Seth and Jay hold a conversation with a practicing attorney, CPA, and author of “Designing a Succession Plan for Your Law Practice”, Tom Lenfestey. Tom speaks on ethics rules stemming around non-competes and references ABA Rule 1.7 says you can sell a law firm. He goes into detail on sales of firms and how his knowledge of the transfer of clients to the seller. He considers revenues, transferable value, revenue loss, and other factors when considering the worth of a firm in the midst of purchase or sale. Some reasons why a firm owner may want to sell are retirement or moving into another phase of their lives. Since there are interested buyers, they may feel like they can make a purchase at a discounted rate. On the opposing end, someone may want the stability of a job and take on none of the risks of owning the business. He says that they value and prepare the business, and gather the sales and payment structure to present to internal candidates, but they also market in order to sell efficiently, which may still be a challenge. Seth also asks Tom what are the steps of preparing for a sale are to ensure you’re able to move smoothly through the exit of ownership.
Hello. Hello. And welcome to another edition of Maximum Growth Live. I’m one of your host, Jay Ruane, CEO of FirmFlex, your social media marketing agency for lawyers, as well as the managing partner of Ruane Attorneys, a civil rights and criminal defense firm here in the Constitution State of Connecticut. With me as always hanging out down in our nation’s capitol is my man Seth Price. Seth is Founding Partner of Price Benowitz, your D.C., Maryland, Virginia and South Carolina, as well as the creator in Grand Puba and President – no, no, you’re not the President. You’re – what are you?
Founder.
CEO, Founder, BluShark, BluShark, which sets the industry standard for high quality lawyer SEO. And Seth, that actually brings me to my first question of the day. Well, the first question is, how’s your week going?
Week’s going good? Like we were talking …
Yours is good, better than mine.
Exactly. Jay, every time I speak to Jay, another layer of the onion is peeled of something. But, look, I feel like we have a lot of balls in the air, a lot of good stuff. We made some transitions I’ve talked about where we’ve upgraded some management, and really like trying to leverage the systems. And every time, again – you’re the king of systems, I feel like sometimes you’re the king of one-offs and every time we do a one-off, it’s disaster. So the goal is to do less one-offs, more systems. I feel like I’m in that direction, so it’s been a good week.
Yeah, it’s funny in our systems group, I’ve been posting some stuff about managing employees, how to check in with them weekly, how to do an annual review. It’s actually going to be posted during the show. I set it up as a scheduled post. But one of the things that’s crazy to me is just how many systems need to function well in order to have a really good functioning law office. I mean, there’s so many things going on simultaneously.
Absolutely. Let me ask you a question, so this literally just happened before we started recording. So we had some updates in our intake for the PI department. It happens. It’s always evolving. We had some management changes. And I noticed some stuff cracking where stuff wasn’t being followed, so we’re doing a meeting. And there’s no – is there a system for this? The head of the team sent out an email to the team. We’re going to do a meeting. It was 10 days from now. I’m like, “Why?” It’s like, “Oh, yeah, somebody is getting a Moderna shot this and that.” I’m like, “Okay. Why can’t we just set the meeting, pick the next possible date, which would be tomorrow, when most people are in. If one person’s out, you record it and you do it. But if you waited for perfect attendance for meetings …
It’s never going to happen.
… again, as your team gets larger, it may never happen. And the idea, not that you want to have a meeting without your constituents there, but the idea that as you get a team, and here you have a team of 14 people, like any given day somebody is going to miss it for some god-unknown reason. What I would like to do is have a process where the video is sent out afterwards, record the Zoom, and there’s something that’s sent back that says, a test that they’ve seen it. That’s the piece that I think I’m struggling with. Because we have a system, we do lawyer meetings on every two-week basis. And there’s certain stuff, we’re trying to push certain processes and procedures that we’ve updated or changed, wanting to let them know when a system changes. And the problem that I’m having is, what do you do when people aren’t there and how do you ensure that they get the full effect of that live meeting watched as a recording.
So let me give you some input on this. Back in my younger days, I owned a piece of a bar. There were 20 of us who owned a piece of the bar and we had a meeting every Monday night. And Monday night’s meeting was mandatory. And if you didn’t show up, you have to pay the thousand dollars. And, no, this can’t happen in your firm, right? And the reason being was these meetings are important to move the business forward and so there were zero excuses. Well, you’re on your honeymoon, fine. Pay the thousand dollars, you can miss the meeting. And you know what, it got people there. But that’s what we – so that’s sort of an approach I take with the partners. If we’re calling a partners’ meeting, there is no getting out of it. That type of thing. But when it comes to your employees, we go with the quorum, that Robert’s rule of order. Do we have enough people here? Do we have 75% to 80%?
Understood. No, no, no, let’s assume you get 80%. It’s not the percentage. It’s the idea of you’re putting this stuff out there. You’re letting people know their new systems. Oh, I missed the meeting as if it’s gone in a vacuum and that’s the piece, because it’s a negative incentive – you had the thousand dollars there, but I have people that I need to get bought in. Usually the person you need most bought in is the person with some deadbeat excuse for not being there. And then the question is, how do you sort of do that checks and balances. The person’s already the weak link, do you have some sort of like – I wish there was some sort of a (inaudible) …
So what we do in that situation is we record everything. We actually transcribe it. We’ll send them the notes and the notes will be on a slide, and you got to progress through all the slides. And at that point, they’ve got – I mean, at that point, I mean, they could click, click, click, furiously to get to the end to just click that I accept. But there’s ways to track people’s filling out a form.
Understood. (Inaudible) …
And on every page, they got to have something.
I need a slideshow for the transcription.
So what we do is we do a slideshow with Google form – a slideshow with a form, what’s your input on this question throughout the process. So if you got 15 pages, you’re getting five responses, so they actually have to participate in this stuff. And it’s just necessary, I think, that find. And it’s taken a lot of iterations to get to that point. But when you have a disparate workforce, when you have a distance workforce, even it just helps to make sure that everyone’s sort of on the same page that way. The question I have for you was a digital marketing question and it came up recently. Somebody reached out to me and wanted my opinion on something. I think probably only because they don’t know who you are or like they don’t know you personally and they felt they know me from a criminal lawyer group and they want to do it. So here’s the thing, they came to me and they said, “I love this idea of a 10-point client commitment. And I saw it on another lawyer’s website and I want to put it on my website. And it’s basically I want to use the exact same language. Am I going to get penalized for having duplicate content from another person’s website on mine?” And here was my response. Number one, I don’t think that’s the duplicate content that everyone talks about. Because duplicate content from my understanding is, I have 15 pages on my website, every word is exactly the same, but maybe the name of the town is different, right? That’s my understanding of having – just gaming it with a bunch of pages. But this client commitment isn’t necessarily going to be something that somebody searches for, right? And if it’s on somebody in Atlanta and somebody in Philly, the local searchers, it may be the difference maker that makes them call you, because they read it and they like it. But it’s not something that you need to rank for. So you don’t really worry about having some content that mirrors something on some other website thousands of miles away.
Oh, no, no, that is duplicate content. No, no, no, that is – both are issues, but no duplicate content does from another website, if you copy content, they’re going to index their content, not yours. That said …
Right. But if not something that I care – I’m not caring if I rank for that.
Understood. Look, as an SEO nerd, I don’t like it. My feeling is – for two reasons. One is you shouldn’t be ripping somebody off. It’s one thing to emulate it and take it and sort of make it your own. But without permission, I just think it’s bad form, A, and B – and they’re going to see it, because when they run their duplicate content check, you’re now the a-hole who placed it. So I think it’s just wrong, tip for the SEO, I just don’t think it’s the right thing to do. Second is make it your frickin own.
Okay.
