We regularly prepare valuation reports for law firms of all shapes and sizes across the UK, and one of the sections of our reports is how to increase the value of, and the ability to sell, a law firm. Here are some of our top tips for any law firm, but if you do require a specific report and analysis of your own practice, please get in touch with us via our website at www.jonathanfagan.co.uk.
Manage, don’t fee earn
One of the key ways of getting value out of your business and facilitating a sale is to make sure that as partner and owner of the business, you are not involved in fee earning, or your fee earning activities are minimal. An example of the problem for buyers looking at law firms is the following scenario – if the fee earners are the owners who are turning over £300,000 pa but from this £275,000 is being generated by the partners who are retiring or selling the business, where is the value in the business for the buyers?
It may be that you have a couple of staff supporting you in your work, but once you are gone they are left without any work coming their way, which means that your law firm virtually has no value at all once you leave it.
Sellers obviously think very differently about this, and often say, “Yes, but our business has been around for 100 years and somebody coming in can simply take over the business, put their own stamp on the business, generate work as we have done and continue our good work and pay a premium for it.” If only this were true!
The fundamental sticking point for quite a lot of firm sales is that partners are doing their own work and fee earning and then expecting to be able to sell that business at a premium with hardly any fee earning other than their own. In these situations the practice can remain for sale for many years to come (unless there are other redeeming features).
One of the key parts of growing a business is to make sure that you are not operating the business on a day-to-day basis. You need to be managing the business and making sure that you have other people undertaking the fee earning, because it is this that puts the value into a professional services business without any recurring fees.
I appreciate that this is much, much harder than it sounds and very risky for some businesses to actually take on fee earners and to pay them a salary. This is made even harder in a job market where there are hardly any staff looking for work. However, it is quite possibly the number one key factor when it comes to a law firm sale and achieving a good sale price for the firm.
Without additional fee earners undertaking work your practice is much more likely to be a disposal rather than a sale and a buyer will probably want to offer you the chance for them to take over the risk and liabilities and not for you to be paid a premium for all the work that you’ve put in over the years.
Make sure you have up-to-date accounts
We get so many law firms coming through to us for sale that have no accounts or barely any accounts information for a potential buyer to see. When accounts do exist, they can be so vague as to render them pretty useless, and buyers simply don’t bother going any further with them.
Firms that sell easily have well-prepared accounts with full information available from the outset, with any explanations as to certain figures on the balance sheet and the profit and loss accounts available to any buyers. Consider resolving any overdue loans/debts if you can.
Having full details as well as to the ownership of certain assets to add to the accounts will be of immense assistance, including details of any leases and staff lists (age, length of service and type of work).
We offer a pre-sale pack preparation service to sellers using our Gold and Platinum Services, but you can of course do it all yourself. The more clear and succinct your information is, the easier it is to achieve a sale.
Look at your web presence and think very carefully about it
Firms come to us for sale who have been around for generations and don’t need a web presence in order to conduct their daily business. Quite possibly they have been in touch with yell.com 10 years ago, who have knocked them up a bog standard website with hardly any information on it that hasn’t been changed in 10 years since, but it’s there and is at least a website and online presence! However, the same firm will have no Facebook page, no Twitter feed and quite possibly just one piece of news dating back to 2012. It may be that someone at some point has gone on to Google My Business and actually added the business but it is highly likely that very little work has been done on web presence, and this will show very clearly to any buyer coming to look.
The vast majority of buyers coming through will be of a different generation very much used to getting all their information online and of course the first place they will look for information about your business will be via the internet. If your online presence consists of nothing or hardly anything, or is so vague as to render it completely useless, then chances are a buyer is going to be immediately put off.
Take a look at your web presence and regardless of whether or not it generates you any business or you feel it is any value to yourself personally in your practice, spend some time working on it and developing it further, because this is going to be key to any potential buyer coming through. Get blogging, add content to your website, update your website so it’s relevant to now, and look at your online marketing.
It is one of the main issues that crops up in discussions with potential buyers, that we find as brokers can be a real sticking point at times.
Get an idea in your head as to what sort of deal you want out of a potential sale at the outset
Quite often sellers have absolutely no idea what they want from the disposal of their business other than a bit of money for the effort they have put into the firm over the years. We regularly advise sellers not to put a price on their business for a whole host of different reasons, but at the same time it can be extremely useful to have an idea as to your end game, whether you disclose this to anyone or whether you keep it to yourself, you should really have an idea as to what you want to get out of any potential disposal.
If your aim is to solely continue the practice, safeguard your employees’ jobs for years to come and to ensure the continuity of your business name, then you are going to be more interested in a deal where somebody comes in, takes over the business and runs it going forward, ensuring everything stays the same and continues.
However, if you are looking to get maximum value out of the business in terms of a cash price, then you need to have an idea in your head as to what that cash price is from the outset and be prepared to change it and the structure of any deal going forwards.
Getting a valuation from the perspective of likely sale prices/deals plus suggested deal structures can be extremely useful in assisting you to plan your end game..
These are just some suggestions for improving your chances of success for a sale/merger/disposal.
One final piece of advice is to look at your physical presence and decide whether or not, if you were a buyer, you would want to take over a practice that looked like yours.
Just this week I was looking at a practice for the purposes of a valuation and I went on to Google Maps to look at the street view of the shop front. I could see an extremely shoddy shopfront with a worn-out sign that looked like it hadn’t been cleaned in 20 years, filthy windows and a messy street front. All of this is so easy to remedy when it comes to a sale but we see this more often than we would hope!
Just think – if you were selling your own house, would you really want a potential buyer to take a look at it in its worst form and then expect them to offer you a top price? It’s just the same with the sale of a business – you’ve got to make it look good for any potential buyer. A good prospect will result in a best price – give everything a lick of paint!
Let us know if we can assist with any of the above – or for more information please visit www.jonathanfagan.co.uk