This is a very difficult question to answer, but in a nutshell, firms can take as little as two to three weeks to agree a sale, and as long as three or four years, if not longer than that.
There are a whole host of reasons for this, and achieving a sale depends on a huge amount of factors, including luck, circumstances, the economic climate, your geographical location, your profit margins, the number of staff, the types of law, the structure of the business, the property used or owned by the business, your website, plus many random things you would never think of (and neither would anyone else other than the buyer!).
Timing and luck
Selling a firm is very often a question of coincidence – coincidence that a buyer just happens to be looking specifically in an area, and you happen to be looking to sell specifically in that area. Although of course there are lots of things you can do to improve your chances of success, the answer to the question how long does it take, is just that it really depends on the circumstances of your firm.
Realistic prices
One thing that influences sales dramatically of course is the expectation on price a seller may have. Sellers with unrealistic expectations for the business they have for sale tend to find it considerably harder to sell quickly, if at all, and often sellers who have very unrealistic expectations will either never sell or take a very long time to sell, usually up to the point when they decide to drop their expectations down and be more realistic in the price they are expecting.
Law firms remain fresh
It does not really matter to a certain extent how long it takes to sell when it comes to a price – the sale price of a law firm will not depend on how long it has been on the market for in the same way that a house sale does. Firm sales do not become stale, so it does not really matter if you decide to put your firm up for sale but then do not sell for a couple of years. Every buyer coming into the business will be in the same position as looking at it from afresh.
There is no good or bad time to sell a business.
Your own thoughts on the state of the economy, the prospects of your business making or losing money at a set time, and the future prospects of your business are completely irrelevant for the purposes of the sale of a business. This is because the buyer has their own reasons for making a purchase, and these reasons will be very different to your reasons for selling. Sellers often fail to appreciate this when it comes to looking at potential buyers, as they very often put their own set of values, opinions and prejudices first before considering the buyer.
I use the word ‘prejudices’ in a sense that we will have, for example, buyers who will get in touch to say that they intend to speed up the conveyancing process, and to do this they need to purchase a law firm. We will contact a target law firm on our books to ask for permission to release details to the buyer, and the seller will immediately refuse on the basis that they feel offended that the buyer thinks they can speed up the conveyancing process, when the seller knows that in reality this is virtually impossible to do in the current system. What the seller has failed to appreciate is that it is irrelevant for the purposes of achieving a sale at a set price to a buyer, as to what the buyer’s intentions are.
This gets into the whole issue of whether or not there is a good time to make a sale, because if a buyer has decided they need to purchase a business in order to achieve a goal, or to implement a system, then there is not going to be a good or bad time to do this, but simply a time. This time can be in a completely different world to the one being currently occupied by the business they are purchasing, and sometimes sellers find it really hard to get their heads around this.
Take an example of a firm that is not struggling, but not particularly making a lot of money in a difficult market.
The seller wants to get out, because they are fed up of doing the same work for very little money, and are looking for a buyer to take over. In their minds, they think that it is impossible to make any money from the work they are doing at the moment, and cannot imagine why anyone would want to purchase their business.
The buyer however, has completely different plans, because they have work to put through a firm for a completely different source to the current sources of work the seller has. All they need is an existing business to take over, in order to achieve their goals.
To the one party, the seller, the market is awful and chances of making any money are very limited, but to the other party, the buyer, there are huge potential sources of work which they want to tap into, if only they were able to purchase the business the seller is disposing of.
So, one person’s difficult market is another person’s prosperous market, and it is very rare that the two actually meet at the same time.
As I write this FAQ we have been through a sustained period of growth in the property market, and conveyancing law firms have enjoyed boom times, with increased profits, difficulty recruiting new staff because of shortages, hugely increased turnover, and great prospects for anyone in the sector. However, it has not been particularly easy to sell conveyancing law firms, because buyers can see that the current market is at capacity, and buyers are waiting for the market to drop. As and when the market drops, we anticipate there being an increased interest in conveyancing businesses, but while the business is booming we don’t think there is as much interest, and that is borne out by the numbers of buyers we see coming into the business.
Buyers are looking for a business they can add value to. They want to take over a business where it is possible to grow, increase profits, generate more turnover, and expand teams.
If you take the opposite extreme of a small business in a sector that’s not particularly busy, generating a small amount of profit from a relatively low turnover without much marketing and limited staff numbers, but possessing the right structure and offering a buyer huge potential to increase turnover and generate profit, then a lot more buyers are going to be interested in the latter business than they are the former.
In a way, I guess this kind of answers the question in terms of whether or not there is a good time to sell a business, or when is a good time to sell a business, because to a certain extent, as your business goes on its journey from inception through to disposal, it changes in shape and size. There will be different types of buyers interested at different stages of the life of a business, and it is true that there are certain types of business that are a lot easier to sell than others. However, there is no good time to sell in terms of external factors. For the reasons given above, you just never know when a buyer is going to come along and why a buyer is looking to make a ‘good’ offer.
In terms of other factors affecting a time to sell, which can include your own situation, then things are very different.
