August 08, 2025
Don’t Shoot the Messenger – Why Market Valuations Sometimes Cause Offence – article by Jonathan Fagan, MD of Jonathan Fagan Business Brokers Limited, part of the Ten Percent Group.
We provide market-based valuations to law firms and accountancy practices. These tend to be considered the most accurate form of valuation for professional service businesses rather than multiples or formula methods. We often include figures using various other techniques in our valuation reports, often to demonstrate the disparity in valuation techniques. Market valuations are a very different technique because they accurately reflect the value of a business on the market at that particular time based on the current status and condition of that business. Market intelligence is much sought after, and I have seen valuations from general business brokers & accountants citing deals for completely different sized and shaped law firms quoted in the legal press from 10 years ago to justify the figure they have come up with.
Offensive Valuations
Our valuations sometimes cause offence because owners of businesses like to think that their business is worth a lot more than the value we’ve put on it. Sometimes this is because they have spoken to one of the larger national brokers who have told them their business is worth six times their net profit or three times their turnover and that if that business signs with them, they will make the sellers rich beyond their wildest dreams. Valuations like this are usually completely unfounded in reality and simply a marketing tool.
High Values = More Business for Brokers
A specific example of this was a law firm back in 2020, who contacted us for a valuation which was duly provided. We valued their practice at around £500,000. Once we sent our valuation over, we heard nothing else from the firm, which is very unusual.
Some years later I was talking to a law firm buyer who said he had been to see a firm for sale in a specific area of the country and it soon became pretty apparent this was the practice we had valued at £500,000. The buyer reported that he’d never come across a firm before asking for so much money. The partners had produced a valuation which showed the practice was worth £7.5 million.
And this probably explains why that business was still up for sale five years later!
Our valuation was probably quite accurate and realistic. The £7.5 million valuation was definitely not. Whilst we would naturally be delighted for any of our clients who manage to achieve sales like this, its not hard to look impartially at a business of any type and see what it probably isn’t worth. We are fully aware of particular types of business that do attract a lot of interest and get high prices when they go to market. Sometimes a lot more than the market averages. These practices are always different to the norm and are easily identifiable based on what they are doing, evidence of growth and their structure.
Shopping Around for the Highest Valuation
Choosing a business broker to market your firm should be done along the same lines as an estate agent. Do you necessarily go with the highest valuing estate agent when selling your house, or do you go with the estate agency you feel most comfortable with and trust their professional judgement? The same principle ought to apply to selling your business. Whether you choose us or another broker, do it for the right reasons – who did you feel most comfortable with, not who gave you the highest valuation. We have come across a few clients who have openly indicated that they plan to go with the broker offering the highest valuation – not an approach to be recommended!
Future Plans
After valuing we occaisonally get feedback from owners to say that we have not taken into account the plans the firm have for future growth or the opportunities they are not currently taking.
Unfortunately buyers of businesses do not pay for future potential, but for what they have got now. If you have a business generating fees of £1 million and you can see the potential for this to get to £5 million within 3 years, and you want somebody to buy it on the basis of the £5 million rather than the £1 million, you need to be able to demonstrate that that growth is pretty much nailed on without too much effort from whoever purchases it.
This is fairly easy to do if you are a practice that is increasing its turnover every year with strong evidence of this. If there is no such evidence and it is simply a plan to increase the turnover to that amount, buyers are simply not interested in future potential that has no track record or evidence to be back it up.
Marketing Potential
The same applies for areas of law that have not been fully explored or tapped into by a business or the potential to grow via extra marketing. Buyers simply ask why haven’t you done it and why should they pay you for the privilege of doing something that you haven’t bothered doing yourselves.
NB: a common bit of feedback from buyers is the complete lack of any marketing plan/budget for a lot of solicitors firms and accountancy practices. Sellers we speak to almost seem proud of the fact that they have not spent any money on advertising and yet they are still generating fees. These firms often tell us that if someone came in and spent £x a year on marketing they could easily increase their turnover. This is great, and really commendable that the sellers have identified that they could increase their profits if they advertised. But why would a buyer pay a seller for the privilege of advertising that may or may not increase turnover and profits? Why haven’t the current owners taken the opportunity to increase turnover and profits – do they not want the extra work?
Summary
If you do ask us for a market valuation, please be aware that this is our opinion of the value of your business based on evidence of deals and offers we see being put forward to law firms and accountancy practices on a daily basis. We do not provide pie in the sky valuations to try and tempt you into listing your firm with us, although at times I think we ought to (seems to work very well for some of our larger competitors!). However, we do advise you on how to increase the value and improve the saleability of your business alongside our valuation. If you would like a market valuation for a law firm or a accountancy practice. please visit www.Jonathanfagan.co.uk.
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