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How to buy and sell a law firm

Published:
17 Apr 2018
News
How to buy and sell a law firm

The legal profession is dominated by smaller firms, it is a demographic made up of suburban, rural and regional practices servicing local communities, and boutique firms. 

Law firms face lifecycle and generational-change issues in which sale, succession and partnership pathways are options.

Insights spoke to Peter Frankl, a specialist in law firm practice broking and valuations, about what lawyers should consider when selling their firms and what buyers should look for. Peter Frankl also edits news website Legal Practice Intelligence.

“For sellers, the key is to stay in control of the process,” said Peter. “Decide what type of buyer would benefit most from buying the firm. Prepare information about your firm with those types of buyers in mind. Release information in stages so that you can obtain some feedback at each stage and decide whether negotiations are worth continuing. Without a methodology in place before getting started, the process of selling a practice can be time consuming and emotionally draining.

“An experienced broker of legal practices can be a source of advice on valuation and can put in place a methodology that protects privacy and confidentiality.”

For buyers, Peter advises a focus on revenue rather than expenses.

“The value in a firm is mostly in its revenue,” he said. “This means understanding fee revenue by areas of law. Different areas of law will have different degrees of attractiveness to a buyer.”

Other data points to consider include the number of matters opened each year and the average value of those matters. 

“Expenses and staffing are most relevant when there are impediments for the buyer to optimise them in the future – for example, a long uneconomic lease on premises.”
 
The ideal buy-out scenario usually involves the outgoing principal staying connected to the practice on a flexible reduced-time basis. 

“In the eyes of clients, the change in ownership is seen as a positive expansion with the introduction of new people, skills and services. It can be risky to present the image of ‘under new management’ with the disappearance of the outgoing principal.”
 
Then there’s the matter of money.

“There are wildly different views on the price and value of legal practices. This can be explained by the fact that not all firms are of interest to all buyers. An obvious example is that a conveyancing firm will be of little or no interest to a family lawyer. Therefore, there has to be a ‘match’ in interests. When there is a good degree of compatibility between the firm and the prospective buyer, the value to the buyer becomes evident. Because the amount that is usually required to buy a law firm is relatively modest compared to the value of residential property in the big cities and also compared to other types of businesses, the most common scenario is a single lump sum payment.”
 
Peter encourages lawyers to consider buying a practice over setting up their own.

“Buying a practice is a booster strategy. It can save you years in getting to where you want to be. Consider how much time and money you would spend on advertising and business development for a new practice, just to reach the same level of revenue that you get with an existing practice. A dollar spent on buying a practice will generally have a much better return than a dollar spent on advertising.”

Further, it is at present a comparably inexpensive proposition with a manageable downside.

“At the moment, the funds needed to buy a legal practice are many times less than required to buy most other businesses. Should you later want a change in direction, or if the practice doesn’t generate enough income, it is unlikely to be a financial catastrophe. Even if you close the doors and walk away, if you have managed your exposure to the few fixed costs of running a firm, you will survive a change of direction.”

In addition, running your own practice brings the benefits of autonomous decision-making and freedom from dependency on a salary. 

“If you have an unexpected parting of the ways with your employer, it is a certainty that your income will go from whatever it is now to zero. If you lose a client, then your income may dip by a small single digit percentage and that is if the lost client isn’t replaced by a new one.”

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50 years of expertise in one CPD solution

For 50 years, the College of Law has led the way in practical legal education.

We stand in our own lane – empowering practitioners to become the best lawyers they can be. How? With innovative, hands-on training that evolves with the demands of the legal profession.

Our CPD Digital Subscription is built on this legacy.

The legal ramifications of the Queen’s death are surprisingly small

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The legal ramifications of the Queen’s death are surprisingly small

We talk to the College of Law’s Adrian Deans, Academic Policy & Quality, James Crittenden, Head of Short Courses and CPD, and Lewis Patrick, Chief Academic Officer, about some of the pragmatic impacts of the Queen’s passing on the law and Australian legal profession.

3 Key Insights from the State of Separation Impact Report: Making Separation Simpler

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3 Key Insights from the State of Separation Impact Report: Making Separation Simpler

Parting ways in a relationship is never easy, and family lawyers are generally the first professional separating couples encounter when they end a relationship. For all of these reasons Angela Harbinson created The Separation Guide, which aims to make separation and divorce simpler, more manageable and less stressful.

Kyiesha Faulkner: How the Indigenous Business Handbook is transforming lives

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Kyiesha Faulkner: How the Indigenous Business Handbook is transforming lives

Starting a business is never easy. What step should you take first? How do you negotiate the ins and outs of your legal requirements if you’re not a lawyer? Even for a seasoned lawyer these steps are complicated…And what if you also face unique cultural considerations and complexities?

