Buy a Law Practice
If you’re considering going solo, you may be interested in purchasing an established practice from an attorney who wants to transition out of the practice of law.
The Washington State Bar Association has launched a system to facilitate the conversation between seasoned attorneys who are thinking of selling their practice and new attorneys and 3rd year law students thinking of purchasing a practice.
It’s critical to think about a variety of factors to determine if you genuinely want to buy a practice:
If you feel comfortable with the above set of criteria, it’s time to further explore some of the considerations that are necessary when thinking about purchasing a practice. The following are introductory thoughts to consider, but should not be considered exhaustive.
The first critical requirement for a successful agreement is a good fit between buyer and seller. Given that most potential practice buyers are likely either established lawyers in a firm who wish to go out on their own, or recent law school graduates looking to begin their legal career, it is often in the best interest of both buyer and seller for there to be a period of transition. Most likely there will be a 1-3 year transition from the time you agree to purchase a practice to the time the seller leaves and after that time, depending on how you structure the agreement, the relationship can be on going for a number of additional years. Make sure there is a good fit.
What type of practice? Have a clear understanding where your passions lie, your motivations, and interests. You can be successful in a variety of areas of law, but it’s critical to know your personality, your interests, your values, and your abilities. If you can match a practice with those four components, your probability of success increases dramatically.
Where should I practice? Consider if you want to practice in a city or a more rural area. Both have their advantages and disadvantages with the key being which fits both with your long term goals and how you envision yourself connecting with your clients and community. In a larger city it is much harder to make an impact in the community since you are one of thousands of lawyers, but may be the best place to build your firm. In a smaller city, you can be an integral part of the community and potentially enjoy a higher quality of life.
Do your due diligence to make sure the book of business is transferable and will lead to further referrals. Not all books have the same value. A practice that is successful solely because the attorney is know as a pit bull in court or always gets his/her clients off, or gets them the best deal, may not necessarily be worth buying since so much of the good will is wrapped up in the reputation of that one individual person. Ask questions regarding the attorney’s client base, how they obtain new clients, percentage of clients that return, percentage of practice that is referral based, etc.
If the book of business is transferable, the next question is valuation. There are a variety of methods that are used to calculate value including the Rule of Thumb Method and the Earn Out Method, among many others, but the key will be to consult with an accountant or business broker who has experience in this arena before moving forward.
How the deal will be structured is a key consideration when thinking about your next steps especially for a newly minted attorney with $150k in debt. The key is to have an open dialogue and develop an agreement that works well for both parties. There are a variety of ways to structure a deal so that very little money is exchanged up front such as a payout over an extended period of time or basing the payments on future revenue. Once again, the key is to do your due diligence.
A transition period, whether it’s 6 months or 3+ years, allows the buyer a graduated assumption of the existing practice and an opportunity to tailor it as one’s own while benefitting from the historical and other knowledge of the seller. This type of “mentoring” may be quite important for the new graduate just starting their career. Some manner of financing, which may be a variant of “sweat equity,” may be achieved with a period of transition.
Search the WSBA Career Center for Practice Transition Opportunities.
For additional consultation and information, contact the Law Office Management Assistance Program at firstname.lastname@example.org.
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