Thank you for attending our recent webinar: "Everything You Need to Know About Getting the Most Out of Selling Your Firm". Your level of engagement was terrific.  

As promised, attached please find the resources we mentioned during the presentation:

- A Self-Assessment Guide to help you evaluate how your firm currently stands with respect to the five pillars we discussed: 1) Finances 2; Systems; 3) Technology; 4) People; and (5) Marketing.

- A sample budget spreadsheet. This was the spreadsheet that Kurt discussed, and you can use the attached Excel spreadsheet to identify key aspects of your firm's finances.

Q&A Highlights from the Webinar

You asked terrific questions. Below is a recap of the questions that you asked, along with our responses.

Q: Does the fact that more firms are being sold, and more law firm owners are considering selling, mean that this is a bad time to sell or, conversely, a good time to buy?

A: No, not necessarily. While the overall volume of sales is increasing, this is to some extent driven by the demographics of an older population among lawyers and in other professional services firms.  However, this volume doesn't imply a glut of firms on the market. Your firms are in different markets based in part on their practice areas, target audience, and geographic location.

Q: Do the principles that apply to getting ready to sell a law firm apply to other professional services firms, such as consulting firms?

A: Law firms are subject to specific regulatory requirements that don't apply with equal force to other businesses. For example, data privacy is an issue for transitioning a wide range of businesses, but law firms have additional requirements involving conflict checks and the duty of confidentiality.  Thus, the pillars that apply to law firms do apply to a range of service businesses, including consulting firms. There are, however, specific differences that apply to law firms that need to be kept in mind.

Q: What are the basic methods used to determine the value of law firms?

A: This is a broad topic, and we are considering doing a whole webinar devoted to this topic. But in very general terms, law firms are valued as a multiple of a firm's annual revenues and/or a multiple of the firm's profits (most commonly calculated as the firm's Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). Valuations are also influenced by estimated future revenues, as a buyer is looking to buy a future stream of business. For larger firms, both methods can be used. In addition, for firms that generate revenues on a contingency basis, you may see a valuation based on estimated future revenues on major cases or clients.

Q: Is there a minimum profit margin that is required to sell a firm?

A: No. Just as a start-up that has lost money for years can sell for a high multiple, there is no absolute necessary connection between profitability,  profit margins, and the sales price. It's possible for a firm with high profits and margins to sell for a relatively low price. This can happen if the buyer concludes that they can't come close to replicating the current owner's results. In general, when the buyer sees a steady history of revenue growth and increased profits, that makes them more likely to be interested in your firm. Past financial performance can reduce the perceived risk of the acquisition, and that risk reduction roughly translates into a higher valuation. These are general principles, but selling a firm like staging a house, is an art. Beyond the metrics, it's also about connecting the dots in an accurate narrative that conveys what's special about your firm.

Bonus question: 

We didn't address this during the presentation but want to share it with you now.

Q: What's the biggest strategic mistake law firms make when they approach the process of getting their firm ready for sale?

A: They act as if the most important result is what happens on average. As lawyers, we are trained to think in terms of what happens on average. When we advise clients, we present them with a range of likely results based on an application of the facts and the law. But that is not what happens when you try to sell a business. The ultimate consideration is not what a typical buyer will think, feel, or do. You are looking for a buyer who has a special affinity for you, your firm, its practice, and culture. You hope to find a buyer with a special fit for your firm. Focusing too much on the average causes lawyers, who are trained to spot issues to become overly pessimistic. It's perfectly ok if most potential buyers don't fully appreciate your firm. The goal is to find at least one and preferably two or more who value your firm in a way that parallels how you value your firm.

We trust that these materials will allow you to identify practical next steps you can apply right away. If you'd like to discuss how these ideas apply to your specific situation, please don't hesitate to reach out to us. If you have specific questions about the sample budge and how to best apply it, don't hesitate to reach out to Kurt Obermeyer: 

Email:  kobermeyer@legalmanagementsolutions.com 

Phone: (424) 350-8882

We'll both be glad to talk through your needs. 

We'll also keep you informed about our next webinar, so keep an eye out.

Thanks again for your time and participation.

Best regards,

Gideon