Self-awareness: The surprising foundation to a thriving legal career

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Self-awareness: The surprising foundation to a thriving legal career

There’s no doubt the legal sector can be an intense work environment. Thanks to heavy caseloads and fierce competition, lawyers and other legal professionals are facing stress, anxiety and burnout on a concerning scale. But according to executive transition coach and CEO at Lucent Global, Ellie Scarf, it doesn’t have to be this way. There’s one tool that can help you manage a plethora of professional challenges. That tool? Self-awareness.

5 tips on how to avoid common ethical breaches for lawyers with Athol Opas

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5 tips on how to avoid common ethical breaches for lawyers with Athol Opas

The law is a complex field heavily reliant on knowledge, interpretation and advice. This makes for a profession that can have far reaching consequences and, as a result, lawyers are held to high standards. Athol Opas presents annual ethics updates to firms to keep them abreast of recent cases of misconduct and/or common ethical breaches. We spoke to Athol to find out about the most common ethical breaches lawyers should be mindful of and to gain his top tips on complying within ethical obligations. 

What are the top negligence claims facing lawyers today?

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What are the top negligence claims facing lawyers today?

The College of Law investigates which legal practice areas are most at risk of negligence claims and why. We spoke to Lawcover’s Legal Risk Manager Glenda Carry about the practice areas most affected by negligence claims, what behaviours can lead to adverse claims by clients, and what risk mitigation strategies law practices can put in place.

From LLB to Parliament – Australia’s Politicians-Turned-Lawyers

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From LLB to Parliament – Australia’s Politicians-Turned-Lawyers

Australia’s recent change in leadership has set the nation’s eyes on Malcolm Turnbull. Over the coming weeks and months, the newly appointed 29th Prime Minister will reveal his mettle as a national leader.

From ballroom dancing to the law: Meet PLT alum Helena Angela Hanna

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From ballroom dancing to the law: Meet PLT alum Helena Angela Hanna

While completing her law degree and Practical Legal Training with the College of Law, Helena Hanna also kept up with her interests outside of studies. Learn more about Helena and her law degree experience.

How to merge your love of music with your legal career: Chelsea's story

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How to merge your love of music with your legal career: Chelsea's story

Learn how Chelsea Donoghue merged her lot of arts and law: How she managed her study while on world tours, what she loves most about her work at Sanicki Lawyers, and what’s next.

Graduates and prize winners recognised in June ceremony

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Graduates and prize winners recognised in June ceremony

Graduates and prize winners celebrated their achievements, received their awards and honours remotely due to continuing COVID-19 restrictions.

How AI is being used in Family Law

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How AI is being used in Family Law

To understand where legal AI use cases are showing up within family law, the College spoke with two highly experienced practitioners who have incorporated AI into their legal practice in different ways. Fiona Kirkman, principal at Kirkman Family Law, embraced ChatGPT early on in her practice, while Jenna Downy, solicitor at Family Law Matters, helped train LawY, an AI legal research assistant.

How to exit your job gracefully in law

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How to exit your job gracefully in law

For the 1 in 4 Australian lawyers considering leaving their job, the current job market is tipped in their favour. However, Australia’s legal profession is tight-knit and relatively small, so reputation matters. If you are leaving your role for fresh challenges, here are our top tips on how to exit your job gracefully in law, from the College of Law’s National Careers Advisors Ruth Beran and Susan Pincus.

Juggling full-time work, parenting and PLT possible through the College of Law, says Kerala Drew

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Juggling full-time work, parenting and PLT possible through the College of Law, says Kerala Drew

Kerala Drew found the path to qualifying as an Australian lawyer fraught with roadblocks. Learn how she landed her first job in law, what set her College of Law PLT experience apart from prior study, and what advice she might have for lawyers looking to join the Australian legal profession.

Navigating Age Discrimination In The Law With Tile Imo

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Navigating Age Discrimination In The Law With Tile Imo

Bias and age-based discrimination remains an issue in the workforce, despite legal protections. In this article, we delve into the intricacies of age bias claims with Tilé Imo, Associate Director of Caxton Legal Centre. We explore the evolving legal landscape, effective strategies for litigating age discrimination cases, and the emerging trends that lawyers need to be aware of to best serve their clients.

Major changes ahead with the Family Law Amendment Bill 2023 in progress

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Major changes ahead with the Family Law Amendment Bill 2023 in progress

Major changes are coming that will impact the family law system and the way practitioners operate in Australia. The Family Law Amendment Bill 2023 is currently under debate in parliament and after its third reading, it is now under review with the Senate Legal and Constitutional Affairs Legislation Committee. The College of Law will provide legal training support when the Family Law Amendment Bill commences, but in the meantime, we spoke with College of Law adjunct lecturer Kathryn Kearley to find out about the most important changes.  

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