For example, it is never a good idea to try to sell just before you plan to retire or close a business down. Buyers will have a very good guess that a 75-year-old looking to dispose of a business is not going to be hanging around for a long period of time if they are unable to sell, and so are likely to be in a much weaker position when it comes to negotiation. If that same 75-year-old had looked around when they were 60 years old, things may have been very different indeed.
We offer exit strategy advice and assistance as paid service, because it is so complex at any point in the life span of a business. Everyone has different plans for the future, and for their businesses and personal life, and they all intertwine, which makes exit strategy planning all the more important.
Summary
The short answer to this lengthy article is that there is never a good time to sell a business. You don’t know the path a buyer is taking, in the same way that they don’t know your own circumstances. External market forces may be affecting your trading, but a buyer may see it completely differently. Do not foist your own opinions onto a reason for the sale or purchase of a company, because it always seems to end in the wrong decision being made.
If you would like further assistance in relation to timings, exit strategies or the sale of your business, please drop us a line or give us a call.
Who buys law firms and accountancy practices?
Law Firms
Law firm buyers fall into a few categories. Large investors buying into the sector, family buyers – purchasing for family members to take over and run a law firm, lawtech companies buying into the actual transactional side of the industry and companies in related sectors looking to run their own legal operations. We get some solicitors who look to establish their own companies by buying another business, but they are the exception to the norm.
One glaring exception is the local rival law firms. Our experience to date is that the vast majority of enquiries we get from local rivals or firms based locally looking to expand by takeover are making the enquiries to either a) get intel on the operations of a local rival or b) looking to try and acquire a local rival without needing to spend any money.
Looking at our list of successful sales, those we have had involving local firms have mostly been retirement arrangements, where the seller became a consultant for the buyer’s firm, the buyer’s firm became a successor practice and no money changed hands.
A lot of sellers have a fairly romantic notion that they will set up a firm, work in it and on it for over 40 years, find a young, enthusiastic solicitor just starting out who wants to spend £250k on a law firm, sell it to them and depart to enjoy retirement. Unfortunately reality is very different. Most younger solicitors see how easy it is to set up their own firms and don’t see the point in purchasing an existing practice, particularly one that may have antiquated systems and methods of operation. It is rare to find firms managing to find a younger partner who comes on board with a view to acquiring the equity after a set period of time.
Accountancy Firms
Very different types of buyers. Most buyers of accountancy firms and gross recurring fees are other accountancy firms and accountants. Just about every deal we see or are involved in will be with another accountancy firm, probably quite local, looking to pay a set multiple for the gross recurring fees. We don’t see many alternative types of buyer and there doesn’t seem to be the consolidation that occurs in the legal profession – accountancy firms on the whole are either 1-4 partners or large multi-partner operations with multiple offices across the country, if not the world.
Generally there are so many different types of potential buyer for businesses it can be hard to categorise them, but the above is a general snapshot of the buyers we see on a day to day basis making enquiries about the law firms and accountancy practices we have for sale.
JonathanFagan.co.uk is a specialist business broker service and part of the Ten-Percent group of Legal & Financial Recruitment websites based in the UK. We assist with national and international legal jobs for lawyers and legal staff as well as accountants and finance professionals. Throughout our trading history (over 25 years) we have been involved in sales and mergers of law & accountancy firms. Jonathan Fagan is Managing Director of Ten-Percent.co.uk Limited and undertakes all sales and mergers work on behalf of our company. and this is our specialist broker website.
For law firm recruitment please visit the main Ten Percent Legal Recruitment website for permanent roles and Interim Lawyers for locum roles. For accountancy firm recruitment please visit the Ten Percent Financial Recruitment website.
Jonathan Fagan is a trading name of Jonathan Fagan Business Brokers Limited, a privately owned company.
Who is Jonathan Fagan?
Jonathan Fagan LLM FIRP Cert RP is a qualified solicitor and Managing Director of TP Recruitment Limited. He studied law at Leicester University and Frankfurt University before completing his training with a specialist practice in Leicester. On qualification he worked for a Chambers-listed solicitors’ firm in Nottingham before founding Ten Percent Legal Recruitment, Interim Lawyers and Ten Percent Financial Recruitment in 2000. Jonathan set up the Ten-Percent Foundation in 2003, a charitable trust linked to the trading companies and handling the 10% charitable donations we make every year (hence our name).
Jonathan personally handles business sales and purchases. We have a database of over 1,300 registered buyers and we send out regular updates to over 8,000 law firms via our recruitment network. Our companies have worked with over 2,500 law firms and accountancy firms since April 2000.
Jonathan is editor of the Legal Recruitment News a monthly newsletter update for Employers and Candidates in law. He is the author of The Guide to Writing a Legal CV, Interview Answers for Lawyers and the Interview Guide for Lawyers and has lectured in the past at Huddersfield University on CV Preparation, Interview Practice and Legal Careers for LPC students. You can read his award-winning Legal Recruitment blog here, which contains advice on interview questions, recruitment tips for firms and candidates, as well as commentary on the legal job market. You can also read his regularly updated Ten Percent Article Bank here.
