If you’re a sole practitioner thinking about retiring or making a career transition, you may be interested in selling your practice. Selling your law practice can provide you with cash assets (which may replace lost retirement savings), an opportunity to gradually transition to retirement or a new career, and a chance to see the practice that you built live on.
RPC 1.17 Authorizes Sale of a Law Practice
The sale of a law practice is more than a business transaction. In Washington, the sale of a legal practice is governed by RPC 1.17. RPC 1.17 states that “A lawyer or a law firm may sell or purchase a law practice, or an area of law practice, including good will”, providing that certain conditions are met.
RPC 1.17 includes the following conditions
- Fees charged to clients cannot be increased solely because a practice is sold. “The sale may not be financed by increases in fees charged the clients of the practice.”
- The selling lawyer must give ample written notice to clients before the transfer that they have the right to their files.
- The selling lawyer must also inform clients of their right to retain other counsel.
- All elements if client autonomy, including the client’s absolute right to discharge a lawyer and transfer the representation to another, survive the sale of the practice or area of practice.
Review RPC 1.17 to fully understand the requirements to see your practice.
Valuation in the Sale of a Law Practice
While the practice of law is personal, there is also (or can be) a business component to it that enables the owner to sell the practice to another lawyer who would then be in a position to provide continuity of service to existing clients.
In essence, what’s being transferred in a buy-sell or buy-in transaction can be separated into two components that should be valued separately: the value of the business and the value of the practices goodwill.
Business value. The value of “the business” essentially reflects a net cash-basis book value balance sheet. The “business” valuation typically includes hard assets such as cash, equipment, furniture, leaseholds, and the like, less outstanding debt or lease obligations that are a part of the practice.
Goodwill. The value of “the practice” is basically a valuation of “goodwill.” Goodwill can be further broken down into “professional goodwill” and “practice goodwill.” The former relates to the personal reputation or skill of the owner/seller and cannot be easily transferable to a buyer. In certain cases, professional goodwill has minimal value to a buyer. A firm with an established history and distinguished reputation can attract clientele without relying solely on the visibility of an individual attorney.
CPA’s, CFA’s, bankers, business brokers, valuation firms and a variety of business consultants and advisors are available to assist both sellers and buyers with determining a fair value for such a transaction and advising on financing options.
Transitioning your Practice to a Buyer
One question to ask yourself is whether you wish to leave your practice quickly or prefer a longer transition.
Short Practice Transition
If you see selling your practice to be a short term transition, the sale may be principally some combination of fixed assets (computers, office equipment, etc.), and “good will”.
As a general rule, the more urgent the desire to sell, the lower the price will be; the less urgency, the greater the potential price can be.
Gradual Practice Transition
It is often in the best interest of both buyer and seller for there to be a period of transition. A longer, more active transition provides an opportunity to introduce and assist the buyer with establishing relationships with clients and staff. It is also one way to make a small or personal practice “marketable”.
A gradual transition, whether its six months or three or more years, allows the seller to gradually wind down their full-time professional career while crafting a personalized plan for the next stage of their life, be it retirement or some other “life beyond law.”
For the buyer, it provides an opportunity to tailor the practice while benefitting from your knowledge of the practice. This type of “mentoring” may be important for a new graduate just starting their career. Some manner of financing, which may be a variant of “sweat equity,” is also more likely achieved with a period of transition.
Whether you prefer a quick or more gradual transition, remember that most law practices are saleable for the right price and under the right terms.
Sell Your Practice
List your practice for sale as a Practice Transition Opportunity in the WSBA Career Center. Visit jobs.wsba.org and select "Post a Job" to begin.
It is free to list your practice for sale — just enter coupon code 60911657 during the check out process.
View our detailed instructions on posting your practice for sale.