And go and take it and don’t just copy it. Look, you take somebody else’s core values and you copy it and maybe (inaudible) thought about it. Like make it your own. Okay. So, yes, it is duplicate content, if it’s the same thing from another website. Is it the end of the world if it’s 10 little points within it? No. It’s going to bring you down. It’s certainly not going to – it’s not good for SEO, right?
Right.
It’s not a good thing. It’s a bad thing. But is it really meaningful if it’s not – but if it’s on your home page, you don’t want something that (inaudible) …
It was going to be buried in the footer that type of thing. They can reference it.
Buried in the footer is good. But it doesn’t sound that way. If you’re doing a frickin 10 core – your 10 talking points, it sounds like something is going to be front and center. So look, first, stay away from duplicate content, period. It’s not like it’s this penalty that’s going to wipe you off the face of the earth. It’s not a good practice. Second, I’m going to take you out of SEO for a minute. It’s just a dick move to rip somebody off without permission.
Sure.
If not work, right? And third, the whole point of this is that you internalize it, you believe it, not like, oh, that’s a good idea, me too.
Right.
But rather what is it. I’ll give you the fourth – the final one, which is, you damn well better embrace that because one of the things that I always got when I first started, I went to ethics lawyers and talked about what should or you shouldn’t have on a site or not have on a site. And one of the things they said is never have something like you should always or you must. Get rid of definitive terms, because what happens if you don’t do it? Now you’ve created liability and you don’t want that.
Right.
So again, for all those reasons, yes, it is duplicate content. No, is it like the end of the world, but like it’s not a good practice. Should you be ripping people off? No. Like, emulate. Like take it and enhance it.
Change up the language. Work it around a little.
And at the end of the day, don’t be an a-hole.
Okay. So okay so that expands my understanding, my understanding of what duplicate content was, was having multiple pages on your website with the exact same thing with an eye towards having a lot of pages on your website rather than …
No, no, actually that’s second here. What we’re talking about there is the actual – most people think of duplicate content, which is from another site into yours. On your own site is a whole another thing, because you’ll be great just to cut and paste and put the name of a town and have the same content. That’s a no-go as well. So both are issues for different reasons, but neither are (inaudible) …
Well, that’s a really good point. So we have a lot of listeners and a lot of viewers out there who may be in – just pick a random city, be in Philly, and they want to rank for Camden and they want to rank for Bryn Mawr or Westchester. They’re looking for other towns around. So they might say, okay, this content looks really good for Philly. Can I just copy that, swap out the names and (inaudible) …
(Inaudible) we’ve talked about that a lot, no. The answer is – and it sucks, because is the law the same in each of those – it’s the same, right? But get something localized, talk about the courts, talk about the jurisdictions, talk about anything localized, make it local so that Google sees this is a unique answer for this area. It’s a bit of a game, I get it. And it gets worse, if you’re doing something like immigration where the laws can be seen nationally.
All right. I never thought about that.
But you’ve got to keep it original. You can’t just cut and paste and copy. You’ve got to – like Google is trying to say, hey, what’s the best answer for this town. And in one sense, you could have this one beautifully written page. It’s got to be localized or it’s not going to work the same.
So it’s not even just mixing of the paragraphs, it’s writing fresh content. It may have the same ideas …
Don’t game it. Don’t spill it, that that’s the right answer. If you do that, you’re going to – like that way every time the algorithm updates, you’re not going to get hit for a thin penalty. You’re going to have good stuff. That’s why 99 times out of a hundred, when something updates, I’m like, I’m thankful because it’s getting rid of riffraff and putting our stuff further up.
It’s funny. I did that years ago. I had like incredibly thin content and what I did is I created a five page website and created town names in each of the – in like sidebar menu. And when you would click on the town name, it would use PHP and spin up those five pages with the exact same content, but just swapping out the name of the town. And so it was really a five-page website that could look like it was a thousand-page website. It crushed it in Yahoo and Bing.
For a period of time.
For a period of time, you would Google me and I would own like the first 50 links.
(Inaudible) …
Yeah. And then Google never touched it. Google never indexed it. And I was like – and it just got me know it. See, Seth, that’s just phenomenal news and this is the kind of stuff. This is why I like having these conversations, because it’s a lot of stuff that you need to know as a law firm owner. And one of the things that we need to know about and start thinking about, I guess, is the exit plan, right? Like some sort of strategy to get out of this, because as I’m driving around, I’m thinking, when am I going to get off this crazy train and that actually is somebody who we have today who can help us out with that. So why don’t you tell us a little bit about …
Yeah, absolutely.
… who our guest is and what we’re talking about.
So it’s Tom, this Founder of The Law Practice Exchange. I didn’t even know it existed till not that long ago. It’s basically a marketplace for law firms. It makes sense. We see this stuff that’s happening in Arizona and Utah. And clearly, it’s a trend happening across the country. It’s frustrating because I see from the BluShark side, we’re making 5,000. The phone starts lighting up with people wanting to invest and buy and all this stuff and it’s pretty simple. You give me a bit of it, you give me a multiple, you negotiate and then that’s how you sell an entity. Law firms not nearly as simple. I think at the end of the day, what we’re going to see is it probably is, it’s just not nearly as sexy or as exciting as a non-legal because of all the different nonsense we deal with.
Well, I think there’s that and I think one of the things that’s unique about law that I don’t think impacts you or I, but it does impact a lot of people is that a lot of lawyers, their self-identity is wrapped up in their law firm, because they think of themselves as a lawyer and that’s who they are and it’s their firm that they’ve created and crafted. And I think part of the problem with it is that tricky valuation. Because I’ll be honest with you, I had a number of years ago, there was a lawyer, who had all the chops but didn’t have the business skills. And I said, hey, why don’t you come in, I’ll pay you a great salary and you could run my litigation and they were like, “Well, I’ll be giving up my firm. I want my name on the door. I want equity.” And I said, “So tell me what kind of money you’re generating.” “Well, I have no idea because I get paid in cash every week and whatever I get paid, I put a little aside for taxes and that’s it.”
(Inaudible) …
And I was like …
… (inaudible) that’s not the (inaudible) …
… well, absolutely. Right, absolutely.
But point is well taken. And look, and that’s the difference. Like it’s when the firms are sold properly, it’s not like this is a windfall of 20 years revenue. It sounds like – and I think that my general – just I’m curious to see what Thomas would say, you get like one year’s revenue as a payout if you’re lucky. Maybe three years of profits, something. It’s not – this isn’t the same seven to 10 times multiple EBITDA that you see with non- legal. And part of it is, there’s all these things that are added to the mix that make us less desirous.
Right.
You have to deal with clients, et cetera.
And I think all of us are thinking, well, you know, this law firm is so valuable over the last 30 years, I’ve made great money. But yeah, you have and you’ve spent great money, there’s a lot of dollars that run through our practices, but we don’t put a hundred percent of them into our pocket. We put a much, much lower 20%, 25% of that into our pocket. And that also includes the stuff that we do. I mean, we’re not – I know, I’m not out, I know you’re not out entirely and it’s one of the things that has to be replaced. So why don’t we do this? Why don’t we take a quick break, we’ll hear from our sponsors and then when we come back, let’s talk to Tom. Let’s talk a little bit about this. I got a feeling that this is one that could go long, because this is something that we, you and I, have a lot of interest in, but I think a lot of our viewers too. So folks, we’ll be right back with more Maximum Growth Live. Hi, I’m Jay Ruane. One of the founders of FirmFlex and a practicing attorney for over 20 years. Anyone who knows me knows how my firm runs on the systems we create and it has allowed us to flourish even in tough times. I spent years and hundreds of hundreds of dollars until I finally figured out a way to engage my audience and drive top of mind awareness with social media. And what did I do once I figured it all out? I built a system for it and now you can put that system to work for you. You see, we took the hard part, creating the content and finding the images and made it foolproof. Every day you will have curated social media topics to post designed to make your firm constantly remind your audience about your firm, what you do and how you can help. And the best part, you don’t even need to hire a dedicated social media person to do this for you, in fact you don’t even need to hire anyone new. We designed the system to make it easy for you to delegate to your receptionist, assistant or paralegal and have them execute solid social media for you in just five minutes a day. It’s like having a content writer, researcher and graphics designer at a fraction of the price it would cost to hire in-house. Sign up today for the social super system and start building your brand where your clients already are, on social media.
