March 15, 2025
We specialise in the sale and purchase of law firms and accountancy practices. The answer for accountancy practices as to whether all accountancy practices are sellable and do they all sell is yes, unless there is something significantly wrong with a business, all accountancy practices will sell at some stage for a price. However, this is not the same with law firms. All law firms are not sellable and not all sell for a price, although virtually all firms listing with us will receive offers of some sort.
It is important to say first of all that whenever we speak to new potential sellers or owners of law firms looking to discuss exit strategies, there are a number of key questions we always ask to to determine whether or not their business is going to be sellable.
Professional Indemnity Insurance – the curse of the legal profession?
The first question is the professional indemnity insurance history. If the professional indemnity insurance premium for a practice is so high that either the firm’s broker is having a laugh or there is a very poor claims history, then in a lot of circumstances the firm is incredibly difficult to sell until the premium goes down again.
As a very rough rule of thumb, buyers tend to be comfortable with anything below 10% of turnover in PII premiums, but anything over 10% does tend to cause issues. This is not always the case and it is important to say that there are circumstances where practices with premiums of 20% or turnover will easily sell, but as a rule below 10% is where you need to be. In fact, if your practice has not had any claims in the last five years, annual premium is above 10% or looking somewhere around that, get in touch with us because we can recommend a broker with a good record of results – we have no commercial connection to him. We do get the feeling that some law firms get tied into a broker who then exploits that relationship and gradually increases premiums over a lengthy period of time for no apparent reason other than ‘market forces’.
The professional indemnity insurance premium is a key point for all law firm sales. If yours is high due to a poor claims history or regulatory and compliance issues, then chances are your practice is not going to be very sellable.
Other Factors
Apart from the professional indemnity insurance, there are other factors that play a part, including the types of law your practice does, your location, turnover, number of partners and staff, ages of staff and much, much more besides. This is one of the reasons we offer detailed market valuations because every single law firm is different when it comes to a value. and it is not as simple as simply saying, oh yes, a practice is going to be worth X and easily sellable when there may be other factors affecting it that mean this is just not the case.
Deal Structure
Similarly, a law firm sale can look markedly different depending on the deal. Other than cash sales, with payments up front, staggered, linked to future profits or subject to clawback, quite a few firms agree deals that involve very little premium being paid, but the deal will will enable the law firm sellers to walk away without having to pay runoff cover, collect their work in progress and receive payment as consultants. This, of course, is very different to the type of arrangement where a buyer acquires the assets of a law firm (the clients & staff) and not the actual structure, so they do not take over any liabilities. The end game for retiring solicitors tends to be to a) avoid runoff cover and b) get value out of the business.
Solicitors selling a going concern with fully functioning teams of staff and ongoing work will almost always have a value attached to them because a buyer & seller will both be looking at the value of the business to them rather than the benefit to the seller of the buyer purchasing the business, which of course is the case for retirement sales.
Saleability
The vast majority of law firms are saleable. Even firms that have been listed with us that have not achieved a sale, and the partners have decided to close down after a period of trying, will have had offers of some sort from buyers. It may be that things simply just haven’t worked out for one side or the other and for one reason or other one reason or another, but there were almost always offers that in the lowest level will give the sellers a chance to walk away from their business with some recompense and no run off cover.
Do You Sell All Law Firms Listed With You?
No, although a significant proportion achieve a sale at a value we would recognise the business to be worth. About 10% of law firms close down without doing a deal and a further 20% change their mind and continue to practice for a period of time before returning to market. A small but significant number find a solicitor internally who expresses an interest in acquiring them (almost always the best type of deal for a number of reasons). Virtually every law firm listed with us for sale will get an offer of some sort within six months of listing.
Trust & Personal Connection
Law firm sales are very much dependent on personal connections and trust. If a seller feels comfortable with a buyer and the parties trust each other, then deal will probably go through. whereas if the parties do not have that level of trust and something does not sit right then deals tend not to go through.
Summary
In summary, not all law firms are saleable, although most are in certain circumstances and not all law firms sell, although virtually all of them will get offers of some sort. If you would like a confidential discussion about the sellability of your practice or its value, please get in touch.
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