Interest in the sale of law practices continues strong and unabated. This may reflect continued economic stress, the aging of the profession or simply greater desire to look for greener pastures outside the law.
No matter what the reason, lawyers wanting to sell their practices are confronted with questions that many of them are ill-equipped to answer, even if they are experienced transactional lawyers. That is because a practice sale is not just a business decision; it involves the unique combination of business and ethics issues that only lawyers must confront.
The following is not a comprehensive list of such questions but it does indicate the type of mental checklist a selling lawyer should have when contemplating a practice sale.
- Do I need a nondisclosure agreement before holding discussions with a buyer? Likely not, because an NDA does not become an issue until late in the process if at all. However, if a lawyer is more comfortable having one, taking a general version from texts typically found in any law library should suffice.
- What kind of information would a buyer require? Financial information on the practice is of course essential, and lawyers selling a practice should be fully prepared to provide it. A list of current and past clients is also a necessity. And remember that selling your practice is no time to be modest or reticent. If you have kept technology up to date, invested in new office space with modern infrastructure, maintained strong referral relationships with other firms, be sure to communicate those facts up front. Their value may not be easily quantifiable, but they definitely support the firm’s goodwill: its reputation, client base and client loyalty.
- What type of contract should I have? Contract is really a misnomer. Typically an attorney for either the buyer or the seller will draft a buy/sell agreement, which both parties will review. Some negotiation occurs, but the agreement must follow the deal memorandum drafted earlier in the process.
- How do I set the selling price? This can literally be the million-dollar question. The value to you in selling your practice must be significant, or you would not be interested in selling your goodwill and a buyer would not be interested in buying your practice. Price is normally based on expected future earnings, but may also be affected by revenues that will be earned from the buyer’s talents. Many buyers want to pay a percentage of revenues collected rather than a fixed sum for the practice. However, it is generally preferable to sell (and buy) on a fixed, set sum. Setting that sum is where an experienced negotiator assists both sides in the deal, helping buyer and seller reach their mutual objectives better than they could have on their own based on experience with past transactions.
- If I decide I don’t like retirement and want to resume practice, can I do it? Absent a covenant not to compete, it would likely be acceptable to sell your practice and at a later point resume practice in another city or work for another firm in the same city. Certainly you cannot sell your practice and then start up a new one to compete directly for your former clients; this would violate both contract law and the rules of professional conduct.