family and professional services to your clients and the community.
For an in-depth look at different ways to structure a sale as well as alternatives to sale, see More Than One Way Out: Options for Lawyers Looking to Transition Out of Practice, by Hong Dao.
For guidance on selling your practice, see our Checklist for Lawyers Planning to Sell Their Law Practices at https://www.osbplf.org/ > Practice Management > Forms > View Forms by Category > Selling a Law Practice.
For guidance on closing your practice, see our Checklist for Closing Your Own Office at https://www.osbplf.org/ > Practice Management > Forms > View Forms by Category > Closing Your Law Office.
Special thanks to Heather Decker of tcb coaching + consulting, Greg Mettler of Greg L. Mettler PC, and Jay Sickler of Cogence Group PC for their contributions to this blog.