These transactions are almost always on a prospective basis. A typical structure has the seller retaining all of the AR (Accounts Receivable), WIP (unbilled time) and Liabilities as of a specified cut-off date. If needed, the buyer can purchase any hard assets for a negotiated price. Occasionally, these transactions include intellectual property, which can impact the calculation of future revenue sharing. For example, a personal injury lawyer may have a publicly recognizable firm name associated with a marketing approach that generates new cases.
Most lawyers agree that business development is essential to the vitality of their firm. Despite the frequent conversation about the need for new business and the large budget allocated to business development (typically 2.5% to 4.5% of gross revenues), most firms want better results. Since small to midsized firms are typically built around relatively few books of business, these firms are right to recognize the importance of business development and to focus on those fundamentals that bring them success.
Whether you are a lawyer who is considering retirement options or a law firm that is concerned about the future of the firm as senior partners age, creating a transition plan can help ensure that firm continues to thrive.
Now at the midpoint of the year, how are things going? Well, I hope.
At this point, it may be difficult to determine how successful the year will be for the firm. While success may be defined in a number of ways, most everyone’s definition includes:
- their personal income,
- the overall size of the profit pool and
- if there was enough money to compensate the firm’s key people fairly.
Many of our clients are faced with the challenge of sustaining profitability while meeting client demands for greater value. To help these firms to maximize profitability, we conduct several client profitablity analyses each year.