Kathy Geiger says selling a law practice is a lot like matchmaking.
“It’s not just a business transaction,” says Geiger, who practised law for 15 years before specializing in selling law practices. “The buyer and seller really have to hit it off.”
After seven years in what she says was a niche waiting to be filled, Geiger, 53, now has clients across Canada and some tips for lawyers looking to sell.
“One of the most important things is trying to value a law practice and understanding what makes a particular law practice viable and viable for a transfer to a new lawyer.” She says she has her own views on that from her time practising. “But I also did a lot of research into the different factors that affect viability. So I do valuations for my clients as part of the process.”
After the net income is determined, factors such as location and type of practice need to be weighed. Criminal practices, for example, can be a tough sell, because in criminal law the accused are more likely to form a relationship with a particular lawyer than with a firm.
“Whereas if somebody is doing wills and estates or corporate and commercial real estate and they bring someone in that can vouch for them, they are much more likely to retain a lot of business.”
Next you need a good transition plan because if the changeover is done incorrectly, the practice can lose its value – that is, clients will leave, says Geiger.
A proper transition includes having the vendor stay on for a period, she says.
“If a lawyer wants to leave the practice sooner than I think is a good idea, I’ll tell them to keep their insurance up for a year and stay on the firm letterhead as counsel,” says Geiger. “You’re still practising, you’re still paying your insurance and you’re available if a client has a problem and wants their former lawyer involved. It’s not just ‘here’s the file’.”
Ottawa lawyer Leslie Kirk figures she had the perfect scenario when she was considering buying a practice.
“I had known (the vendor) for years and had worked in his office as a legal assistant in the summers,” she says. “So I knew the practice, I knew him, he was older and was looking at a succession plan. So the idea was that I would start working alongside him and after a couple of years would decide whether this was something I wanted to do with the rest of my life.”
After about a year and a half, Kirk started paying deposits toward the practice purchase. She got her financing in order and had a business valuation completed by an accountant. She also incorporated for the “great tax advantage” it reaps.
Even though she knew the firm and the client base, she still had the seller stay on for four years.
“I learned a lot more from being alongside of him, listening to him talk on the phone with clients and dealing with issues. He was able to help me and give me guidance,” she says.
How long the seller stays on is a matter of personal preference and will vary depending on the lawyers involved. But, says Geiger, you’ve got to know when it’s time to go.
“At some point, the buying lawyer will want to have control and want the vendor to move on. I think a year to two years is good. If it’s longer than that, it’s got to be something both parties really want. If you had a fairly junior lawyer coming in and they wanted the mentorship of the senior lawyer that could be a very good arrangement. But if you’re a more senior lawyer coming in, you probably don’t want the other lawyer telling you what to do for too long.”
It’s not just the clients who will leave if the transition is poorly done, says Geiger.
“If you don’t take steps to reassure your staff that they are safe and that things will go on” they could walk out the door as well. “You need really good support to run a good practice.”
Geiger also tells her clients to expect the new owner will want to keep the name of the firm in order to take advantage of the goodwill attached to it.
“You may want to add the buyer’s name; it’s all a matter of negotiation. But I think if you have been running your practice as Smith & Smith for 25 years and you want to sell it, you should be prepared for the new buyer to keep the name because the business will come back. If the name changes overnight, you may lose clients.”
Geiger says it’s currently a good market for both buyers and sellers.
“The baby boomers are reaching a point where they’re thinking of retiring or past the age of retirement and suddenly realize they have no succession plan in place. For junior lawyers the market has tightened up for firms hiring so there are buyers. And there are also people who want to get out and run their own business.”
Leslie Kirk strongly urges young lawyers to seek out older, retiring lawyers in small or sole proprietorships.
“They want a way out and young lawyers are looking for positions. Also talk to as many people who have gone through this experience as possible because the arrangements or the financing or structuring the deal can be as creative as you want. Is it payment over time? Is the total amount going to be based on client retention, or is it just some fixed number? There are different things that can be done.”
Becky Rynor is a journalist and editor based in Ottawa