Sometimes one little word can change everything.
The concept of a “used car” long connoted a vehicle that was, at best, questionable, and at worst, unreliable. Then luxury car-makers like Cadillac and Mercedes came up with the marketing concept of a “pre-owned vehicle,” and suddenly a once-scorned commodity instantly became more valuable.
The same concept can be applied to the most valuable commodity that any solo or small-firm lawyer has: the value of a legal practice. Too many attorneys still believe their practices have little or no value to sell, irrespective of the size or profitability of the firm.
Every firm, however, represents an investment of years of hard work and financial resources in growing the practice and building goodwill. A vibrant client base and a strong professional reputation are real though intangible assets that can bring a higher selling price for a firm when the lawyer is ready to sell.
But how can such assets be positioned for maximum realization when the time to sell arrives? One way is to borrow the idea of a pre-owned vehicle by applying it to a PRE-owned practice.
In this instance, PRE stands for the fundamental business metric of any business enterprise: Profits equal Revenues minus Expenses (P = R – E). This dynamic applies throughout the life of a legal practice, but is especially important in maximizing practice value when the time comes to sell. A profitable practice is more valuable, and the simple fact is that lawyers who enjoy the practice of law generally have a more profitable practice.
Think about it: Attorneys today, particularly those later in their careers, often confess to being unhappy and burned out. Why did you go to law school and become a lawyer? Do you still love the law and enjoy helping people? If so, that is the true secret to a successful practice.
Too often, aging lawyers committed to closing their practices leave their clients emotionally long before they close their doors. In such instances, clients become dissatisfied, profitability decreases and the value of the firm is diminished.
A profitable practice shows that a lawyer is focused and passionate about the practice of law, and that they are still effective at client service. The simple truth is that such lawyers are having fun, and they are earning good money even as they are maximizing both revenues and client service.
This is essential for a successful practice sale, for a practice in which a lawyer is still emotionally invested is one with a higher amount of goodwill: the client base and loyalty that the selling attorney has created over the life of the practice. That goodwill can be realized in a practice sale.
The PRE-owned practice is one where the P = R – E equation is positive, assuring the seller and the purchaser of maximized value.
The goodwill — the reputation of the firm — continues beyond the lawyer who built it. And that attorney has the satisfaction of a life in the law well-lived.