How Much is a Physical Therapy Practice Worth? How to Value Your Physical Therapy Practice.
By: Tanya Farmer
Valuing a physical therapy practice is part art, part science, and part math. Generally, the math and science, which we discuss below, is more easily calculated. It is the art – knowing how to sell a business and to whom – where true value is realized. For purposes of this article, we will discuss the valuation of a physical therapy practice where a controlling interest and/or 100% of assets are sold.
There are three performance indicators that are analyzed when determining the value of a practice: Adjusted EBITDA, Adjusted Seller’s Discretionary Earnings (SDE), and Gross Revenue (billings). Each of the above are impacted by different variables, and, as such, will warrant a different multiplier range. And while you can use “rules of thumb” and comparable sales to determine appropriate ranges, there is a lot more to it than simply multiplying sets of numbers. You must take into consideration other valuable aspects of your practice and include those in the final valuation as well.
How Much is a Practice Worth? Formulas for Determining Your Practice’s Value.
Below are the basic steps you need to take to determine your physical therapy practice’s value based on Adjusted EBITDA, Adjusted SDE, and Gross Revenue:
- Adjusted EBITDA Formula: EBITDA stands for ‘Earnings Before Interest, Taxes, Depreciation, and Amortization’ and it is commonly used when valuing private practices. After determining your earnings (ordinary income after all expenses), you then add back interest, taxes, depreciation, and amortization paid in order to arrive at EBITDA. From there, you can also “adjust” EBITDA by making additional add backs for non-recurring or one-time expenses. Then, the “rules of thumb” for an Adjusted EBITDA of less than $1 million would be to multiply your Adjusted EBITDA by between 3.0 and 5.0. For Adjusted EBITDA above $1 million, the range increases.
- Adjusted SDE Formula: SDE stands for Seller’s Discretionary Earnings and is calculated by taking Adjusted EBITDA and adding the Owner’s Compensation. As such, the multiplier ranges are smaller than above and would generally be between 2.5 and 4.0. Other factors to consider are current assets and liabilities.
- Gross Revenue Formula: You can use your gross revenues for the trailing twelve (12) months prior to sale as well to determine value. While the above methods are more commonly used, looking at 1.0 times your trailing 12-month revenue, including all assets, is another valuation that can be used to compare/contrast against the Adjusted EBITDA and Adjusted SDE formulas.
Any of the above formulas will help you determine a value that can work as a starting point for your business’ valuation. However, there are other factors you must consider, as well. See below.
Five Factors That Increase the Value of Your Practice
Buyers will also take other factors into consideration when determining whether they will pay more for a practice. The five factors that increase the value of a practice are:
- Solid staff: Strong tenured staff can add significant value to your physical therapy practice, especially when a new owner will need to replace your production as you retire.
- Multiple revenue streams: Of course, physical therapy services are your main source of revenue. However, if you can increase that income with products, massage therapy services, or orthotics to name a few, this also increases the value of your business.
- Different locations: A practice with multiple locations is typically considered more stable because these businesses have higher revenue, are more profitable, and have a larger market reach.
- Experience: You know your physical therapy practice better than anyone. If you are willing to stay on temporarily after the sale to provide management services, you may get more for your practice.
- Updated equipment: Physical therapy equipment is expensive and buyers will not want to invest in repairs. If you have newer equipment, this is also a selling point that can increase the value of your business.
Our Business Brokers in Washington Can Help Value Your Business
The chances are good that you have never sold a physical therapy practice before and so, you have never had to value one either. If you’re wondering how much your practice is worth, contact us at Private Practice Transitions. Our Washington business brokers have the necessary experience to fairly value your practice and find a buyer that will pay what it is worth. If you are considering selling your practice, call us at (253) 509-9224 or contact us online to learn how we can help you through the process.
