Hanging up your own shingle to start and grow your own law practice is a huge investment. You’ll need to invest a lot of time and effort to get clients and build your own reputation. One alternative to starting from scratch is to buy an already existing law practice. In this article, we will present and explain how to buy a law practice and other things you should consider before making this important investment.
What Makes a Law Practice Different from a Law Firm
Although these terms are often used interchangeably, law practices and law firms are different in significant ways.
- Law practice—an individual lawyer provides legal services to clients who are usually billed when such services are rendered. A law practice is usually more focused on the individual providing the services.
- Law firm—a business entity formed by one or more lawyers to collectively engage in the practice of law. A law firm is more focused on the services provided.
When you purchase a law practice, you are purchasing a lawyer’s individual business, paying clients, and accounts receivable. When purchasing a law firm, on the other hand, you are purchasing an entire business entity.
How Much Does It Cost to Buy a Law Practice?
The price of a law practice can range from a few hundred thousand to millions. The cost determination depends on various factors, including the size and profitability of the practice, the number of existing clients, accounts receivable, debts, and more. It’s a good idea to check existing documentation like bank statements and records, federal income tax returns, financial statements, titles to assets, debt agreements, leases and subscription agreements, business and payroll tax returns, insurance policies and applications, and compensation records.
Where to Find Law Practices for Sale?
One of the best places to find leads on law practices for sale is through your close networks. These contacts can give more information on a law practice’s reputation and trustworthiness. The state bar association is another good place to start. They provide leads on attorneys who are planning to retire and are selling their law practices. You can also cast a wider net by checking out online marketplaces like LawBiz, BizBuySell, The Law Practice Exchange, LoopNet, DealStream, or even Craigslist.
How to Finance the Purchase of a Practice?
If you already have the funding you need to purchase a law practice, then you are off to a great start! If not, you can secure a bank loan or a Small Business Administration (SBA) loan. Though ill-advised, you can also use credit cards, but make sure to get a good estimate of your prospective law practice’s profitability to avoid getting buried in high-interest debt.
How to Buy a Law Practice in 8 Steps
Set Clear Objectives
Any business plan, including a law practice purchase, requires a decision about your vision for your new law practice. What practice areas would you prefer? What’s your target client base? How profitable do you expect your practice to be? By defining your long-term goals, you can easily narrow down your choices to law practices that align with your objectives.
Look for Law Practices for Sale
Once you’ve set your goals and objectives, start looking for a law practice that aligns with them. Remember that your goals need not be set in stone, so you might want to make room for a bit of flexibility. It may not be possible to find a law practice that is aligned 100 percent with your vision, so keep an open mind. You can start looking for leads by asking your close network contacts or law communities. You can also find leads from your state bar association and online marketplaces.
Research Existing Regulations on Buying a Law Practice
Aside from looking for a law practice to purchase, it’s also important to look into any regulations your state might have on buying legal practices. For instance, most states require that lawyers inform their existing clients about the sale of the practice.
Figure Out Your Finances
Build a reliable, trustworthy team that can help you decide which law practice to purchase and seal the deal. For instance, an accountant or a finance expert can help to make sure that you get the best value out of your purchase and that your purchase will align with your long-term financial goals.
Get Expert Legal Advice
You can also seek the help of a legal advisor who has experience with purchasing law practices. A legal advisor can guide you through every step of the process, including structuring the purchase agreement.
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Map Your Transition Plan
Start planning the transition even before you finalize the purchase. As with any business, a change of ownership can be disruptive to employees and clients. Therefore, you might want to consider keeping the previous owner on as a consultant after the purchase to make sure that the transition goes smoothly as you become acquainted with their practice and their existing processes. As many states require the disclosure of a sale to clients prior to the sale, you will need to get acquainted with the clients as well. Prior to negotiating the purchase of a law practice, it is best to be ready to present your transition plan to prospective sellers. This gives them assurance that their clients and employees will be in good hands.
Negotiate and Execute the Purchase Agreement
Once you’ve found a law practice to purchase and experts to help you finalize the deal, acquaint yourself with the seller’s law practice before signing any agreements. What you will learn can help you negotiate better terms. Once you’ve agreed on all the terms, you can execute a final contract of sale with the seller, pursuant to existing state laws and regulations.
Implement Your Transition Plan
Now that you’ve finalized the sale, it’s time to implement your transition plan to make sure that the transfer of ownership goes as smoothly as possible. This process may involve turning over client files and handling pending cases. If you wish to implement any changes to existing processes or upgrade existing technologies, make sure to introduce these changes to employees and clients gradually.
Aside from the obvious financial costs, buying a law practice involves a lot of planning, due diligence, and paperwork. While it isn’t always a simple, straightforward process, following these tips can make your newly purchased practice more rewarding and profitable.