So what is your firm actually worth?

on 6 December, 2010 Email this Email this - Print this Print this

In the last of four articles, CoreLegal founder member Ray Fox (from the Bottom Line Consultancy) provides more insights into his specialist work as acting as a broker selling Law Firms.

The difficulty is that law firms differ from one another in the same way that cars or houses differ from one another.  Is a Smart Car worth the same as a Mercedes 450SL just because they both have 2 doors and a wheel in each corner?  Is a three bedroom house in Brixton worth the same as a three bedroom house in Brighton?

Suppose you owned a firm with a gross fee income of £400K including client account interest.  You make £150K in profit, have a client database with 2,000 names and addresses and a will bank with 3,000 possible probates.  One way at looking at the value of the goodwill of a firm would be to look at what it would cost to start from scratch and build up a firm from nothing where it has such a turnover, such a profit, such a database, etc.

In firms with a mix of type of work, say, conveyancing, estate planning, matrimonial, commercial, personal injury, immigration, etc, the key is to identify what I have always called “the propensity for repeat business”.  Generally, private client work has a lower propensity for repeat business as clients generally don’t die more than once, move more than once every 7 years, trip over paving stones on a regular basis, get divorced more than once, etc.

On the other hand, if you are offering your clients commercial support, such as company/commercial, commercial employment, commercial property, etc, there is a much greater likelihood that the client will come back time after time after time, perhaps half a dozen times a year for a period of 10 years.

There is still a risk that you might lose the Client should the practice change hands – this is always a risk when Principals sell their Practices, but if you retain such a client, they’re likely to be worth significantly more than a private client who comes back after 10 years because they need residential conveyancing.

For any help and assistance you require in valuing or disposing of your Practice, contact Ray Fox at The Bottom Line Consultancy on 01494 483728 or visit www.BottomLineConsultancy.com.


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Topics: Selling law firms
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