The Two Steps to Selling a Physical Therapy Practice
By: Justin Farmer
In speaking to countless business owners, we know that making the decision to sell your business is difficult. In large part, fear of the unknown can create analysis paralysis and, ultimately, lead to inaction. Yes, there is much that goes into selling a physical therapy practice, but with proper planning, and the right team, most of the heavy lifting will be done for you. With that in mind, consider these two main steps now to get the ball rolling: 1) value your business and, 2) identify qualified buyers that will help you realize that value.
Valuing Your Physical Therapy Practice
You have spent years building your physical therapy practice including a lot of hard work, blood, sweat and tears, so of course your practice is extremely valuable to you. And, whether you realize it or not, it is likely even more valuable to the right buyer. That being said, it is important that you be as objective as possible when valuing your physical therapy practice. You must be able to view the business from the new owner’s perspective and understand the value that he/she will place on it as part of the acquisition process.
To maximize what a potential buyer will pay, focus on your practice’s EBITDA: Earnings before Interest, Taxes, Depreciation, and Amortization. Essentially, a purchaser will want to look at the profitability of your practice, taking into account certain adjustments, and then provide you with a multiple of EBITDA. The EBITDA multiplier truly depends on other key performance metrics and your profit margin, but can, generally, be estimated to be between 3.0 and 5.0 times when EBITDA is below $1 million. Once EBITDA passes $1 million, the multiplier of EBITDA increases. A valuation specialist can help you understand these concepts, analyze your financial statements to determine your practice’s EBITDA, and provide insight into what multipliers make the most sense for your practice.
Identifying Qualified Buyers
Valuing your business so that you better understand what potential deal awaits you is a crucial first step. From there, identifying the right, most qualified buyers can be difficult. You can have the most attractive practice and healthy EBITDA, but if you do not know how to identify, and qualify, a buyer, then your practice’s value will go unrealized. With that in mind, consider looking to your colleagues who are local and looking to expand, selling internally to qualified therapists, or testing the open market through more broad advertising.
The local market can include friendly competitors that have shown an interest in purchasing or merging, friends, mutual acquaintances, and even colleagues. If you have key staff members who have expressed an interest in starting a practice, they may also be valid candidates to purchase your practice.
If you cannot find a buyer within your own network, you may have to expand your search to the open market, which can be a scary thought for many people. You can check out sites that list businesses for sale, such as BizBuySell or BizQuest. However, finding buyers does not end there and in fact, it is only the beginning.
Even before searching these sites, it is recommended that you speak to a business broker. You are likely only going to sell your physical therapy practice one time in your life, and you want to make sure it is done right. A broker will help you find qualified buyers, advise on all the options you have, and limit the possibility of a deal falling through.
Selling a Physical Therapy Practice? Call Our Business Brokers in Washington Today
Selling your physical therapy practice is a huge undertaking, and you want to ensure that you receive top dollar for it. At Private Practice Transitions, our Washington business brokers can help you do just that. We know how to value your business so you receive a fair price, and how to market your practice to the right buyers. If you are considering selling your practice, call us at (253) 509-9224 or contact us online to speak to one of our experienced brokers today.
Two Important Questions When Considering Buying an Accounting Firm
By: Tanya Farmer
As exciting as it is to buy an accounting firm, you will also likely have many questions during the process. You will want to know about the current clients within that firm, the employees and whether you will need additional staff, and how you are going to market your new business. These are all valid questions, and you should ask them at some point in the acquisition process. Before you do, though, there are two important questions you need to ask yourself first.
Do I Want to Run My Own Business?
The thought of being your own boss and owning a business that is all yours is certainly exciting, and it is easy to ignore the question of whether you really want to do it. However, it is a question that is worth giving a lot of thought. Think beyond being your own boss and ask yourself if you want to be responsible for the daily operations of the firm. Many people love the idea of being in control of their own accounting firm, but it is worth asking yourself if you are one of them.
When asking yourself if you really want to buy an accounting firm, you should also ask yourself what goals you have for the practice. Do you want to expand the practice, or change the direction of its services? What do you want the practice to look like in three years? Knowing the answers to these questions will help you make decisions much faster, and will make you more confident in what you decide.