In this world today, if you want to grow your business you want to grow your firm, you want to take on more cases and make a bigger impact, you have to have a digital blueprint. Statistically throughout the time that we’ve been working with BluShark Digital, our law firm, the Atlanta Divorce Law Group grew over 1,400%. They truly understand where we’re headed and how we want to get there. I have a team in BluShark Digital that I feel like has my back.
We’re thrilled to be here Tom Lenfestey. The Founder of The Law Practice Exchange. Welcome, Tom.
Thank you. Thanks for having me.
You focus on an area that I’m sort of was wondering if there was somebody like you out there. We’ve never really found a person who was out there helping lawyers package their law firms up, get them sold, figure out some sort of marketplace. Because for most lawyers out there they talk about selling their firm and Lord knows in the circles we travel, Jay and I, more people talk about selling their law firm than anything else. But the number of success stories seems very nominal compared to the number of people that plan on selling their law firm.
Yeah. I mean, that’s part of the reason back a decade ago, I started The Law Practice Exchange. As an attorney, CPA, I was working with a lot of other professional businesses, a lot of dentists, a lot of other CPAs, medical doctors, insurance, everything else. And honestly, Seth and Jay, I think I got jealous on the fact that it seemed like other professions had figured out how to sell and retire, build value, monetize that value and exit and transition it over. So that’s really what kicked off the need, the idea and building it out into a service so that lawyers can do that. And that’s what we’ve been focused on for these years is kind of building out how it can work successfully between a lawyer, law firm seller and a lawyer, law firm buyer.
Yes. I noticed this, as BluShark, somebody said, “Hey, there’s a lot of demand for marketing with dentists.” And what I noticed was that most non-cosmetic dentists essentially, they go to dental school, they may have dental loans, and they go out and they see a practice. They may work in it for a year or two and then they get a note and they buy the practice. Now, they have the advantage of they can – there can be non-compete. You can sell your clients like there’s a whole bunch of things that lawyers have restricting them. But it’s a very clean way that somebody who’s three years out of dental school can – with modest (STET) service, have a practice of their own something in the law firm world Jay and I have been – half the reason our show exists is because people are trying to build this from the ground up and there’s not another option generally for jumpstarting a firm. So talk to me about, obviously, that that’s the panacea is that you’d be able to package stuff up. How much do the legal ethics rules surrounding non-competes and other issues stymied the ability to sell a firm?
Yeah, absolutely. I think the nicest part, if you look to ABA Rule 1.17, which most states have adopted, not all. But it expressly says you can sell a law firm. You can sell a law firm, and it’s one of the places that if it doesn’t require, essentially allows for the selling attorney to sign a non-compete, right? So most states on a national level, everybody says attorneys you can’t sign non-competes. But it actually – in order to prevent confusion, basically, the states don’t want you to sell your firm to Joe and then turn it and open up shop right down the street and so clients are confused, right? So they actually say, look, if you sell your firm, that is an area where we do not want you competing ethically under that. So non-compete, I would say sale of a law firm or a law practice is the one area that you can have that for lawyers. But the ethics, otherwise, are still not directly on point with how we really do the models most of our sales are transition based sales, 1.17 kind of envisions a throw the keys to a buyer and walk out the door type of thing, which we just see as too much of loss of value. Those are death, disability, sudden departure type events. And so, the ethics are a restraint in some aspects, but it is one area where you know, ABA most in states have come out and said, look, you can sell your law firm. There is a model to do it and it is an area where we can make sure that the clients are transferred without confusion and without competition from the seller.
In much of the non-legal world sale of businesses go with a sort of a multiple EBITDA. What is the sort of – how are you seeing law firm sold? Like what type of multiple of what are you are you basically pricing law firms at?
Yeah. So our multiples we approach law firm valuation from four different methods typically. One of those, of course, is a revenues approach, looking at historical revenues. And then we talk about everything of transferable value. So if you look at revenues, really, we’re going to do an analysis to say, here’s what the firm has done, right, but what is transferable to the next buyer. Because what we find in certain situations, I mean, we may have a lawyer that does expert witness work, highly lucrative revenue producing but the buyer can’t do that work, because that’s going to be tied to that individual seller, right? Or there’s going to be historical clients that won’t transition or they’re aging out as well as the seller. Revenue loss could be a component. But typically on revenues, we’re looking anywhere from a low which is a low of 0.5 up to a high of usually 1.1 on the revenue scale. And the larger the firm, the more structured of a business model. You can really break those limits or push the higher ends of those. But that’s typically from a revenue side, which means if you’re doing a million dollars in revenue for the firm and your multiple is a one, your firm value potentially could be that million dollars. That’s the vision of what, hopefully, the buyer will do on an annual basis going forward. On the earnings side or what we would call the net income approach, that really means what you have benefited from on ownership of the firm over the last couple of years is that, again, transferable to a new buyer. And so on those aspects, if we’re looking at an adjusted owner’s cash flow or net income, we’re usually somewhere between a two to three and a half multiple. And, again, you’re talking about, okay, a million dollar firm, maybe you make a half a million dollars. If you’re looking at that two multiple, your firm would be worth a million dollars, two times the total (inaudible) …
And that’s (inaudible) these things should be coming together. There shouldn’t be a huge difference, depending on how you’re looking at.
Correct.
Before I flip this to Jay, I mean, Jay is Mr. Systems, do you find that law firms, I hope I’m not taking your question, Jay, but that law firm sort of created …
Oh, you totally are.
… that they’re taking these systems and putting them in place, does that make this more sellable, more likely that somebody could step in to take it over versus the guy who’s been sitting there and doing stuff off the back of an envelope for 30 years?
Absolutely. And Jay to give you credit for your question as well, but it’s the aspect of focus on systems. Most traditional, especially small law firms, right, if you look at certain generation, the boomer generation that may be retiring or looking at retirement strategies, not all of them were built on a business model. They are an extension of the attorney. And so much to your point, Jay and Seth, is it’s not systems, it really wasn’t a business model. But those that have been built that way are so much easier to transfer from one to the other, because the systems can be transferred. The people that are trained on those systems can be transferred. It’s much harder for us to show a buyer or prospect in the marketplace. This firm’s great and let me tell you why, because the attorney that’s selling it has all this information in their head. They do all these awesome things on a daily basis that produce these great clients and revenues or we can show them, hey, here’s what they do on a marketing system and platform which generates this number of leads. Here’s the data. Hey, they have checklist or software process for everything here. Their team is trained on that. They outsource this, but they in-house this. And so systems definitely help on a transfer or sale. It’s probably going to get you a better value. Overall, it’s going to get you better payment terms. So we can definitely sell the firm that is circled around that attorney. It’s just they’re going to be more focused on a performance-based payout. The seller is going to take on more risk than maybe the seller who’s built a business that really runs without them in it. I mean, we’ve got some great firms that the owners make great money and they haven’t stepped foot in their corporate offices for 10 years. And they built a machine that just happens to offer great legal services and they’ve got trained, experienced people and systems that can be seen by another law firm or a buyer of how they run their systems.
Before I throw this Jay, are those firms where the principle is not essential, they haven’t stepped inside the walls in years, is that easier to sell in the sense that you aren’t relying upon a person that there’s a team that you’re then would be theoretically acquiring that would be able to continue doing whatever they’re doing?
