“Get Your Money for Nothing and Your Chicks for Free”. (Dire Straits 1984)
We regularly get telephone calls from potential buyers of law firms looking to purchase a practice. They may be a solicitor and they may be somebody without any legal experience of qualifications whatsoever. One thing that is very often clear is that there is an assumption you can buy a law firm without paying any money for it.
Law Firms Cost Nothing?
Only the other day I had a conversation with a senior partner of a solicitors’ firm who asked me if I could send him a list of all the law firms available for sale where the partners wanted to hand over the practice without spending any money.
We had a discussion for a while and he informed me that there is a business broker out there selling law firms without anybody needing to hand over any cash. He was genuinely surprised that there could be firms requiring cash payments unless they had cash in the bank that they were selling. He did admit however that if he sold his own law firm he would probably want a reasonable amount of money for it upfront in cash!
This is a fairly widely held assumption, but unfortunately law firms for sale very often are exactly that. Owners of law firms tend to only want to sell if someone is willing to offer them some money for their firm.
You Get What You Pay For
It goes without saying that if you have spent 25 years building up a business which is turning over £200,000 a year with staff, ongoing clients, a good claims history, a very low professional indemnity insurance premium, good levels of profit and a fairly rosy future (pending external factors), the partners are hardly likely to want to sign an agreement to hand over the keys and leave it to somebody else without them giving them any cash sums.
It goes without saying of course that there are law firms out there that probably are available without spending any cash because they have serious issues. A practice that has a terrible claims history, hardly any staff, very low turnover, virtually no profit and horrifically expensive professional indemnity insurance premiums is not going to sell for very much money at all.
In fact the value of a practice like that is probably equal to or less than the cost of the run-off cover that the owner is going to need to pay to get out of the practice. Run-off cover is the amount of insurance you have to pay upfront when you shut a law firm down to cover the insurance company for future claims. It tends to be a huge issue for sellers with poor claims history because very often the run-off cover is around three and a half times the annual premium.
So if you are looking for a law firm that is not going to cost any money, and you have any requirements other than a solicitors firm in a terrible shape with awful claims history and horrific professional indemnity insurance premiums, you are not going to find very many firms for sale.
However, if you have cash lump sum starting at about £30,000 (for a virtual shell) and heading up to around £250,000, you can probably buy yourself a functioning law firm with a good claims history and perhaps enjoy a good business experience in the years to come.
For a list of firms for sale please visit https://ten-percent.co.uk/buy-or-sell-a-solicitors-practice/
If you would like a valuation of your law firm, please get in touch and we would be happy to have a discussion, whether in confidence and informally on the telephone or a written opinion. Jonathan Fagan – 01824 780937 or jbfagan@ten-percent.co.uk.