Will I Be Successful?
This question is much trickier because there is never a 100% guarantee that you will be successful. To ensure success, you must enter into your new business with a high level of confidence, and hopefully a low level of risk. You must also determine specific steps that will help with your success. For example, would accounting software help you manage the office easily and more efficiently? What does your marketing plan involve? How will you differentiate your service so you can earn higher fees?
While you have to ask yourself if and how you can succeed, you should also ask yourself how you could fail. No one wants to think about being unsuccessful with their new accounting business, but it is important that you identify potential pitfalls and risks. If you can pinpoint these, you can prepare for them and work to ensure they do not happen.
Our Business Brokers in Washington Can Help
If you are considering buying an accounting firm, our Washington business brokers at Private Practice Transitions have the necessary experience to help you through the process. Our experienced brokers will answer any question you have and make sure you are also asking the most important ones. When you need to ensure that your transaction goes as smoothly as possible, call us at (253) 509-9224 or contact us online so we can assist with your purchase.
How to Keep Clients When Purchasing an Accounting Firm
By: Tanya Farmer
Acquiring and retaining new clients is one of the biggest concerns for any accountant, second only to recruiting and retaining good employees. While client retention is a challenge for all accountants, it is of particular concern when purchasing an accounting firm. To ensure that you retain all, or at least most, of the current clients, follow the four tips below.
Consider the Clients’ Motivation
It is true that when clients work with the same accountant for a number of years, they develop a certain relationship. You are likely concerned that fear of the loss of that relationship will cause clients to pack up and move their business elsewhere. Fortunately, that rarely happens. It can take a lot of work to find a new accountant, and most clients will trust that their accountant found a successor (you) who is capable of handling their accounting needs. While you may lose a few clients when purchasing an accounting firm, the majority of them will remain with the business.
Perform Due Diligence
Surprisingly, client retention actually begins before you purchase an accounting firm. When looking for an accounting firm for sale, you must ensure that the current clients are a match with your own talents and skills. You also have to make sure that you have the time to provide the clients with the services they need, and remain realistic about your current obligations.
Client Retention relates to Customer Service
You may not lose many clients soon after buying an accounting firm, but that does not mean that you will never lose them. Client retention is ongoing and is tied directly to the level of service you provide and the customer service clients have grown to expect, and, as such, you must continue to communicate frequently with them to build and strengthen your relationship. You must also continue to grow the practice and implement a referral strategy. This will ensure that you are not only successful today, but tomorrow, as well.
Ownership Transition
When done correctly, the attrition of clients you should expect should be similar to the historic attrition the accounting practice experienced prior to you taking over. One sure-fire way to ensure client retention is to have the former owner wind-down over a period of time. This is normal in most industries, including the accounting industry. While there is little you can do about clients who want to pursue other CPA options, there are ways you can prepare for it. Before buying an accounting practice, ask the seller if they have any history with this, or if they expect a certain amount of clients to leave. You can also work with a knowledgeable business broker who will handle the transition properly and give clients the confidence that they are working with a knowledgeable accountant.
Our Accounting Business Brokers in Washington can Help With Your Acquisition
If you are interested in purchasing an accounting firm, do not do it on your own. At Private Practice Transitions, our Washington business brokers can help you through the extremely complex process of purchasing an existing CPA firm and ensure that you secure a fair deal. When you want to buy a business, call us at (253) 509-9224 or contact us online to learn more about how we can help.
What Is My Business Worth?
By: Justin Farmer
A fundamental question we are often asked is, “What is my business worth?” When you get into that question, we need a lot of information to give you exactly what we think your business is worth. If you are looking to sell your company, looking to find a value, there are 3 things that a buyer and a banker would look at, and that an appraisal company on the banker and buyer side would perform their analysis based upon.
Factor # 1: Gross Revenue
You are looking for trends on gross revenue as your top line; how does your business perform year over year? Also, you are looking at a 3-year snapshot generally, to look for those trends. If you see growing revenue, that’s a good thing. That adds a higher multiple of gross revenue. We will get into the kind of multiple ranges later.