Absolutely. It’s easier to sell that firm, I mean, as a generic statement than a firm that everything is centered around the attorney or even involved in that. I tell people one of the things that got me started as I was helping clients and everything else was reading John Warrillow’s Built to Sell book. I mean, we all know it, you know or read it, but the focus is basically if the business is about you, it’s hard to sell it. You can go get a job somewhere, somebody will hire you. But if the business is fully – you’re in every piece of it, so where you’ve removed yourself from that and you’ve been able to still enjoy the benefits of ownership, then you’re really saying you, hey, somebody else, I don’t need you to come in and I don’t need to spend the next couple years introducing you to referral sources, training you on these systems like that’s built, right? And we see that mostly with firms and attorneys that are retiring. We see those with larger firms. A lot in the personal injury, bankruptcy, workers’ comp space, otherwise, but they’ve invested over the last 20 years and built some really nice business models that they still are a strategic, maybe overseer of it, but they are definitely not daily operations.
Jay?
So I have a question for you, I’m thinking maybe it’s time to sort of take myself out of the name of the firm, because I want to separate myself and be able to have a marketable entity or asset that I can sell down the line. Can we talk a little bit about when a person is starting to set up their law firm, there is this natural bias towards the ego of naming it after myself, Ruane Attorneys, Price Benowitz because you are the firm at that point. But then I’ve seen other people and I’ve done it myself with some of my offshoots, who’ve decided to go straight branding, because they know that the brand is something that you can sell and it’s a non-person-based law firm. It’s advocates law firm or something along those lines.
And at the moment, that can actually help with Google search given the local spam works. So it’s ironic that right now that there’s a double whammy and so I’m looking forward to this answer.
Yeah. So where should we be if we are thinking even five, 10, 15 years down the line, we want to be able to sell, should we be branding it or should we be rebranding as a generic name? Will that make it more marketable?
I think the short answer is typically, yes. Right?
Okay.
If you have a, not generic name, but if you are really – you have picked a name that you build a brand around, and that’s why, why do you buy a franchise versus starting your own, right? You’re buying that brand, you’re borrowing a marketing, somebody’s driving down the highway and they see that fast food chain, you know it. You can recognize that everything else versus mom and pops diner or anything else. But I do think as much as there’s an advantage to it and there’s an ease of transition, like when we talk about value of the law firm, we divide it up into personal value that the attorney owner may have, the firm value and then we add to that the transition plan that is going to be needed by the seller to really take that personal value and transfer it over and take those three components and hopefully that equates to what your transferable value to a buyer would be. You take what the firm, the website, the phone numbers, the systems, the trained team and you take your personal worth which is who you know the brand, everything else that’s tied to you. If you move more of that to the firm, it becomes easier to transfer. Less transition plan needed, just like building systems in our opinion would be better because you’re moving that from your head over to the firm systems or anything else. And so I probably am a little bias but I would say if you can pick something that really works as a generic not tied to your name brand for your firm, then it’s going to help you later if you decide to exit transition anything else. The old way of having firm names which were eight partners long and now all firms have gone – the big ones have all gone to shorten those to just two, right?
Or one.
And they used to be so and so and so and so, right? So they’ve tried to even take and say we need a brand. Like we need a brand that isn’t tied to names, plus every time the partner would retire or die or change or leave, they’d have to change the firm name. So I definitely think there’s advantage. Now with that said is there are some tremendous brands that have been built around personal names and those personal names are nowhere involved in the daily legal delivery of services. So I wouldn’t, again, persuade anybody to change that, especially if they have already built a brand or value around that. They just wouldn’t want to flip a switch and go the other way. But if you’re starting, I would say definitely look at something that’s not just tied to you.
I can flip both ways, right, Jay? Because in one sense you could say, yeah, it’s easier to sell it this way. But if it’s generic, it may be harder to brand it versus – I was just talking to a marketing client who had like a totally generic name. I’m like, I can’t imagine anybody ever stroking a check to that name.
Sure.
Meaning, it was – versus if you – who are you getting. I know Ruane, Ruane is going to take care of my matter and that there’s that balance. But I have a little bit of a rant, which is I went through this process, didn’t know that you even existed and over the number of years said, hey, we’re going to grow through acquisition, both used a consultant, did it myself. And the thing that I found it almost felt like the Groucho Marx Woody Allen concept of why would you want to be a member of a club without you as a member was that the people that I really wanted to acquire, if they weren’t ready, the numbers were so crazy that you were like that’s just not right. And the ones that were ready had run things into the ground so far that there wasn’t as much left. They had sort of – I’ll sell eventually by the time they were ready to sell. The systems were shot, the people were deadweight and at best you might get some cases, but you’d have all these transaction costs of spending that out. What are your thoughts on where do you find that sweet spot, because it’s like I got to tell you, it wasn’t intuitive going to market. There were plenty of people, I’ll leave you with this story of a guy who had bought out his partner at a $500, 000 valuation five years before, run the firm down. And when he finally said, yeah, I’d be willing to sell it to you, I need a couple million in cash and a tale going into the future and I’m like just stop the insanity. So again, there’s a reason that you exist and that there’s – it would save somebody the time of all of these reverse tire kickers, where they were just like waiting to be able to give you a dream number that they would love to get. How do you – where do you find that sweet spot?
Yeah. I mean, we talk about one of our biggest needs is educating our sellers. but having reasonable sellers. Just like any other business, but especially what I learned about migrating from law into brokerage through The Law Practice Exchanges. We have – I mean, owners of law firms contact us every day interested in selling. Then it becomes ours to basically filter through and say, okay, but can we really meet their expectations, right? Do they understand what the market platform provides and can we do that, because we work on a success fee. So if we can’t do that, we don’t want to work with the one that you had that just bought out their partner for 500 and now wants a couple of million dollars. Our goal is to make – bring on sellers that we typically find buyers for, have reasonable sellers, have reasonable buyers. The biggest thing that we’ve seen, Seth, is a challenge for – especially small law firms is lawyers that own and run the practices that are looking at exit, a lot of times they look at their total comp that they are receiving. And they forget that so much of that they are doing is tied to legal work, basically salary for the work that they’re doing, right?
But first they have to replace. Someone’s going to have to replace that work.
Absolutely. Right. And so that’s just part of where I’d say, especially recently has been just a true education point for us of saying, look, yes, you may have that million dollar revenue firm and you may make $500,000. But you’re a 30 plus year attorney, an expert in your field, what would you pay somebody to do all the legal work that you do? And then immediately, of course, it’s 200,000, 300,000. Well, if that’s the true replacement cost, then your owner benefits from the firm is only 200,000, right?
Right.
And so now we’re talking about a multiple of 200,000 times two or three, because that’s what you if you and your firm are looking at acquisition, you can play with those discretionary cash flow numbers after you’ve paid to have it replaced and you can pay out of that. So you can make a payment of purchase price out of that. You can invest in the firm and transition costs. But that is a challenge, right, unreasonable sellers to make the deals work. And again, I think it’s because most attorneys look at the total that they bring out of the firm. They don’t really separate it out. And my best analogy is, if a law firm is a factory, and you are one of those awesome machines in the factory, if you’re going to retire and we’re going to move you out, that factory is going to lose production unless it replaces with another machine. And it may take two machines. It may take two associate attorneys with such firm versus one expert that you’ve done everything right and everything else, but those are costs that a buyer’s got to consume. So we got to move those off the table. That is a cost of doing business. It’s not a profit. It’s not a profit piece, so once we get that, we’re pretty successful on making deals work and work successfully.
