Not long after first hanging out my shingle to practice law, a local attorney invited me to lunch. I scarcely knew him but over spaghetti, the fellow danced around the notion of selling his practice. I say he danced because he never actually came out and said the words, “Want to buy my law practice?” But that was precisely what he was about.
He was clearly gauging my interest to see if I’d bite and make him an offer. I didn’t.
Pulling up my pant legs.
But the lawyer went on and on anyway, telling me how successful, how lucrative his practice was. At the time, I also remember feeling how I should pick up my pant-legs because the barrister’s line of B.S. had risen up pretty high.
Now this lunch conversation was supposedly on “the hush-hush.” But not long after, unsolicited, 2 other lawyers volunteered that the guy was going around town prospecting to sell his solo law practice and had offered it to them.
It wasn’t until several years later that this guy finally “sold” his practice. But by then, he’d already left town and was operating only a skeleton operation staffed by two assistants. I don’t know what he eventually got for his business but I doubt it was what he fancied it was worth.
Valuing the ephemeral.
The fact is, other than their hard tangible assets and customer lists, sole proprietorships don’t have a hell of a lot to sell beyond the business goodwill acquired over the course of the proprietorship’s life.
This is true of any business, but especially sole proprietorships. It doesn’t much matter either whether you’re talking about a gas station, corner grocery, or a law practice. And God help the proprietor who doesn’t have a good reputation because then, there’s really nothing to sell!
Now this isn’t to diminish the role business valuation experts can provide by examining revenues, cash flows, rates of returns, etc. But ultimately, the marketplace dictates a business’s value. What’s a ready and able buyer willing to pay for the business?
The business owner can be as starry-eyed as they want to be but ultimately, if there isn’t a qualified buyer willing to pay their asking price, the business isn’t worth what the seller thinks (or fantasizes) it is. This was the hard lesson that lawyer tardily discovered.
As concerns a law practice, the most probablematic aspects of selling one are the bundle of ethical concerns involved, not the least being that clients aren’t chattel to be sold, bargained or horse-traded away. Clients remain free to choose who they wish to represent them. And guess what? If a client doesn’t like the new lawyer, they aren’t going to stay.
I won’t elaborate here about the laundry list of ethical issues from client confidences to competency but I will flag it to your attention and then leave it for others to explain, such as bar associations, e.g., The State Bar of California, or highly useful articles such as GP Solo & Small Firm Lawyer – VALUATION OF A LAW PRACTICE.
$20 for a law practice.
I bring this up because I was recalling a recent story involving the “sale” of an 84-year-old lawyer’s law practice to a paralegal for $20. Of course, this was nothing more than a reprehensibly outrageous fraud perpetrated by the wrongdoer on an elderly lawyer suffering from early-stage dementia. Thankfully, the bad actor, Mario David Abernathy, was caught and sentenced to 2 years in the state penitentiary. See Orange County Register.
But what especially caught my attention was the newspaper reporter’s quote, ascribed to the district attorney’s office, that the elderly, mentally ill lawyer’s practice “was valued at $750,000.” I don’t know what planet that deputy prosecutor lives on but I’m sure that more than one solo practitioner would be thrilled to have this particular deputy d.a. determine the value of their law practice.
Photo Credits: “Spaghetti with meatballs,” by Paulo at Flickr via Creative Commons-license requiring attribution.