Factor # 2: E.B.I.T.D.A
This acronym stands for Earnings Before Interest Taxes Depreciation Amortization – that’s your net income with some adjustments.
Factor # 3: Seller’s Discretionary Earnings
You’re also looking at the seller’s discretionary earnings, which is E.B.I.T.D.A plus owner compensation.
There are certain rules of thumb when you are valuing a company to determine what your business should actually be sold for. We’re looking at what the value is and your price value. They’re not all created equal.
Generally speaking, the most important factor that a buyer is really going to look at (along with the trends, you obviously want to see positive trends) is profitability, cash flow, the return on investment. If you flip it around, normally someone who is going to buy your business wants to look at the cash they’re going to take out of it (that’s the earnings) and they will question what is their return on that investment, how long, how many years will it take to repay the purchase price. That’s what a return on investment is. Depending on the buyer you’re talking to, they want to see a 3, 4, 5x return on their investment.
You’re going to have some buyers who are going to pay 3 and 5x E.B.I.T.D.A. for a professional service company. Here’s an example:
Let’s say that your business has a gross revenue of $1,000,000 USD and you are taking home $500,000 dollars in profit, your E.B.I.T.D.A. without making adjustments is $500,000. A buyer would look at that and say, “Okay, I can make $500,000, all things being considered,” and they’re willing to multiply that number by 3, 4, 5x depending on your type of business. That’s the general rule of thumb and again, there’s checks and balances. You look at gross revenue against some other things, but that’s just one example that I like to give, as it’s a nice round number you can kind of gage against, and ask what your business is and how much money you are taking out of it.
Another example:
You own a physical therapy practice, and your gross revenue (your billable) is $1,000,000 USD each year, and your profit (net income) is $500,000 a year. Currently, as the market is today, a buyer would look at that and think, “I’m willing to pay $500,000 x 3 = $1.5 million up to x4= $2 million.” So this means somewhere, between $1.5 and 2 million for your practice. That’s what we call a multiple.
Keep in mind that every industry is different: A widget factory sells differently than an ice cream shop which sells differently than a physical therapy shop, which is different than a CPA practice. We can help you figure out what your multiple is for your business and your industry. Give us a call if you’re interested in learning more about our valuation services. We do opinions of value and we’re happy to tell you what we think your business is worth.
The Paperwork You Need When You Sell a Law Practice
By: Justin Farmer
For years lawyers could not sell their law practices because it was considered unethical. The prevailing theory behind deeming the sale of a law practice unethical was tied, in large part, to the client’s right to choose a lawyer and, in practicality, generally left single-owner firms with an asset they could not sell (while large firms were merging, acquiring books of business, etc.). Today, however, it is both ethical and common to sell a law practice, but the structure of the transfer of your law practice, and, thus, the documents you prepare must take the ethical rules into account. Below are some of the most important documents to have on hand once you decide to start the process of transferring your firm to a new owner.
General Documents for the Sale of a Law Firm
Some documents are necessary for the sale of any business. These include:
- Copies of the firm’s state and federal tax returns for the last three years
- Financial statements including summary profit and loss reports and balance sheets for the last three years
- Projections and cash flow statements
- A listing of authorized persons that can sign documents for your firm, if applicable
- Copies of documents pertaining to the firm’s incorporation, partnership, or the LLC
- Copies of any insurance policies
- A listing of all employees and copies of their employment contracts
- The legal description of the firm’s office space or building
- Copies of leases for any equipment used in your office, as well as the operating manuals for them
- Current accounts receivable and accounts payable reports
- A listing of any creditors
Although a business broker can advise on any other documents you may need for the sale of your law firm, this general list will get you off to a good start.
Client Lists
The sale of any law practice typically includes the transfer of a client list from one owner to another. While this is also commonplace among other businesses, it must be treated slightly differently when a law firm is for sale. Because it is unethical to “sell” a client file and the attorney of record must adhere to the rules governing attorney-client privilege, you must be careful with how client information is transferred.