What about the transaction cost of just bringing the cases in? So let’s say Jay wanted to acquire a firm and something that I’ve seen is that the value of the current cases, well, there’s a definitely a tale if it’s a firm that’s coming in, the amount of time Jay is going to need to take, to take each file which may or may not be in a case management system, may or may not be in his case management system, clearly not in Jay’s, is – how do you bake that in, because that’s the – I see people that like put the current value of the case almost at zero because of the amount of effort that it’s going to take to bring them into your current system.
Yeah. I yeah I think one of the approaches that I didn’t mention that we take is usually an asset approach. Like if you’re looking at current case inventory, whether it’s – excuse me – whether it’s criminal defense, whether it’s personal injury, workers’ comp, those that have potential build up, there’s good to that, bringing in the cases, but there is cost to that, right? There’s cost to complete those cases, but there’s also like bringing them over on your system. Usually, we like to figure in and work with our buyers on what is the transition cost. The transaction cost to onboard this firm and carry it over. And if you have a firm that’s all paper files and it’s going to take you and your team $50,000, $100,000, then we just – we need to discuss that and make that part of the deal, that would be a reduction of price, because that’s what it takes to move a historical, very heavy personal value firm to a process-driven more modern firm. So yeah, definitely, we see that, we see a lot of hard files to – we see sellers that say, look, I’ve got off-site storage, I need a buyer to pay for that, because I’ve got 20 years of files. And I set – our basic education point is, buyers don’t want to pay for file storage. They’ll pay for the contacts, but you may be able to work with a buyer on a cost to have things scanned, entered into a CRM, system, but they’re not going to take over your three-year lease on a file storage so that they can just have mountains of paper as well.
So I have a question for you and it’s starting to happen out west, Arizona, Utah, Arizona and outside money, law is probably one of the last industries where there is no outside money in the United States really up until the last couple of months. But I – as things stand, it seems to go west to east. Where do you see this outside money as playing a role in the acquisition of law firms? Where do you see the future?
Yeah. I mean, again, I could tell you that when I started The Law Practice Exchange in 2013, there was a belief that it would happen. I don’t think that I thought it would happen even this quick, right?
Really?
But – yeah, not in 2013 to kind of less than a decade later see equity and kind of state laws change. And it’s not just Utah and Arizona, but it’s the 15 other states that are considering this move. And either publicly or super secret committee that there is – those discussions. And once the dominoes fall, unless there’s a catastrophic pushback in Utah or Arizona, states will change and we’ll go to what is a lot of foreign models, everything else as well that you could have private money, non-professional money into law firms. And I tell people a lot of things, just part of the reason of creating The Law Practice Exchange, I don’t know that I have novel ideas, but I like to be a student of other industries or professions. And if you look at how outside non-licensed, non-professional money has changed, dentistry, medical, even CPA firms can be owned by non-licensees, those different things. It’s been a balance. Certain firms are still going to be owned a hundred percent by the professional and others are going to change. I think overall, it can be a good thing for the profession. Some people may not want to hear that, but I do think that there can be money that goes to providing better services to clients across the board, whether those are underserved markets or their current served markets, you can help create a better platform where lawyers that have to self-fund or borrow just don’t have the capital to implement a lot of the ideas and things that they would like to do to provide that better service. But you get an equity investor that can cough up 5 million bucks and that’s not something the lawyer has to do. You can do a lot with that in a law firm, to provide great service, not just make money for yourself, but help others. The other thing I see too is I’m sure if you guys, again, focused on systems, focused on people within those systems, non-attorneys are becoming so important in certain firms, that having them have profit incentive or equity incentive in those opportunities, I think is needed, because I do think the non- attorney managers, the non-attorney marketing roles are becoming so – such a key part that this non-sharing of legal revenue change over will help attract the best to law firms. Not just those that will work for a base salary plus a discretionary bonus. So I see it changing. I could tell you that Europe, the buying and selling of law firms is pretty much a marketplace that’s been around for years and is very active. Most foreign jurisdictions are more active than the U.S. So I think from the buying and selling side, it will change. Right now, if you want to buy a firm, you have to self finance that. You have to ask the seller to sell or finance or do terms with them or you have to go get a bank loan, right? At a certain point …
Is that happening? Are you seeing bank loans for law firms?
Yes. We’ve got great lenders, right? Similar to lenders, again, that’ll lend for other goodwill structured companies like dentists, doctors, CPAs. We usually don’t have any issue finding financing for deals that again, good firms, the right terms, reasonability otherwise. But again, that’s the buyer or the firm taking on that risk, right? Anytime you could take somebody in and it’d be an equity partner and they’re going to essentially put up that capital to improve your systems, but then go out and acquire other firms to bring onto your systems. So Jay, you have an equity partner and then you’re able to go out and acquire. Yes, you got a lot of paper files, you got cost to do that, but you don’t have to self-finance that and bootstrap everything. You’ve got deeper pockets to help you do that and hire the right team to do that. And overall, if you’re proud of what service model and how your firm does things, then hopefully we’re changing the profession for the better. We’re using that outside capital. We’re still the ones directing as lawyers how those services are delivered. But it’s not our pockets necessarily that we have to always pull into to fund those. It’s outside and kind of share in that opportunity.
So I got one, let me ask this question, there’s really sort of two ways to sort of sell your law firm. One is to go and find somebody who’s not connected to your firm and the other is to sell to your employees and sort of let them come in. In your experience, is one more successful than the other, is one easier than the other, is one more difficult because the owner who wants to sell to his employees never really let the employee know how much money was out there and now the employees are like, “Well, shit, why do I want to buy your thing? I’ve been doing all the work for you for 20, 30 years.” Like you get into some interpersonal dynamics when you sell internally. I’m just curious, where do you find the problems on both sides, the internal sale and the external sale?
Yeah, absolutely. So when we started, we would separate. If somebody came to us and said, I want to sell to my associates or sell to an associate, we would take them down one path. The problem that we ran into is that one path would kind of grind on. We’d run into baggage history, right? They would tell us, oh, I love you know this attorney’s worked with me forever. They don’t like to work that hard. They don’t stay past five o’clock on a Friday. These different things. All of that history and baggage from employer or employee would come up during the deal. And then a lot of times, and again, through no fault of the next generation, they don’t all want to be a buyer. They don’t want to be an owner. They don’t want to have the sole risk, or they don’t want to pay for it. They feel they’ve earned it to a certain degree or at least earned a discount. So that’s where we – and I always started as I wanted to build the marketplace for buying and selling, right, like that’s really The Law Practice Exchange’s goal is to be the marketplace where everybody can come to get the resource, but essentially do that because if we can bring outsiders to even that small law firm, one owner, one associate, the associate may be promoted into a junior partner situation, maybe the geographical manager, but this other firm is going to take over the financial risks, the operations, everything else from that side. And timeline is so important to attorneys when they go to sell. Most of them are looking at retirement or exit for the next thing in their life. And when you spend months discussing and negotiating with your associate non-equity partners, whatever the case is, and that doesn’t lead anywhere, then you’ve eaten up a lot of your timeline. And so what our approach is with clients now is if you’re interested in selling, we go through the same process. We value your firm. We prepare it for presentation to any buyers, marketing items, everything else, gather and bundle all that together, plus the sales structure on payment terms, whatever else. If you want to present or you want us to present to internal candidates, fine. Those are one or some of our buyers. But we also are going to market because that allows us to make sure we’re making the most of our timeline. And if things slow down or stall one path, we have the other path already moving. And what we found is it is a challenge to sell to internal candidates. A lot of them don’t want it or there’s just financial mix, I don’t want to share my profit and loss statements because they don’t know what I’ve been making. So all of that is kind of just holds you back from really being fully vented. When we bring a law firm or a attorney from the marketplace, I tell everybody, it’s like you meet them. And it’s a first date, everybody’s on best behavior, right? Everybody is nice and everything else. You don’t have those years of kind of baggage or anything else to do that. So it’s more of an initial culture and an easier sometimes to make a match.
