Selling your law firm: Single buyer V multiple buyers

selling your law firm

 

 

If you are thinking about selling your law firm or exiting a market within the legal sector, there are many components that should be considered. Law firm sales can be complex, and a well structured plan is required to ensure a smooth transition.

Some of the main issues that you should bear in mind when selling a solicitors practice are regulatory considerations, market dynamics, your firm’s financial health, and the transitioning of your client base.

However, the main factor to be considered when selling your legal practice is the buyer. Who are you selling your firm, or you valuable Work In Progress (WIP) to?

Succession planning

A well thought out succession plan is crucial for ensuring a seamless transition. This includes:

  • Identifying potential acquirers: Whether the succession plan involves internal candidates or external buyers, identifying the right successor is crucial for the firm’s future, and you clients’ peace of mind.
  • Training and transition: Ensuring successors are well-prepared to take over the firm, including understanding its culture, client base, operations, and strategic direction.
  • Legal and financial structuring: Structuring the succession in a way that meets legal requirements and financial goals, including tax implications, professional indemnity insurance and ownership structures.
  • Regulatory considerations: The SRA’s approval may be required for certain aspects of the sale, particularly when ownership changes involve non-lawyers.
  • Work in Progress (WIP): How can you get the best  value for the work you have completed on your files?

Selling to a single purchaser

Whether you plan on selling your law firm as a whole or selling files as an exit strategy from a single legal market, you should weigh up your options in terms of selling to a single purchaser vs multiple purchasers.

Selling to a single buyer has some advantages, including:

Simplicity and speed:

Selling to a single buyer often results in a straightforward  transaction process. But negotiations and due diligence can be lengthy to protect their future risk, before the legal process can be started.

Control over selection:

You have the opportunity to choose a buyer who aligns with your firm’s values and goals, potentially ensuring a smoother transition for clients and staff.

However, selling to a single purchaser poses many challenges, especially concerning client care, case specialisms, and other operational issues.

Potential Disruption to Client Relationships:

A key concern is the potential disruption to established client relationships. Law firms often build their reputation and client base on personal relationships, service and trust cultivated over years. A single new owner may not necessarily hold the same rapport with clients or understand their needs as well as the original firm did.

This could lead to dissatisfaction, a decline in service quality, or even the loss of clients who feel their expectations are no longer being met under the new management.

Risk to specialised services

Law firms often have specific areas of specialisation, with solicitors who are experts in particular fields. A single purchaser may not have the same level of expertise or interest in all the specialised services offered by the original firm.

This can lead to a dilution of specialised services, negatively affecting the firm’s ability to serve clients effectively in these areas.

Reduced continuity and consistency

Clients often choose law firms for the continuity and consistency of service they offer, particularly in handling ongoing or complex cases. A sale to a single buyer can disrupt this continuity. New owners may implement changes in how cases are handled, prioritise different areas of law, or alter communication and operational processes. Such changes can unsettle clients and potentially compromise the quality and effectiveness of legal representation.

Focus on short-term financial gains over long-term client care

A single purchaser may prioritise short-term financial gains over the long-term relationship and care of clients. This focus can lead to cost-cutting measures that may adversely affect the level of personalised service and attention to detail that clients have come to expect. Over time, this can erode the firm’s reputation and its ability to attract and retain clients.

Selling to multiple purchasers on the Recovery First panel

As an alternative to selling your law firm to a single purchaser, Recovery First provides a method of running off your Work in Progress files by selling them to a panel of multiple Solicitors.

The firms on our panel of Solicitors assist by taking on part-run cases and running them to conclusion.

On the successful conclusion of each case, the Solicitors then pass the files onto an independent cost drafting firm to assess each case so that they can allocate a fair split of costs. The benefit of running off files in this manner is that we can ensure that you retain the value of your WIP in a fully outsourced, managed, and compliant manner.  

Using the method of selling your Work in Progress (WIP) files to multiple purchasers on the Recovery First panel offers several advantages, particularly for law firms looking to offload part-run cases efficiently and effectively. This approach contrasts with the traditional method of selling the entire firm or its assets to a single purchaser. Outlined below are the key benefits:

 

Diversification of Risk:

Through the distribution of your WIP files across multiple solicitors, you are not putting all your eggs in one basket. This diversification helps mitigate risks associated with the performance or financial stability of a single purchaser. If one solicitor faces issues, it only affects a portion of your files, not the entire batch.

Specialisation and efficiency:

The firms on our panel have varying areas of expertise and specialisation. This means your cases will be matched with solicitors who are best suited to handle them, leading to better outcomes, higher success rates, and more efficient case management.

Maximised value retention:

As we have an independent cost drafting firm assess each case upon conclusion, we ensure a fair and accurate allocation of costs. This process helps in retaining the maximum value of your WIP.

Compliance and management oversight:

Using our model means that the management and oversight of the WIP files are handled in a fully outsourced yet compliant manner. This setup ensures that all legal and regulatory standards are met throughout the process, reducing the burden on your firm to manage these aspects directly.

Financial flexibility and liquidity:

Selling off WIP files gradually to multiple buyers can provide your firm with a more consistent cash flow compared to a one-time sale. This financial flexibility is crucial during transitions, allowing for smoother operations and strategic planning.

Ease of transition:

For law practices looking to exit certain areas of practice or wind down operations entirely, this method offers an orderly way to manage the transition without the abruptness of a full sale. It allows the firm to scale down gradually while ensuring that ongoing cases are handled appropriately.

Client continuity:

Matching capacity at each of our panel firms with the allocation of files ensures the there are sufficient people available to contact your clients quickly to reassure them that their file is safe, will be reviewed quicky and a plan to move it forward devised and communicated, and that strict confidentiality is being maintained.

As we carefully select solicitors who can competently take over cases, we help to ensure continuity of service for your clients. 

Why Choose Recovery First when selling your law firm?

 

Recovery First is the optimal choice for those looking for a structured exit from any legal market and wanting to recover 100% of their recoverable WIP value, paid disbursements and an entitlement to a proportion of any success fee.

Whatever the reason for selling your firm, Recovery First will ensure the most positive and profitable outcome is achieved. The unique scheme offered by Recovery First is suitable for both law firms and professional advisors, such as accountancy firms and insolvency practitioners.

We guarantee 100% confidentiality for all clients. If you would like to find out more, get in touch today using the information below.

It's never too late to speak to Recovery First. Contact us now in the strictest confidence

Sally Dunscombe:

sally.dunscombe@recoveryfirst.co.uk

David Johnstone:

david.johnstone@recoveryfirst.co.uk

Telephone:

01357 440140

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106 Kennedy Building

Murray Street

Manchester

M4 6HS

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