Optimizing Your Business Exit- Part II

You’ll recall that last week we briefly looked at the two basic business and professional models: the one that’s “just you”, and the one that’s “you plus”. Let’s unpack those a little more.

The “just you” model is exactly what it sounds like. For all intents and purposes, you and you alone are the business. As a solo lawyer, for instance, despite the fact you may have a lovely office, great technology, and half a dozen wonderful, highly capable staffers, the business really is just you. Sure, you might be able to get away for a week or two, but if you were in a serious accident and came back in six months, what would be left of your hard-earned practice? Clients can only wait so long before they simply have to look for alternatives.

Many of us who do or did practice solo labour under the view that we’ll just “bring on a junior and when the time is right, they’ll buy us out.” Well, good luck with that. It happens successfully once in a blue moon, most often if it’s intergenerational, but I can say from harsh experience that I’ve invested deeply in juniors for the eventual benefit of the larger firms who were able to pay them more, much more, in the here and now. The days of apprenticing at the shoemaker’s house are pretty well long gone.

Selling a “just you” business is not impossible, but it’s not easy to get good money out of it. Even client lists and “books of business” are not always what you think they are. Clients come to you not only, and not even primarily, because they like you, but because of your reputation and your history with them and others they know. When you hand the business off to a stranger, these things are likely not there, or not as strong. And here’s the catch: normally a book of business is sold with holdbacks or deferred payments based on retention rates, and unfortunately it’s the buyer who has the most influence on retention rates. Clients may love you, but hate your successor.

Other than your client list or book of business, what else do you have to sell? An office building? A bunch of used furniture and equipment? I remember when paper law libraries went in the dumpster because nobody else had space, either. Don’t count on retiring by selling your “stuff”. And the last time I checked, you can’t sell your staff to anyone.

When I retired six years ago, the best deal going (one I heard about later) was that you could make a pitch to one of the larger firms, and if they liked you and your practice, you could move in with them for two years, then walk away and get two years of continued income. Not exactly enough to retire on.

Now, to be sure, there are pieces of “just you” businesses which can have major value, even an ongoing “stream of income” value, but these things need to be understood, well papered, and carefully managed. We’ll look at those in future editions.