Right. To that point, when you’re selling internally, do you have an issue where – and Jay, I think, sort of alluded to this where there’s the person buying thinks there should be some goodwill that they were buying in as in like the old idea like you’re working towards partnership, that there should be a discount provided because they put their sweat equity in and there would be a handoff. Very often there wasn’t a person like yourself involved, so now there’s an additional expense, potentially, but what about that? Is there usually a discount? So (inaudible) you’re preparing it either way, which I love, because you could say to somebody, look, the market values is at this. Do you usually see in the end some sort of a discount for people who have been there for a period of time?
Most owners or firms, most sellers want to provide that discount. I mean, they’ll go and say, look if this happens, I’m happy to discount it to this or provide more favorable terms or something of that – and yes, to your point, Seth, most buyers expect it. If they’ve been there for years and helped build the value they’re really a key part, they’re not just a part of the pyramid, so to speak, but they are more level, they have their own clients, they have their own practice mix, then absolutely. They’re going to come and say, well, great, that’s the value of the firm that you own. But if I left tomorrow, the value would be right.
Which is at work, right, so why leave then what are you selling, got you.
Right.
Right.
Then it’s really more of a succession planning rather than a sale. It’s still a sale. but it’s a different calculus than here is my widget that I’m selling to a third party and I’m going to get terms for.
Correct, right. Now, again, if they’ve been an associate for a few years, they’re just great opportunities, but they really don’t have their own book, if they left then a lot of times, there is no discount. You could be replaced without loss and so there would be no discount applied. But usually, it’s just a gratuitous employer-employee, hey, I’m happy to discount the purchase price by 5%, 10%, because they’ve been with me for this long or because if they left. They would take these originations and clients with them and everything else. So we definitely go through that which again, is a reason why if we can find a good strategic marketplace buyer, sometimes you’ll get better price, but also better payment terms. They can use seller – outside bank financing, so you get more down payment at closing, those different things.
So what are the things, I mean, this is I know we’re starting to go along, but I want to – we talked on some of these terms, but Jay is sitting here, he say, hey, in the next 10 years, I want to sell. What’s the checklist that you want to come up with in order to prepare yourself so that you would be in the best shape when you’re ready?
Yes, absolutely. Well, I don’t think Jay needs to hear this. But my first recommendation would be to start delegating everything you can to people within your firm, your team or to systems if you don’t have maybe a team, maybe you’re a solo or otherwise or to the people and systems within. So because your goal is to lessen the need for your knowledge, your expertise, your relationships, the personal value that you have Jay, you don’t want that to be such a deciding factor for a buyer. The other part is, again, prove yourself on the financials and the data that supports them. So strong revenues, strong earnings built on systems, everything else and the data to track to say, look, these are the leads that we get in from these different marketing sources, these different funnels. This is our conversion rate, this is our intake, this is how we do things. That’s all going to help prepare for that event (inaudible) …
When you say earnings, do you mean profitability?
Mm-hm. Yeah.
Because what I saw when I get on your site, there was a lot about what the revenue was at. And sometimes it mentioned how much somebody was taking home, which can be dicey, especially for a smaller firm, where the firm is running a ton of stuff through the firm, but where is profitability on the list compared to gross revenue?
Yeah, absolutely. So we use both when we look at value for a firm. Profitability, we really use, Seth, as a – I’ll call it a stress test. We’ll do our, you know, return on investment, cash flow projection. So if you value a firm at a million dollars, but the earnings on the firm is 200,000 just because it runs on heavy cost or otherwise, then that deal probably doesn’t work for a million dollars. The price is too high for that firm, because a buyer, maybe like yourself …
Got you.
… won’t see the advantage in it. So we use earnings from a multiple factor for valuation pricing, but we also use it to test our cash flow projections going forward post deal, post sale type of terms from that aspect. So, again, earnings are the benefits of ownership, basically, the profits that you receive, not necessarily what you pay yourself for the legal work you do.
Got you. And then one of the things you mentioned, which brought me back to sort of my journey through this area with sort of non-rational buyers, which I love, which is, if a bank would lend on it, you got to think that the terms are sort of standardized. And my dad, who was not – who’s a lawyer but did deals for non-law firms buying and selling small family businesses over the years, I always came away with just sitting down at the dinner table, that if you didn’t get your money up front, there was a good chance you weren’t getting the rest of it and so as like a truism. But it seems like that very often people are talking past each other, just sort of like a lawyer that charges – gets a down payment and knows they’re not getting the rest of it from sort of a client on the edge. That when a deal is structured right and it’s a win-win, that makes sense. If somebody is – if it’s a gouge and you’re waiting for future payments, it will eventually end in litigation of some sort. Like is that – I assume that’s part of your role to bring some sort of a marketplace to this where it’s not just some guy saying what he throwing this multi-million dollar dream out, but saying this is what it can support. Because if it supports it, in theory and the firm buying is a rational player, they should be able to monetize that in such a way that payments will be made versus if something is so lopsided. you get in, you dust off these paper files and all of a sudden you’re upside down much less likely you’re going to get paid anything beyond the initial upfront payments.
Yeah, absolutely. Our goal in building the marketplace is to do deals that work for the seller, but also going forward for the buyers. I mean, we want our buyers to be not just one-time buyers, but multiple. If you’re going to buy a firm, we want you to come back and through our model, through our help do another one. And so, again, that goes back to seller education, making sure that we can do that. On payment terms, we always talk about a mutual sharing of risk. The market definitely operates with most firms based on performance structure or what a lot of people call earnout. It’s, hey, you’ll get a percentage of revenues over time, CPA firms operate very similar. Earnout structure everything else, because it goes back to do those relationships, will those clients stay, especially if you’ve got more personal value tied to you and you’re going to help introduce at rotary club, at the chamber of commerce, go through that different thing. So earnouts there, what we try to get most deals to is a sharing of risk model. If a buyer is willing to go and use cash they have or use outside financing for a down payment, even if it’s a 50-50 deal, if you go and you value a firm at a million dollars, and you’re willing as a buyer to go out and contribute cash and borrow half million, hopefully, you thought through it that you’re not going to lose a half million dollars of value from that aspect. The other half mil maybe variable seller financing or an earnout component where the seller now is very invested in making sure that post sale transition plan is successful. Takes you to rotary, takes you to chamber of commerce, has lunch when we were having lunch as normal human beings and everything else, but those different things. And we’re okay with that as part of it. And we talk a lot in due diligence on our deals about creating that transition plan, so that a seller and a buyer are comfortable prior to closing on how that’s going to work, because we want our sellers to be very comfortable that, look, I’m not just selling this for 500,000 when it’s really worth a million and I’ll never see that. They want to feel very good that hey, look, I know, this firm, has built good operations, has good people is going to be great stewards for my clients, my referral sources, there’s a great plan to do that and it is going to be successful. And then as I tell everybody, again, we’re success fee motivated as the way we get our fees and we typically earn with our clients. So we’re very motivated on this side as well to make sure you’re choosing the right buyer that it is going to be successful. So, anyway, but yes, we can work with terms and structure. but we want to make the deals work for everybody.
Jay?
I have a quick question. It may not be that quick when I ask it. Have you seen practice groups splinter off and so just a practice group of a firm or is it basically an all or nothing situation?
