Someone Wants to Acquire My Law Firm—What Should I Ask For?
Law firm mergers and acquisitions have been on the rise in the last decade.[1] But knowing what you want—and what you should ask for—is still a complex process.
Considerations
Before you enter too far into the process of selling your law firm, it’s important to consider what your goals are in choosing to sell.
Are you nearing retirement and looking for a way to continue your firm’s legacy? If so, you’ll probably want to understand what will happen to your old firm, clients, and staff after you sell.
Or, if you’re merging with another firm, you need to closely consider how the firms complement each other through practice area, location, and culture.
Finances
Any buyer who’s worth their salt will want a close picture of your firm’s finances—including partners’ rates of productivity. And firm finances certainly inform your asking price. For a ballpark range to start from, multiply your gross revenue by one-and-a-half for the low end and three for the high end.[2]
The resulting range is broad. In focusing on a more specific number, you need to consider how much of that current revenue would continue after you’ve left. In other words, how many clients will still be there?
Clients
Another approach to an asking price is to look directly at returning clients and use that information to calculate a referral fee.
After you’ve left, what would be a reasonable expectation of the number of current clients who will continue to return to the law firm over the next five years? How much business would they bring in? Calculate a referral fee of fifteen to twenty-five percent for a different way to look at your asking price.
Next steps
These two different approaches don’t need to be in opposition of one another. Instead, they can provide a more complete picture.
At the end of the day, the unique components of your firm—and the firm that’s interested in acquiring it—will have a large impact on where within the above ranges your asking price should be.
But whatever your starting point, you’ll need to have your financial house in order. Talk with an accountant, decide if you want to work with a consulting firm, and make sure you’re getting the most out of your practice management system’s ability to organize financial data.
References
1. How to Pull off a Successful Law Firm Merger
2. Valuing and Selling a Firm Takes Time, Matchmaker Skills