What can you do to prepare your law firm for sale and maximise its sale price?
Understand what you are selling
A buyer’s aim is to acquire the revenue that you are currently generating.
A buyer may have plans to expand the service offering, for example adding building and construction law to a conveyancing practice. However, the acquisition price will depend, not on what the buyer plans to do in the future with the practice, but on an assessment of the firm’s revenue.
Historical revenue is usually more important than historical profitability. Legal services have typical cost structures. There are benchmarks for expenditure on items such as rent, staffing, technology and insurance. If your practice is performing poorly against these benchmarks then you are not extracting as much profit as you could be. However, a buyer of the practice can choose to implement changes to improve profitability. Examples might be subletting excess space, replacing manual processes with technology and optimising the allocation of work.
Reducing expenses is usually a much more predictable exercise to improve profitability than a plan to increase revenue. Therefore, the value in the practice is in the nature of revenue generation. That is what is being acquired.
You may have been in practice for years or even decades. You know your practice intimately. You know where you work is coming from. You know how your staff are performing. You may have such an intuitive understanding of your firm that you rely very little on the management and performance reports that may be available to you.
Some of your data capture and reporting systems may have broken down over the years. For example, matter-type coding may not have been refined in 20 years. Perhaps your practice has become more specialised and your matter categories have become too broad. Some matter types may have become irrelevant.
For example, if your practice specialises in Wills and Estates, then it is possible to have numerous matter types or sub matter types.
Perhaps your staff are not assigning the correct matter types to new matters or not updating them when it becomes clearer what a matter is really about.
Prospective buyers obviously do not have the degree of intimacy of your practice as you have. Being data-ready will maximise the sale price because it will make your practice more understandable to a greater pool of buyers. The more guesswork a buyer has to use in the buying decision, the greater the likelihood that he or she will discount the price for risk.
Other information that is commonly of interest to buyers are referral sources and fees generated by individual fee earners.
Demonstrate your marketing system
If you accept that the business value in a legal practice is in the nature and potential of its revenue then the systems that support revenue become part of the analysis that a buyer will make.
Buyers will want to know what methods of marketing and promotion your firm engages in. Examples might be email marketing, internet advertising or publishing articles on topics of law.
Why are these activities undertaken? What data is being tracked and how has this process been developed and refined over the years?
A marketing system underpins revenue generation in a firm. Producing happy clients that refer colleagues, friends and family can and does happen whether or not you have a documented marketing plan. However, in the context of selling your firm, having a system that is documented, implemented and updated adds confidence for buyers that they will be able to understand and perpetuate your success.
In summary, understanding and appreciating what you are selling, being data-ready and being able to demonstrate a systematic approach to marketing are all activities that can pay off when it comes time to selling your practice.