Attending a continuing education conference a few weeks ago, a diverse roomful of lawyers engaged in a debate about old lawyers selling their practice. It started with a story about a septuagenarian who wanted to sell his practice and retire, but he couldn’t entice any younger lawyers to buy it. His was a successful practice in a rural Kansas area where he was known and respected throughout a several-county area. Ideas flowed as to his problem.
Old lawyers (guys with names like Jack, Bill, and Ed) said that young punk lawyers only wanted to practice in the Kansas City area, where amenities and opportunities abound.
Young lawyers (with names like Connor, Tegan, and Dakota) said that nobody wants to live out in the land of dirt–not even farmers who work the land. Accepting ownership of the old guy’s practice means to die with the same.
Old lawyers said that the younger lawyers weren’t willing to work in a junior capacity, instead wanting to immediately be the owner and/or partner.
Young lawyers said that waiting for the old guy to finally quit or die is not an enjoyable or practical way to anticipate a (earned, assumedly) promotion. Why buy an old, musty practice when they could buy the building next door and create some new hotness.
This back and forth continued for several minutes.
Then, one of my very reasonable and balanced peers* of the middle generation of lawyers offered this:
“I bet he’s asking too damned much for his practice.”
Generation diaper and generation adult diaper both stared in silence, mouths agape.
Finally, one of the geriatric gang replied “Well, I know [the lawyer], and he is asking quite a bit.”
“Quite a bit” was never quantified, but we guessed it was significantly more than the value of his building and furniture. The discussion turned to a breakdown of the things that contribute to the value of a law practice:
Real Estate: Fair value is fair value. You can’t exactly argue with that. However, older lawyers often forget that there is a maintenance liability that accompanies any commercial space ownership benefit. My experience tells me that stained ceiling tiles are less worrisome to older lawyers than they are to younger lawyers. Asking a young, upstart lawyer to go into debt for a building that looks and smells like years of water damage rarely garners an answer of “yes.”
Equipment and Furniture: This is necessary. True. However, just because you bought that 1992 Wang computer for $2000 doesn’t mean it is worth the same today. You’d better subtract from your asking price for the fact that your successor will need to invest heavily to upgrade automation. Also, have you smelled that couch in the waiting area? It reeks of a badly maintained nursing home bedpan. Subtract quadruple the amount you originally paid for the couch in 1972 to allow for purchase of new seating and air freshening products.
Phone Number and Website URL: A well-established phone number has value, but not as much now as it did 20 years ago. Come to terms with the fact that Reagan is no longer president. Nonetheless, you can add a bit for it. As for your URL, I was just kidding. Everyone knows you don’t have one. Or, if you do, it’s something like KeokukLawOffice.GeoCities.com. Zero value. In fact, dollars must be deducted if you try to sell this.
Clients: Established clients do have value, but only if they are willing to accept Logan as their new lawyer once George leaves the building. There are no guarantees that they’ll be accommodating. In fact, many may be waiting for George to die or retire so they can switch to John, who they’ve wanted to hire for years but remained with George out of pure loyalty Deduct value for this potential loss and liability. Criminal and personal injury practices? Don’t kid yourself. Yours are constant hustles and rapid turnovers. There is no client value to sell.
Sweat Equity: Let me be clear, there is no such thing. You can’t transfer work ethic or dedication. Consider that a person may labor for years to build a house. However, the value will be determined by square footage, quality of interior components, location, etc. No realtor will say “but, the owner of this house worked really, really hard.” Nope. No value added. We don’t care about the labor pains. Just show us the baby.
The File Room: Old lawyers have file rooms. Big ones. Lots of files. Typically, correspondence with prior clients was silent as to the maintenance of files, making a huge headache for anyone who inherits this cavernous room and its pulpy contents. Therefore, this is a huge liability and fire hazard. Banker boxes, stacked a mile high, are strewn throughout the room in no particular order. One person knows the location of every file. Unfortunately, that person is the lawyer closest to death. Deductions for this have the potential of completely negating any value added by the included real estate.
Sometimes, the problem is that the retiring lawyer fails to store a late-life nest-egg, and they view the value of their practice as a means of obtaining financial security. They will, almost always, be disappointed. Other times, the problem is simple pride, inflating the value of a practice well-beyond a practical range.
Should retiring lawyers ask value for their practices? Sure. Should inheriting lawyers pay value for a practice? Again, sure. The problem comes with the fact that both sides are not being reasonable in determining the value.
That’s where my middle generation is so critical. You all should listen to us much more often. After all, we’ve been bridging the gap between old and new for eons.
*Note: My peer group, whatever it may be, will always be the most reasonable, fair, insightful, and balanced of any other competing groups or generations. Why? It’s my blog, my rules. Deal with it.