When you’re thinking about starting your own law firm or expanding your practice, have you thought about buying a law practice? It’s a good idea for lawyers to consider buying a law practice—it’s a smart way for lawyers to grow and diversify their practices.
But lawyers need to consider many factors before making a purchase. Research, ethical considerations, and valuation all contribute to whether buying a law practice is right for you.
In this blog post, we’ll cover how much it costs to buy a law practice, where to find law practices for sale, the valuation process, ethical considerations when you buy a law practice. We’ll also share how to determine if a law practice is worth buying.
How much does it cost to buy a law practice?
Determining the cost of a law practice is complex. Many factors go into the firm’s valuation, such as the practice area, clients, revenue, and existing business debts. That’s why it’s essential to do your due diligence and ask experts for guidance to ensure you pick a stable firm to purchase at a fair price.
Let’s take a closer look at where you can buy a law practice.
Where to find law practices for sale
There are many different resources and marketplaces available to legal professionals looking to buy a law practice. Here are some online marketplaces to kick off your search:
It’s important to note that these resources are helpful when finding a law practice to purchase, but not with the procedures and due diligence that follow.
Reach out to your state bar association
State Bar Associations are valuable resources that can guide and support lawyers when choosing which firm to buy and how much to pay for it. For example, Washington State Bar offers a career center that you can filter to show “Practice Transition.” With this filter, you can find attorneys who are potentially retiring or looking for buyers.
Additionally, Oregon State Bar has a forum where members can post to inquire about firms for sale. Through this forum, lawyers can find someone who’s gone through the process of buying a firm. Even if your state bar association hasn’t formally set something up, they still might be able to assist you during the law firm buying process or point you in the right direction.
The valuation process—how much should you pay?
When you buy a law practice, the valuation process is tedious and can be extremely overwhelming. We recommend that you work with a professional financial or accounting expert who understands this type of transaction. By working with an experienced financial or accounting expert, you can help ensure you’re paying the right amount for the law firm. When looking into a prospective firm, you should review the items below to determine how much you should pay and if the firm is a wise investment:
- Financial statements
- Federal income tax returns
- Titles to assets
- Bank statements and records
- Debt agreements
- Leases and subscription agreements
- Business and payroll tax returns
- Insurance policies and applications
- Compensation records for attorneys and staff
6 Tips for How to Buy a Law Practice
1. Do your due diligence
Due diligence is an extensive step that will likely be the most time-consuming part of the law firm buying process. Due diligence includes reviewing the statements listed above and meeting with the law firm’s owners and key employees. In addition, when conducting due diligence, you should build a team to assist with the deal. Here’s an example of what this team could look like:
- Financial advisor. A financial advisor can determine how the deal will impact your short and long-term financial goals and well-being.
- Accountant. An accountant can work with you on the tax implications of buying a new law practice, the appropriate buying price, and conditions.
- Legal advisor. This legal advisor is preferably someone who has purchased a law practice before, as they can help with the details of the deal structure.
In addition to their specialties, these professionals can ensure that you request the necessary documentation and financials to pay a fair and competitive price when you buy a law practice. Working with each of these individuals will ensure you complete due diligence thoroughly and ensure that you can move forward with confidence.
As a part of your due diligence, you should start documenting a transition plan. Having an idea of the tasks you need to complete once you buy a law practice will ensure you’re prepared for the sale.
2. Utilize forums for your questions
Plugging into a law community is a great way to engage with legal professionals who have gone through the buying process. This way, you can connect with other lawyers who can recommend best practices and refer other professionals to help with your due diligence. As stated earlier, reaching out to your state bar association is a great place to start. In addition, joining online communities such as The Law Community is an excellent way to get answers and advice when you buy a law practice.
We also recommend finding a legal mentor to help with this process. No matter where you are in your legal career, you can gain valuable perspectives on buying a law practice from someone more experienced and knowledgeable.
3. Prioritize the practice type, clients, and branding
As a lawyer about to buy a law practice, you need to know your must-haves when viewing potential practices to purchase. Like buying a house, you should know the ideal practice area, client base, branding, and reputation of the firm you wish to buy.
You need to consider what your firm’s future looks like—does it involve multiple practice areas? What type of clients do you want to serve?
These questions will identify long-term goals, determining which type of firm you will end up purchasing.
4. Get clear on your why—why buy this law firm?
Although there are many questions you will be asking yourself and the law firm seller during this process, you must also be prepared to answer questions. An attorney selling their law practice will want to know why you want to buy the practice they’ve put their hard work into. This transaction is not purely about numbers, as the law firm seller must trust you with their legal clients. An attorney may ask you: Why this practice area? Why this location? Why these clients? Be sure to have compelling answers to these questions.
Think of it as your elevator pitch when you buy a law practice—why should they sell to you?
Ethical considerations when you buy a law practice
Rule 1.17: Sale of Law Practice states that the law firm seller must make clients of the prospective firm aware of the sale and have the right to choose another counsel.
Most states have similar requirements. But the rules of buying firms can vary between jurisdictions, so make sure to check into yours before you buy a law practice.
5. Create a transition plan
When you’ve decided to buy a law practice, the new firm requires a transition plan. Remember that you should start planning the transition process during your due diligence. To make the transition period as smooth as possible, consider the following:
- Retain the previous owner after the sale is made. Hiring the previous owner(s) as a consultant or advisor for a set amount of time can help add stability and provide guidance during the transition.
- Implement small changes. Making massive changes once you buy the law firm can make the transition difficult for employees and clients. Employees and clients are accustomed to previous procedures, so they need to transition to the new law firm ownership.
- Make your employees feel valued. Employees can feel anxious about their job security during times like these. As a law firm owner, you can ease their concerns by being transparent on how the firm will transition.
- Familiarize yourself with the firm’s processes and technology. It’s essential to learn how the firm you purchased operates. Then, you can identify any shortcomings and room for improvement. In addition, understanding how the firm manages processes and technology helps determine how your business may need to adapt.
- Introduce yourself to new clients. You don’t need to do this introduction immediately. But sending new clients a welcome note introducing yourself and the new team is an excellent way to remain client-centered during the transition period.
6. Buying a law practice is a complex but fulfilling process
Buying a law practice is a complex process, but it can help you achieve your long-term professional goals. And despite being a time-consuming process, there are many retiring and transitioning attorneys looking for the right person to care for their clients. And that person could be you. But before you buy a law practice, you need to determine which type of law firm you’d like to purchase, recruit a team of experts to assist with the financials and structure of the deals, and have a solid transition plan.
And most importantly, reach out for help. Reach out to your bar association, online law communities, and consider finding a legal mentor who can provide valuable guidance.