So we’ve definitely seen practice groups, different states vary on can you sell just one practice area versus the whole firm itself. Like I think California revised their version of 1.17 to basically say it’s an all or nothing. You can’t just sell it. Now, what that said is practice groups are bought and sold all the time to the outside world. You see it as this attorney has left to go join this firm, and they’re joining counsel whatever else. Behind the scenes, whether we’re part of that or not, there’s been some kind of financial transaction, which says, come join us, we’ll pay you right this for legal work, but we’ll also pay you over time for the clients and the goodwill value that you bring. But to that, if you’re a firm that’s doing multiple and you just want to get rid of an area, you can do it, it’s a little bit more challenging, depending on state ethical rules. And typically, you would kind of dance into a co-counsel of counsel and then full transfer, so we can work the financials to make it work but it just takes maybe a kind of a incremental steps to get it over there.
It’s interesting to me, we talk about building systems, we talk about doing – every lawyer that I talked to, just wants it to work. They want to sort of have this magic wand, where they can hire staff, they can do things, but they don’t necessarily want to do the work to build systems. And it sounds like a lot of lawyers want to sell their firm, but they don’t necessarily want to do the work that it takes you to be able to just sell the firm type of thing. So I think that one of the takeaways I got from this was you got to put in the work early on in the process to make it easier on the back end, is it fair to say?
Absolutely. I mean, even when we start our process, our attorneys who say I want to sell, I’m ready, let’s go, what do you need. And we say, okay, we need three five years of tax returns, we need P&Ls, we need employee count. Geez, do you really need all this stuff? I mean, this is going to take some time, those different things. Yes. We’ll make that process more efficient, but to your point, Jay, yeah, put in the time and efforts. If you are looking to sell your firm in five, 10 years, then start putting in the steps and efforts now through – help through your guys community and otherwise to implement that because your firm will be hopefully a higher value, easier to sell, find a more attractive, good fit buyer and kind of move through those things. But it does take the effort and the time commitment to do so.
What are we talking about time-wise from the decision of, yes, I want to sell my law firm. Is it normally 18 months, 24 months, nine months, like what’s a – I mean, I know you can’t get specific, but what should somebody be budgeting in their head for – I decided today that I’m going to list something with The Law Practice Exchange, what should I be looking for in this time commitment before I can say, I’m out?
We tell everybody if you’re looking at exiting the profession or getting to a point where you really are not practicing law, get to us at least three to five years ahead of that point. So it’s like retirement (inaudible) …
That include (Inaudible) …
You’re right, it includes that window. So I’m sitting here today saying, in five years I want to be done practicing law. Then that’s the time to really start planning for sale and exit. And to walk through that, if you come to us today and sign up with us, it’ll take us 30, 60, 90 days because, again, we got to get financials, everything else to get you into market to prepare pricing structure, marketing materials, strategy to do that. And then we sign up for basically a 12-month kind of window because it takes a while. I mean, if you’re an attorney located in this certain community of a certain practice area, our biggest things, our geographic location and practice area match, right? We can have somebody that says, oh, I’m looking in this geographic area, but not this practice area and so we keep moving on. So as this market builds, our biggest asset, probably, aside from our process and knowledge is our database. So we continue to build those buyers who are interested, everything else to make those match. But that could take a year to find the right buyer, to negotiate that deal and hopefully close on that deal. It could take longer. It could take shorter. But now we’re a year into this and then we tell everybody on the seller side plan on at least six to 18 months of post-sale transition. Which means, hey, you’ve sold your firm, maybe you stand as a partner by name or you’ve joined and kind of – as part of the sale, you’re of counsel now with the firm. That first six months, 12 months, you may be working pretty hard to transition stuff over. And then after that point, you’re needed for rotary club, you’re needed for this key client or this key referral source lunch. So you’re very much part-time, but you’re still working, you’re still doing that. And openly, most of the problem that we see of the generation of sellers, of the boomers otherwise is they don’t really want to stop practicing law. They just know they need to have a plan for ownership transition. And to them, we essentially say selling your firm does not mean you have to stop practicing law. So I would imagine, Seth, if you’ve looked and talked to some of those potential sellers, if they said, well, I’ll sell the firm at good, reasonable terms and then I’d like to stay on and be an attorney with your firm going forward under a compensation model. Most of the time, you’d say great, wonderful. Picks up a good personal brand, has somebody to do some of that legal work. But they then have to (inaudible) …
You must found the rational – you’ve found the rational sellers, I have not, that’s why you’re you.
Well …
We’re going to put your information, your contact information in the comments. My final question, as we get out of here is what are the economics? What should somebody expect? How do you guys work? Is there an upfront fee for putting the package together? It’s great to hear that you do your percentages along the way. Is it a set amount or does it depend on the deal? How do you work?
Yes. Typically, we just charge what we think fairly small amount, depending on the firm upfront to do the valuation and just the initial market prep. Really we do that because we want to go into that and say, here’s the price, here’s what we think we can get for you on terms, price, everything else, what do you think? And if the seller says it’s way too low, then that’s where we stop. We’ve been compensating (inaudible) …
And what the valuation run, ball park, high or low? What’s the range?
Yeah. Depending on ours, on a low side, three to four, on a high side, you 10. And we’re doing these as pricing, market analysis type of things, depending on the ownership structure size of the firm. But typically (inaudible) …
Does that include like the counting? Did you bring an accounting firm to run the numbers or how do you – do you do that all in-house?
We do it all in-house. So we have myself, of course, being a CPA, we have other CPAs on staff to basically build out all our own models. As you can imagine, there’s just not a lot out there about market pricing of firms and then the payment structure
Well, that’s good.
… so our data. And then really on success fee, the typical, the standard is 10% of the success fee. It varies if the firm is larger, it’ll scale down usually from there. But for – our goal is that 10% standard brokerage for business type model. And again, our goal is we earn with you. So if you get 20% down and 80% is paid over time, but you really like the buyer, the firm, you feel there’s a great fit, a great stewardship of what you’ve built, then we’ll ride that with you. And we’ll help throughout that process to make sure that you guys have talked about what’s the transition plan, is there set dates for how you’re going to introduce to key clients referral sources, make the right announcements, bring resources to them.
Excellent.
Awesome. Well, thank you so much, Tom. This has been illuminating.
Yeah.
Yeah, it really has. This is something that we talk about a lot, but I don’t think people really know the steps that are necessary and getting to talk to somebody like you is really helpful to sort of frame it out in our minds. Now, I want to see what I can do to get out of (inaudible) …
Yeah, Jay’s already like delegated 20 different things and he’s – he’ll have the firm on your website within a week.
Yes, absolutely. Absolutely.
All right. Good to hear.
All right, Tom.
Well, I appreciate it, guys. And anything I can do in the future, let me know.
All right, folks.
Thanks so much.
Folks – thank you so much, Tom. And folks, we’ll be right back with more Maximum Growth Live. All right. That was awesome.
Thanks, Tom. I got to …
Well, Seth, I mean, this gave me a lot to think about, especially that last part about the timeline. If I want to exit in five years and be totally out, I need to start thinking now. And as I think, when do I want to get out, that at least gives me a roadmap to where I think I want to be and knowing someone like Tom is out there, I think is going to be helpful, because I have now a resource I can go to start putting things in place. What were your takeaways?
