Best Practice: Law Firm Practice Sale - Selling a Personal Injury Plaintiff Practice
Asked and Answered
By John W. Olmstead, MBA, Ph.D, CMC
Q. I am the owner of a personal injury plaintiff practice in downtown Chicago. I am the only attorney in the firm. I have two legal assistants. I am 66 years old and am starting to think about retirement and how to exit my practice. I would like to sell the practice to another law firm or practitioner. Does my practice have any value and can it even be sold?
A. After you pull out all the cash and pay down any liabilities the general the value of your practice will be the value of your fixed assets, goodwill (if any), and the value of your contingency fee cases in process. The largest asset of value is your cases in process and often that value cannot be determined until the cases are concluded. If you are an advertising-type firm and have built a sustainable brand beyond your individual reputation, there could be a goodwill value. However, since you are a solo I doubt that there is a goodwill value beyond the value of your cases - it all depends whether you end up farming out your cases to another firm or whether you can find someone to come in and take over your practice.
If you have to sell your practice to another firm, they will probably not have a need for your fixed assets. You will have to sell or otherwise dispose of them. More than likely you will not be able to come to an agreement with the other firm on a specific sale price for the cases in process. Therefore, you will have to agree on a fee split formula where you are paid as the cases are concluded. This formula will need to consider a percentage of completion factor based on how much work was done while a case was in your possession and while in the possession of the new firm.
Your best bet would be to find an attorney that would come in and take over your practice. He or she would have a need for the fixed assets, your employees, and if you transition properly could benefit from the goodwill that you have generated. In this situation, you could receive payment for fixed assets, goodwill, and cases in process. This would also provide continued employment for your employees.
For more, see The Lowdown on Law Firm Transfers (September 2016 Illinois Bar Journal) and For Sale by Owner: Getting the Most for Your Law Practice (October 2012 Illinois Bar Journal).
John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics and author of The Lawyers Guide to Succession Planning published by the ABA. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at email@example.com.