Thinking of disposing of your law firm? Well, don’t get ripped off.

on 23 July, 2012 Email this Email this - Print this Print this

A tale of woe about a solicitor who didn’t take professional advice about the sale/merger of his law firm – who learned a very expensive lesson. From CoreLegal founder member Ray Fox from the Bottom Line Consultancy – a specialist in helping Solicitors sell, merge or value their practices.

Before working for the legal profession, I was the Company Secretary and Legal Director of Dun + Bradstreet, the worlds’ largest business information company. However, since 1994, The Bottom Line Consultancy has been working extensively with Solicitors and their Practices and have now acted for over 625 different firms.

The following is a 100% completely true story and illustrates how easily it is for one law firm to get ripped off by another.

The story starts about 2 years ago when I was approached by a Solicitor [who we’ll call SOL] who told me that a local law firm had approached him and were interested in talking to him about the possibility of taking over his Practice.  I told him I’d be happy to value his firm for him [we are, after all, probably the only firm in the country to have the expertise] but he told me he wasn’t prepared to spend any money on taking advice.

He was, he told me, a Solicitor who had acted for a number of Clients when they had sold their businesses so he knew everything there was to know about selling businesses and quite frankly, why would he need to engage a consultant to help him when he already knew all there was to know.

Last week he called me again.  The situation had changed and now he needed help.  This is how the conversation went:

SOL; “Hi Ray.  Do you remember me?  My name is SOL and we spoke a couple of years ago when a local Solicitors firm were interested in taking over my Practice.”

ME; “Of course I remember you.  I seem to recall that you wanted some help but weren’t prepared to instruct me.  I know you’re on my database so you probably still get my emails.  How can I help you?”

SOL; “Well, last year I merged my Practice with theirs.  They took over my Clients, my will bank, all my office equipment, my staff, my web site – in fact, they took everything.  They’ve now fired me and I’ve got absolutely nothing to show for it.”

ME: “You said you merged your firm with theirs.  How much equity did you take in the newly merged firm?”

SOL; “I didn’t get any equity at all.”

ME; “It doesn’t sound like a merger to me.  It sounds like they acquired your Practice and absorbed it into theirs.  What were the terms of the Partnership Agreement when you joined them?”

SOL; I wasn’t a Partner so their Partnership Agreement doesn’t apply to me.  I was not much more than a self employed consultant on a fee sharing arrangement.”

ME; “How much did they pay you for your firm?”

SOL: “They paid me absolutely nothing.  They told me that firms like mine weren’t worth anything and that they were doing me a favour by taking over my Practice.”

ME: “What were the terms agreed between you when they took over your firm?”

SOL; “The only things we agreed were that they would take over my firm and keep me on for 12 months as a consultant.”

ME: “Surely you used a firm of Solicitors to help you draw up the T+Cs for the disposal of your Practice.  I seem to recall offering to put you in touch with a couple of firms of Solicitors that some of my other Clients had used in the past when I had helped them sell their own Practices.”

SOL:  “Yes, I spoke to both firms but they wanted to charge me £200 per hour to act for me.  I told them I couldn’t afford £200 per hour.

ME; “I’m confused – that must be about the same rate that you charged your Clients when you handled the disposal of their businesses.  Why do you think it’s OK for your Clients to pay you £200 per hour but it’s not OK for you to pay £200 per hour to another firm of Solicitors for specialist advice?

SOL: “I assumed that as I’m a Solicitor I could do it myself and save myself a few thousand in fees.”

ME; “So let me get this straight.  You thought you were merging your Practice but you actually gave it away for nothing.  You were trying to save a few thousand in fees so you didn’t get it professionally valued, you didn’t instruct a commercial firm of solicitors to protect your interests and now they’ve dispensed with your services.  What do you actually want me to do for you?”

SOL; “Well, I know I’ve been ripped off by a rather unscrupulous crowd but I was just curious – from what you knew of my Practice before it’s disposal, what do you think it was worth?”

ME: “I can’t give you an accurate valuation because I don’t know enough about your firm, but as a rough guide, I would have thought the goodwill of your firm was worth about £200,000 on the open market.  On top of that, you would have been entitled to your WIP, the value of your office equipment, the cash in the bank and any other assets [such as debts] less liabilities.  In other words, you might have saved yourself a few thousand in fees, but I reckon you’ve lost about £300,000.”

Whoever said that a Solicitor who acts for himself has a fool for a Client knew a thing or two. The moral of this story is quite simple – if you’re thinking of selling or merging your Practice, take professional advice.

Ray Fox

www.BottomLineConsultancy.com

ray.fox@virgin.net

01494 483728


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Topics: Selling law firms
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1 response so far ↓

  • 1 Salisbury Solicitor // Jul 25, 2012 at 12:43 pm

    Ray is absolutely right. We regularly advised law firm sales and mergers [having been through a number of abortive and successful takeovers ourselves] and it’s perfectly clear that the vast majority of small and medium sized practices have little idea about the critical issues they need to consider. After all, why should they? If they have not gone through a merger themselves, they are no more likely to understand the issues involved than a probate solicitor would understand the intricacies of intellectual property law.

    Ray’s advice is spot-on – there is no excuse for specialist professional advice.

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