Owners of small business law firms (SBLFs) should consider updating the following three important items in advance of selling their law firms:
1. Determine Top Performing Practice Areas
When considering selling a SBLF, owners should determine their top performing practice areas during the past three calendar years (or longer) via the following practice area analysis: (1) number of matters generated per year by practice area, (2) annual revenues generated per practice area, (3) profitability per practice area, and (4) determining trends revealed by the data in points (1)–(3).
For example, let’s consider a trusts and estates law firm that has prepared approximately 1,000 estate plans over the past 35 years (the T&E SBLF).
Its three-year practice area analysis could reveal the following: (1) 70 new estate plans per year at an average of $5,000 per plan that involves flat fee billing; (2) an increasing number of probate/trust administrations from 22 to 25 to 30 per year at an average of $12,000 per probate based upon hourly billings; and (3) an increasing number of elder law matters (e.g., applications to nursing homes, guardianships, conservatorships, and more), which include a mixture of flat fees and hourly billing.
In this example, the practice area analysis would present the following value to the T&E SBLF: (1) spotlighting its increase in probate/trust administrations and elder law matters among its aging client base, which could then justify pre-sale marketing about those practice areas to the firm’s clients; and (2) utilizing its revenues and trends data to inform potential purchasers about its top practice areas, plus its expected revenue trends for the short and long-term (here, trends for increasing probate/trust administrations and elder law matters).