The following is an excerpt from the MyCase eBook: The Ins and Outs of Buying a Law Firm, by author Roy Ginsburg.
Historically, when most lawyers set up their own law firms, they started them from scratch. This brought on the unavoidable headaches that go along with starting anew. In today’s legal profession, however, there are opportunities to buy existing practices and hit the ground running.
Buying an existing legal practice has its advantages:
- You have work to do right away
- You gain access to a built-in referral network
- Your book of business is full of vetted, paying clients
- Your phone rings and your website gets visitors
- You have predictable costs
- You may even gain access to a willing mentor
Depending upon the practice area and its location, it may make more economic sense to buy a practice, rather than build it the old-fashioned way. And there could be abundant opportunities to do so as more and more boomer lawyers retire.
What Kind of Practice Should I Buy?
When purchasing a law practice, buyers hope that past clients will “keep the phone ringing” even though the selling attorney is no longer there. For some practice areas, this will not happen. Very prominent criminal defense attorneys and other well-known litigators are good examples of practices where future revenue is very problematic. These practices are too closely tied to the sellers’ reputation. Buyers will soon learn that clients want to hire only the lawyer who is selling and nobody else. However, some practice areas are likely to generate future revenue.
Old Files That Keep Giving
Estate planning practices may well produce future revenue despite the departure of the lawyer who first opened the files. For example, if a buying lawyer inherits files containing wills for living clients, it is reasonable to assume that some of those clients will want to revise or update their wills, especially if the buyer actively markets to past clients. Furthermore, client deaths may lead to probate proceedings. While future revenue may be likely, it is impossible to predict how much. One cannot predict how many clients will want to have their estate plans revised. Furthermore, even for those clients who do need such work, some may prefer to use other counsel other than the buyer.
Some Client Relationships May Be Transferable
Other practices that may yield future revenue are those where the retiring lawyer’s book of business is based upon close personal relationships with clients or referral sources. When such a practice is sold, the selling lawyer can make an introduction and vouch for the buying lawyer. Ideally, the relationship will then transfer and the business will continue.
One example of such a practice in this category is an IP lawyer with a patent-prosecution practice who has relationships with key general counsels or lead scientists at a few companies. Another potential in this category might be an immigration lawyer whose clients are corporations with foreign-worker issues, where key relationships are with human resource VPs. Still another would be a small-business attorney who has referral relationships with select CPAs. In all of these practice area scenarios, a successful transfer of the relationship should lead to future revenue.
Just like the situation with the estate planning practice, however, the amount of future revenue is unpredictable. If a retiring lawyer’s book of business is based on eight key relationships, there is no guarantee that there will be eight smooth transitions. It is reasonable to assume that some of the relationships will transfer—it is impossible to predict how many, however.
For certain consumer practice areas, a website domain name, email address and phone number should generate future revenue. For example, a bankruptcy lawyer with a well-trafficked website and an address of www.nodebts.com, along with a phone number of 1-800-NO-DEBTS, should continue to attract business after the seller is gone. In these situations, the phone keeps ringing when a buyer takes over because clients find the firm by searching on Google. It does not matter whether the seller is present.
The name or brand for some law firms may have value under certain circumstances. Let’s assume that the law firm’s name at nodebt.com is the No Debt Law Firm. If that name has been and continues to be advertised on billboards, radio, TV, and the Web, some consumers wanting bankruptcy assistance will contact the law firm simply because they remember the name and the contact information. The brand stands on its own. Here again, the presence of the previous owner-seller is largely irrelevant in determining future revenue.
Systems and Operations
Finally, there are also some practices that have value based on their systems and operations. This can be true for certain niche practices that are usually high volume. These firms often resemble a “factory” type of business, rather than what one traditionally thinks of as a law firm. Examples include plaintiff bankruptcy and defendant mortgage foreclosure firms. For these practices, a buyer purchases the means to get the work done (staff, equipment, procedures, etc.) and avoids the headaches of creating them.
To learn more about buying a law firm, be sure you check out the full (and free) MyCase eBook: The Ins and Outs of Buying a Law Firm here.