There are more than 1.3 million attorneys in the U.S. according to the American Bar Association. However, there aren’t nearly as many practicing attorneys in the country. Many who’ve graduated law school choose to pursue other careers. Some have sold the law firm they started to do something else.
Are you looking to sell your law firm in the near or distant future? It’s been nearly 20 years since my husband, and I decided to sell our first business, and the lessons we learned about selling a business have stuck with us even today.
Whether you’re ready to retire, want to start a business in another industry, or are just looking to sell your firm, here are some tips on how to prepare your team (and yourself) for transferring ownership of the law firm you started.
Contemplating the Sale
In March 2005, I walked into our office, and my assistant told me there were five men in suits waiting in the conference room for me. I remember being surprised by the visit and not prepared for what they were about to offer.
The executives worked for Intuit and wanted to buy the company my husband and I had built. At the time, our company, an online business specializing in helping small businesses legally incorporate their new companies, was bringing in more than $1 million in gross sales every month. I turned them down flat.
As the meeting ended, the parting words of one of the executives stayed with me. He said I shouldn’t dismiss their pitch too quickly because such lucrative proposals don’t come around every day. In other words: “Lightning doesn’t strike twice.”
Then my financial adviser knocked some sense into me, telling me to at least listen to their offer. In the end, my husband and I took the offer and sold the company for $20 million.
I wish I could tell you it was smooth sailing from then on, but it wasn’t. Part of it was the emotional toll that comes with letting go of your business. The rest was an endless list of due diligence, team prep, and planning for what would come next.
Getting It Right
Most business owners think of selling their business as a one-time event when really, it’s a process—a long process.
When we sold our first business, the buyer wanted a record of every employee and independent contractor we had ever hired and demanded transparency about any potential skeletons in the closet. We spent a lot of time discussing how the company would operate after I was no longer at the helm.
For the sale of a law practice, the ABA has a specific set of rules to abide by. The entire practice must be sold, not just a portion. Other ABA rules require the seller to not engage in the private practice of law in the same geographic area and give written notice to current clients.
Last year was a quiet one for sales of law firms. According to BizBuySell, the largest online business for sale marketplace, in 2020 nine legal services/law firms were sold for a median price of $139,500. The good news was this price was more than the median cash flow of $107,908, for an average cash flow multiple of 1.71, which means the equity value of the company was 1.7 times what it earned.
It’s always a good idea to get help from a third party when you’re trying to sell. Look for a strong negotiator who is familiar with your business’ kind of sale and the issues that may arise.
For me, the most critical part of our business’ sale was to make sure our loyal employees would be taken care of and felt comfortable in the transition.
Be honest, and tell your staff about your plans to sell, so they won’t spread negativity about the sale (to peers and clients). Some sellers make it a condition of the sale to retain key employees—that’s up to you.
If possible, ease employees into the transition by having some crossover time while introducing the new buyers to the practice. Walk them around, have them attend meetings, and set up some casual talk time so everyone can get acquainted.
Most business owners don’t sell their companies without having some idea of what will happen next. If retirement is your goal, congratulations. But, if you’re ready to start a new business, carefully consider your options.
I started several companies I ultimately wasn’t passionate about running. So, shortly after our non-compete ended in 2009, my husband and I launched a new legal-filing business called CorpNet. Once the entrepreneurial bug has bitten you, it’s hard to ignore the lure of building a successful venture.
Before deciding to sell your business, analyze your motivations for selling and goals for the sale. If you’re truly ready to move on, create a detailed exit plan. Selling your law firm may feel scary—it was for me. But we’ve never regretted selling our first business and building a better future.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owner
Nellie Akalp is the founder and CEO of CorpNet.com, a resource and service provider for business incorporation, LLC filings, and corporate compliance services in all 50 states. Akalp and her team recently launched a partner program for legal, tax, and business professionals to help them streamline the business incorporation and compliance process for their clients.