According to Comment 7 to Rule 1.17, as long as the list provides only general information, firm owners and managing partners can disclose a client list as part of the due diligence process. Practically speaking, it makes the most sense to first provide key client metrics, such as type of case, revenue history, and other non-confidential information before sharing client names. Then, before any information is released that is considered more specific, clients should be given notice of the pending transfer/sale/merger of the practice. Regardless of the information provided, potential buyers are required to keep client information confidential.
Our Business Brokers in Washington can Help You Sell a Law Practice
When you want to sell a law practice, there are many steps to take. To ensure the success of the sale and that the entire transaction goes as smoothly as possible, you should not go it alone. At Private Practice Transitions, our Washington business brokers can help. We have the necessary experience to ensure the sale of your firm is a positive experience; we will help you find potential buyers and get top dollar for your firm. If you are thinking about selling, call us today at (253) 509-9224 or contact us online to get the help you need with the sale.
Should You Buy an Accounting Firm or Start Your Own?
By: Justin Farmer
The prospect of owning your own accounting firm is an exciting one, but it also comes with a dilemma for CPAs. You have two options: You can either venture out on your own and build an accounting firm from the ground up, or you can buy an accounting firm that is already up-and-running. When making this decision it is important to weigh the pros and cons. Below, you’ll find a list of pros and cons when it comes to starting your own accounting firm.
Pros of Starting Your Own Accounting Firm
There are several advantages to starting your own accounting firm. These include:
- You can create relationships with your own clients from the very start.
- You are in control of all hiring decisions.
- It is exciting to start a business.
- You can create your own office space.
- You do not need a great deal of capital upfront.
Cons of Starting Your Own Accounting Firm
Although it is exciting to start your own business, there are some downsides, as well. These may include:
- You will not have revenue coming in right away.
- You will have to find your clients (versus having an existing client base).
- In an attempt to secure clients quickly, you may take some you will regret later.
- You will be responsible for all of the ‘grunt work’ of starting a business, which is often boring and not profitable.
- You may feel a sense of isolation at first as you start on your own.
Pros of Purchasing an Accounting Firm
Although there are many benefits to starting your own accounting firm, there are also some advantages to purchasing one of the accounting firms for sale. These include:
- Revenue from an existing client base.
- Important systems are already in place so you can start conducting business immediately.
- You are not under pressure to secure clients right away.
- Trained employees are already present, so you can focus on work that is most important to you.
- Client relationships will already be established, and most of those clients are loyal and will stay with the business.
- The seller can advise on what does and does not work in the specific firm.
- Financing for acquisitions is much easier to secure than financing for a start-up.
- Tax benefits (depreciation and amortization of the assets purchased).
Cons of Purchasing an Accounting Firm
Before you buy an accounting firm, it is important to consider any disadvantages you may face. These may include:
- Debt service payments for the cost of the acquisition.
- If not done correctly, some clients and employees may leave.
- Until you are familiar with the systems in place, you may have to work longer hours than usual.
- You may find work that you need to eliminate from the practice.
- You may need to terminate certain employees.
Our Business Brokers in Washington Can Help You Buy An Accounting Firm
Whether you purchase an accounting firm or start one from scratch will depend on many factors, including your own comfort level and preferences. At Private Practice Transitions, our Washington business brokers can review your situation, listen to you, and help you make the decision of whether you should purchase an existing firm or start one on your own. If you are ready to own your own accounting firm, regardless of how you think you want to do it, call us at (253) 509-9224 to get the help you need.
When Is the Right Time to Sell My Business?
By: Justin Farmer
One of the most common questions we get from clients or potential clients is: When is it the right time to sell my business? Before I can answer that question, I need more information from you. There are three questions I have for my clients in return:
1. How much longer do you want to work?
Are you really excited about what you’re doing, are you passionate, do you not want to hang it up because you have a goal to work to a certain timeline for retirement? How much more time do you want to actually work?