Look, a lot of it is sort – is common sense. I think it is – what we’ve spent a lot of time on this podcast talking about, which is running your law firm like a business and the more you run it like a business, the more sellable it is. Now, it’s – this is somebody who sold several dozen firms. This is – it is still not an easy thing to do. But what I also see having gone through the process without a Tom, but with somebody else with a person who’s trying to make these introductions, is that there are so many lawyers that sort of, they say one thing, and we’re all guilty of this, but they do another. How many times you said, I’m going to get out of and go into court more often and then it doesn’t happen for whatever reason. Some parts because you like it, some because you think it’s business development, some because the guy you need going there isn’t strong, whatever it is, it is easier said than done to set yourself up for it. And I think that is the – that is the key. What Jay Ruane can do without Jay Ruane is what’s sellable and until you get to the point, the systems are great, everything else is great, but if you’re still the – if you’re indispensable, then it’s not a business, it’s a job. I was talking to (David Bretton) about this when he’s like, “I’m going to just take care of this issue.” I’m like, “Stop it.” I have to stop myself doing it, now I’m the President of BluShark (inaudible) like, no, unless it can be done by excellent staff who knows what they’re doing, then you’ve just bought yourself a job and it’s not a business. And I’m always sort of – and I think that it’s not different here. It’s never going to be – it’s always better if you do it yourself. But until you get to the point, you have the ability to put the systems in place, but until you make the hires and put talent in place, it doesn’t really allow you that ability to make the exit. And I’d be curious. I’d love to follow up with Tom of the successful sales. One thing is obviously expectations, we heard that loud and clear today, right? If you think you’re getting seven times earnings, that’s not happening in a law firm. Put that aside. But of the people that did – that were sellable, how many of them had made themselves non-essential, because without it – it’s one thing if you’re doing the work, because they can put another practitioner to do the work. But the people that have everything tangled through them as Grand Central Station probably less likely to have sold and the people that did do and follow the things we talked about today probably much more.
And that begs an interesting question, too, is what is the value of somebody who is somewhat of a visionary. Because a person who buys a practice, that practice may be humming along, but it may not necessarily grow. I think one of the things that I bring to the table is, I constantly have ideas. I’m trying something now that I – it’s so – I mean, we’re talking six months before, I think, I’ll be able to even share information because I want to run AB test and do a bunch of things. But it’s – I just had a crazy idea one night and …
But you’re – no, you’re still you’re still in the position, you’re not selling anything. So the question is, when Jay Ruane is tired or when we may get older, it seems that – most people seem to get older and more tired. When you get to the point where it’s not there, the question is, can you hand it off. And that’s why when I look at, like the dental practice, there’s a methodology. You run your piece, but you’re on your feet all day. You know at X age it’d be over or under maybe 65 at some number, maybe 62, you’re going to sell it, you’re going to get a couple years of revenue from it, you bank money before, that’s how it’s done and that you sort of like it’s tried and true. Lawyers have just basically run themselves to the ground. Same reason we have the different mental health issues and alcohol issues …
Right.
… and all these things. There isn’t a – there’s not a schedule to get off the treadmill. The people that go into this go into it because they’re so focused and determined. It’s sometimes I think hard to jump off that treadmill and get yourself to the point where you’re like, okay, what is next, when do I head to (inaudible) …
It’s funny I was at a dinner last week for a lawyer turning 60 and I was the youngest lawyer in the room, obviously, I’m only 48. And there were in the room with me 12 lawyers over 75 who still practice and have no plans on walking away from it.
And look, my dad, 85, still practicing in New York …
Right.
… of counseling. But that’s why the big firms with succession, the mega firms, they have mandatory retirement.
Right.
And they’ll – for a mega rainmaker they may get like a five-year extension, but like or even a two-year extension, but generally, it’s up and out. They know the works got to go somewhere, they assume more often than not, it’ll stay at their firm, but they don’t want the people to stay there forever, that there’s – for a bunch of reasons.
Right.
But like the question for us is, is it – and it’s – there’s a larger discussion for a future episode, is the law firm a lifestyle, mechanism of earning for you or are you building something to unload. Most people treat it as a lifestyle. Most of the people in our audience who have their own shops, they run a lot of personal stuff through their firm. They make it into something that’s part of their being and their DNA. And so what we talked about today is a whole different mindset. And usually what happens is and my guess is and he alluded to this, a lot of people come when it’s too late.
Yeah. Yeah. It’s interesting …
We acquire – yeah, I’m sorry.
… it was interesting about the whole lifestyle thing, because I – and I didn’t get to bring it up in the interview. But I remember talking to (Lee Rosen) a while back, who had been traveling for years, while his firm was sort of just functioning without him. And when he sold it, he said, I didn’t really budget in for the fact that I wouldn’t have the frequent flyer miles anymore, that – because he was living in hotels and getting upgrades and all those things. And that disappeared when he didn’t have a law firm churning those American Express or Chase Sapphire or Miles for him. And that was something that he had never even thought about as part of his lifestyle that was necessary. And so I just thought it was something that was interesting that a lot of people, they’ll run their cell phone through the office and their car payments are company cars. And when you don’t have the firm anymore, you don’t have those as expenses. So it’s something that you have to think about. There’s so many variables to getting out. But I don’t – I definitely don’t want to be that person who has a heart attack at their desk and I (inaudible) …
Well, I don’t wish that upon you. But if I had to give an over or under who’s still working after 80, I have a distinct feeling it might be Jay Ruane.
Hell no. Hell no. Hell no.
If this is a movie, I would be (inaudible) …
Let’s put some money on it.
… that back and forth. How about bagel and lox at the Bagel Tree in (inaudible) …
Oh, I was going to say I want a Bitcoin. Let’s buy – let’s each buy a Bitcoin and if I’m skill working at 80, that I’ll give you my Bitcoin. But I know you said you don’t want to gamble that much. I’ve been with you in Vegas, I was just talking to some friends about how – we were at Lagasse’s Stadium for your 50th and I got there at seven o’clock in the morning and stayed there till eight o’clock at night watching football and gambling all day. And you must have come in and out of there like a dozen times because you couldn’t sit still. And you watched the Giants game and then you’re like …
(Inaudible) it was – this was the thing about Lagasse which is it’s such a fun spot.
Oh, it was great.
But it is – like when you’re there with your friends from your entire – your entire life shows up in Vegas. It’s – everybody wants to go in their own direction, but that was a great trip, 52 this October after MTMP.
Wow. Geez. And people are looking for trips, so is that it, you’re making the announcement now at the (inaudible) birthday party is in Las Vegas? We can’t go back to Lagasse’s Stadium. COVID knocked it out. It’s gone forever, which is a shame, which is a shame.
(Inaudible) …
So – oh, I’m sure they will. Okay, folks, so we’ve gone long. We’ve gotten really long this week. But I think you got something good out of it. Of course, you can always catch us every week, every Thursday live here at 3 pm Eastern, 12 pm Pacific on our Facebook page, as well as all the other Facebook groups that we’re syndicated to. If you don’t want to watch us live, if you want to take us on the go, our show is always syndicated through the Maximum Lawyer podcast or you can download Maximum Growth Live wherever you get your podcast. If you want to get other information about the duplicate content issue we talked about, at the top of the show Seth’s on his BluShark page and on his own pages has the SEO insider where he really interviews and talks all about topics just like that with some of the movers and shakers in SEO. And it’s amazing to me, somebody who’s sort of bounced around the fringes of that industry over the last 20 years, to see the names of people that you’re getting on that show. I mean, we’re talking people who I followed on Twitter, I’ve seen speak at seminars and you’ve got – these conversations are just phenomenal from just a knowledge base. And there’s really no agenda there, which is phenomenal. So I highly recommend that you check it out. Of course, folks, be sure to sign up for Maximum Law Con, that’s coming up this October. I know Seth, you’ll be presenting, I know I’m going to be presenting, that’s going to be a phenomenal show. And of course, if you want to talk more about the role of systems in your practice, be sure to join our Systemizing Your Law Firm for Growth Facebook group. We’re happy to have you. Every week I post different systems. This week and this month, we’re doing a lot of stuff about how to manage employee. So that’s it all for you, folks, today. A lot of good stuff here. Please make sure you watch this again. I’m going to go back like I do most weeks and take an audit of everything that I need to work on. But there’s some great stuff. Seth, any parting words for everybody?
No. Just have a great week, great weekend and we’ll see you next week.
Awesome. Folks, thank you so much. This has been another edition of Maximum Growth Live with Seth Price and Jay Ruane. We will see you next Thursday here on another edition of Maximum Growth Live. Bye for now.
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