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Two of the most expensive mistakes lawyers looking to sell their practices make are signing a long-term lease, and failing to create a contingency plan for incapacity. We’ll take a look at why that is in a moment, as well as how to avoid those pitfalls.
Most advice on preparing a law firm for sale works in theory but not in practice. The problem is that the advice assumes you are a different kind of lawyer than you actually are.
Lawyers preparing to sell often ask the same question: “What should I do now to maximize value?”
The standard advice is predictable:
- Improve systems
- Tighten financials
- Enhance marketing efforts
- Reduce owner dependency
- Modernize operations
Is any of that advice bad? Not at all.
But let’s be honest. If you have practiced law the same way for the past 30-40 years, you are probably not prepared to reinvent your firm at age 68 simply because a consultant or AI told you to.
Are Retiring Lawyers Willing to Reinvent the Firm?
Most retiring lawyers are unlikely to reinvent how they run their practice in the final years of their careers.
Think about it. Haven’t you known all along what you should have done years ago to maximize profits? Did you do it? Like most, you didn’t. You’ve been too busy putting out fires with clients.
Instead of pretending you are a Silicon Valley startup founder, it’s better to avoid the mistakes that can jeopardize deals late in the process.
Avoiding Unnecessary Problems When Selling a Law Firm
#1 Don’t Sign a Long-Term Lease
Once you reach your mid-sixties, the likelihood of your or your spouse’s continued excellent health is uncertain. The odds that one of you will have a serious medical issue increase substantially at this time. As a result, significant changes to your practice may be required.
Health issues will give you enough to worry about. Why add the stress of a large lease obligation?
There is another reason to keep your lease short: flexibility. When you least expect it, you may find an opportunity to sell your practice sooner than you anticipated. A long lease could be a major obstacle to a potential deal. You should never assume a buyer would want to take over your lease obligations. Some will, some won’t; it will depend on the situation at hand.
Don’t make your retirement more difficult than it needs to be. The less unnecessary baggage attached to the practice, the easier your transition will be.
#2 Don’t Forget a Contingency Plan
As you get older, it is more critical than ever to have a contingency plan in case your health begins to decline. (Note to younger lawyers reading this: You should have one, too!) At a minimum, a contingency plan should specify who will handle your active matters if you become incapacitated, how clients will be notified and transitioned, and who has authority to manage or wind down the practice on your behalf.
Most solo lawyers and small firm owners put this off. But without a contingency plan, a sudden health event affects not only you but also your clients, your staff, and the value of everything you have built.
Don’t have one yet and aren’t sure where to start? Look to the many resources available from your bar association, malpractice carrier, and the internet.
What Do Lawyers Really Need to Do Before Selling Their Practice?
So, is that all? Just two things? Yes!
I am well aware that other consultants frequently advise solos and small firm owners to enhance marketing efforts, systematize operations, clean up financial records, and go paperless, among other things.
But let’s get real. You know you should have been doing all of that years ago. Do you really think you’re going to do it now? At this stage, it’s more logical to secure your floor than to try to raise your ceiling.
When discussing this topic with clients and prospective clients, I can’t help but think of President Obama’s remark on how best to manage world affairs: “Don’t do stupid s**t.” That same advice holds true for lawyers considering selling their practice.
You made a nice living by doing it your way. Smart buyers will still see plenty of value and will come ready to make a deal. Just be sure not to get in your own way.
Preparing your practice for sale does not have to be complicated. If you want to talk through what makes sense for your situation, reach me at 612-524-5837 or contact me online.