2. How much longer do you need to work?
This is a financial question and probably the most important that most of my clients can’t answer right away. That’s something we work on together with a financial advisor or CPA, whoever is advising you on your long-term retirement strategy. How much more money do you need to make in the business before you actually retire?
3. How long do you want to remain as part of a transition?
This refers to when you actually sell your business and a new owner takes over.
Once you have identified the answer to those three questions, we have a timeline and we can work backward from there. So with each of the questions answered, I can predict where you are.
Let’s look at each question in deeper detail:
How Much Longer do You Want to Work?
Most people come to us because they’re reaching some level of burnout. If you’re a physical therapist, it’s very taxing to treat people, quite literally upon your hands. If you’re a lawyer, sometimes you are just ready to stop battling it out with opposing counsel. With CPAs, every tax season we get an influx of inquiries because you’ve just gone through a battle. Therefore, how much longer you want to work typically starts to wane at the end of someone’s career. You’re ready to stop being a business owner and stop being that practitioner on a full-time basis.
How Much Longer do You Need to Work?
The second question is the financial question. Most people can’t answer how much longer they need to work because they haven’t actually factored in the income from selling their business into their retirement plan. I’ve talked to many practitioners who say – I need to work two or three more years because I make X amount of money a year, and once I’ve reached X times 3, I can retire. But what if we could get you X times 4 just by selling your business and you get a couple of years worth of employment income as you transition out. That’s when you can literally see the lightbulb going on.
So this is the most important thing you need to understand: you actually can get cash for your business and that should factor into your retirement plan.
How Long do You Want to Remain as Part of a Transition?
Generally speaking, people will say, “Well I don’t know, I’m flexible.” Some people want to move to Arizona in six months, some others would actually like to wind down over a two, three, four or five year period. All of those options are available to you, they just change the deal structure. Furthermore, the buyer needs to understand how long they have you as part of their transition plan. Ultimately, we tell our clients that the right time to sell is generally within 2 years of retirement. One year is taken up by the pre-deal timeline: it takes us about a year to sell your business. Then there’s generally a one-year post-deal timeline or post-closing timeline where you’re winding down your part of the business and transitioning it over to the new ownership.
One other thing to consider as you’re looking to sell your business and looking at timing is your long-term goal and whether you want cash upfront or you want to carry the paper and be the bank yourself. The lending market has been really seller-favorable over the last few year, but that changes at any given time. So as you’re considering when to sell, you must look at the market and then also look at your own deal structure. These things can help you decide on the timing of when you want to actually sell your business.
There’s much more that goes into figuring out the answer to “When is the right time to sell my business?” Every client is different, there are multiple factors that you need to consider personally, from your family, your business partners, your long-term goals. It’s really choosing your own adventure.
Contact a Business Broker Today
I would love to hear from you, to hear your story, talk to you about your specific business and your goals and ultimately decide what the best timeline is for you and whether it’s the right time to sell your business today or in the near future. Call us at (253) 509-9224 or contact us online to learn more about how we can help.
Five Things to Look for in an Accounting Business for Sale
By: Justin Farmer
When making any type of business acquisition, there is much to consider, and that is certainly true when acquiring an accounting practice. Many people do not know where to start looking for an accounting practice for sale, and searching the local classifieds is not always enough. Websites such as BizQuest, BizBuySell, and PrivatePracticeTransitions.com are a great place to start. Once you find an accounting practice for sale that you think may be a good fit, you then want to make sure that it has the five essentials listed below.
Location
Accounting businesses typically have repeat clients and referral sources, so they do not rely on walk-in traffic. However, the location of the accounting business for sale is still important. You want to ensure that the practice is well-established and that it has “roots” in the community. This is an indication that the business is stable, and will also show current clients that even though the ownership may change, little else will.
