Best Practice: How to acquire another practice
Asked and Answered
By John W. Olmstead, MBA, Ph.D, CMC
Q. We are a 12-lawyer firm in Austin, Texas. We have been approached by the owner of a three-attorney firm in an adjacent city who has a complimentary practice consisting of institutional business clients. He is looking to retire within the next 30 days and he would like us to acquire his clients. We have reviewed his practice and we would be willing to take over his clients but not his personnel or other fixed assets. He has no interest in a merger or a lengthy relationship with us. It could add $800,000 per year to our practice. We would appreciate your thoughts.
A. It sounds like a great opportunity if there are no conflicts, the clients actually transition, and the billing rates are in line. Start with conflict checks. Then ask for five years of financial statements and tax returns, internal financial reports, schedule of billing rates, client lists, copy of building and equipment leases, and malpractice applications. Assess the stability of the revenue stream, repetitive ongoing clients, client dependency, etc. Prepare a letter of intent with terms for acquiring the practice. I would lead with a down payment of say $25,000 and then a percentage of collected revenue for say five years at 20% and see how he responds. He will want more certainty and a fixed price. If you have to go with a fixed price to seal the deal structure it with an initial down payment, payments over three to five years with provisions for reduction in the purchase price if the clients and revenues don't materialize. Make sure there are no pending malpractice claims or other liability issues.
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John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics and author of The Lawyers Guide to Succession Planning published by the ABA. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com