Client Retention
One of your top priorities when you buy an accounting practice should be the type of clients and services that are provided. Is the practice focused on individuals? Businesses? Audit? Perhaps a mixture? Does that fit with your career goals and match your ideal client mix? Also, ask how often the business meets with clients. If it is only once a year, then you will want the previous owner to remain on at least one year to ensure a warm handoff of those client relationships, while firms that meet with clients quarterly or monthly will make it easier to help existing clients through the transition.
The Transition Period
The current owner may want to play a large role in the business during the transition period after you buy an accounting firm. They may want to offer advice and information on certain clients and what they need or provide insight into certain processes. You may find this helpful, or you may not, so you need to determine how involved you would like the previous owner to be in the firm once you are officially the new owner.
The Financials
The most important factor to consider when looking at accounting practice for sale is revenue and cash flow. In short, how much money does the firm make and when does the money come in? This will tell you how profitable the business is, whether there are any negative cash flow months, and other key performance indicators that are essential to know when taking over a business. When you buy an accounting firm without first looking at their financials, you are essentially buying it blind.
Technology
It is hard to believe, but some accounting firms still use mostly paper documentation, or they rely on outdated platforms that are no longer efficient. This will not only make operations more difficult once you take over, but it will also cost you more in the end as you will have to invest in new technology that will serve you and your clients better.
Our Washington Business Brokerage Can Help You Find the Right Accounting Business for Sale
When you want to buy an accounting firm, you should not do it alone. At Private Practice Transitions, our Washington business brokers can help. We will ensure that you understand all of the most important aspects of any business you want to buy, and that the transaction proceeds as smoothly as possible. When you need help buying an accounting firm, call us at (253) 509-9224 or contact us online to learn more about how we can help.
Want to Buy a Law Firm? Read This First
By: Tanya Farmer
Whether you are venturing out on your own and plan to start your own law firm, or your current firm is expanding, you may be thinking it is time to buy a law firm. Buying a law firm is a bold move and one of the biggest decisions you will make in your career, so it is important to first consider a few important factors. Below are some things to keep in mind when it is time to start searching for a law firm for sale.
The Right Time to Buy
Of course, you want to take market conditions into consideration when planning to buy a law firm. However, you also have to consider whether now is actually the right time for you to buy. It takes a certain amount of confidence and business savviness to run a successful law firm, so you need to understand your strengths, and weaknesses, in order to set yourself up for success. You also have to consider if you or your team can handle the additional workload, responsibility, and risk that will come with the increased revenue.
Perform Your Due Diligence
Valuing a law firm is not easy, but when done correctly, can provide a great roadmap of the benefits buying the firm will have. To determine how much a legal practice for sale is worth before purchasing, you should review the following to start:
- Financial statements for the past three (3) years, including tax returns, profit & loss statements, and balance sheets
- Billable hours, and rates, by employee
- Salary history of at least three (3) years for any employees that will be retained
- Compensation and employment agreements
- Lease agreements
These are just a few of the important documents you should have in order to properly value a business. An experienced professional can help collect and analyze due diligence materials to ensure that you aren’t missing any other important documents that can help with the evaluation.
The Firm’s Culture
There are many different cultures among law firms. Some have high employee turnover while others have mostly tenured employees. Some firms prioritize repeat clients, while others concentrate more on marketing for the future. You may already know the practice and the partners, but if you do not, you should get a feel for the firm’s culture throughout the entire purchasing process. This will help you determine whether the culture is a good fit for you, if you will need to make changes, and if it is worth it to make those changes.
A Plan for the Transition
Early on in the due diligence process, you and the attorney from the law firm for sale should create a documented plan for the transition. This should include certain timelines and transition goals that will keep both sides on track throughout the process. This will help streamline the sale and avoid any potential problems.
Speak to a Business Broker
As an attorney, you know a lot about the law, and you may even have a basic understanding of how to buy a law firm. However, you still should not do it alone. At Private Practice Transitions, our Washington-based business brokerage can help ensure the entire transition goes smoothly, and that you end up with the law firm that is right for you. If you are considering purchasing a law firm, call us today at (253) 509-9224 or contact us online to learn more about how we can help.