Many of you think that you can’t sell a law firm because it is so reliant on talent. But the reality is that successful law firms continue to provide amazing value.
Let’s discuss the concept of enterprise goodwill and the repeatable processes that will make your business ready to sell.
In This Episode We Discuss:
- What you need to be creating for your law firm for it to have value and make it sellable.
- Creating the greatest value in your law firm by having justifiable, quantifiable, recurring revenue.
- How the more systematized your business, the easier it is for you to hand over your law firm.
Allison Williams: [00:00:05] Hi, everybody, it's Allison Williams here, your host of The Crushing Chaos with Law Firm Mentor podcast, Law Firm Mentor is a business coaching service for solo and small law firm attorneys. We help you to grow your revenues, crush chaos in business and make more money.
Allison Williams: [00:00:30] Welcome to another episode of The Crushing Chaos with Law Firm Mentor podcast, where today we're going to be talking about the concept of enterprise goodwill. Now, for those of you that have done anything in the world of business valuation, you probably are familiar with this concept, but many of you may not be. And I'm introducing the concept so that we can talk about what you need to be creating in terms of your law firm for it to have value to make it sellable. And I know a lot of lawyers think that you can't sell a law firm because a law firm is built on the, the talent that's there and talent moves around, and talent retires, and talent stops working and all of those things. So how could you ever possibly sell a law firm? But law firms have and are regularly sold, and they are sold and have the greatest multiple. The greatest value that you can extract from those sales happens when you have enterprise goodwill. So let's talk about what that is. So essentially, goodwill is if you think about the concept, it is the I'm going to use something very generic here and then we're going to get a little bit more crystallized.
Allison Williams: [00:01:42] But think about the warm and fuzzies associated with reputation. So there's personal reputation, which is your personal goodwill, i.e. that someone would pay value to have you think about personal goodwill being what you bank upon when you change law firms. So if you're working at John Doe's Law Firm and you want to go to Susie's Smith Law Firm, when you interview with Susie Smith, you're going to be selling yourself right. The person becomes the entity value. When you are selling a law firm, your reputation may be a part of the ultimate value that's being purchased, but to the extent that your reputation is the big part of the value, the actual value of the business is going to go down for a host of reasons. Ok, so I want to acquaint you with the topic of enterprise goodwill so we can talk about how you can drive that up to make your business sellable when you ultimately choose to no longer practice law. So enterprise goodwill is what attaches to a business entity and is associated separately from the reputation of the owner, and it transfers upon the sale of the business to a willing buyer. Ok, now the great thing about that, the great thing about enterprise goodwill, is that this also tends to come along. It's not universal, but it does tend to come along when you have your freedom baked into your business, right? When freedom is, when freedom is a part of what you do, right, when freedom is how you operate in the world, when freedom is what you create in the world.
Allison Williams: [00:03:27] The freedom is going to be inherent in the value of the business because the business will have to be able to sustain itself economically and systematically in order that you, as the business owner, can step away from it. So if you create a business that's highly systematized, like that's what we talk about when we have our Crushing Chaos Master Class that's coming up in March of 2022. We talk about how you can create systems that allow you to have freedom so that your business runs and creates money without you. When you have created that, you are actually going to have more enterprise goodwill, but you have to be intentional about creating enterprise goodwill because it's not purely that the owner is not an inherent part of the value, but its other characteristics of it that will give it that separation of reputation from the owner, right? So you can still have an owner-identified law firm where the owner does not physically work in the business very much. I want you to think about some smaller law firms, and some of you might actually operate those law firms, right? If you've got a five hundred to $700000 law firm, even a seven-figure or multiple seven-figure law firm, you might have gotten to a place where you don't do a whole lot of legal work at all. You might come in, you might pay the bills or you might oversee the, the development of your team. Or you might have a role as a visionary, right? You might be casting vision for where the law firm is going. You might truly be a CEO of your law firm, but as you are CEO of your law firm, if people are coming to the law firm because John Doe is the big powerhouse and yes, John Doe has a team and we're willing to work with his team because we want John Doe's reputation. John Doe's reputation is still the thing that is being marketed right. You're still ultimately saying to the marketplace, Come here because we have John Doe. And you have to shift your mindset from come here because we have John Doe over to come here, because we have the talent, the skill, the expertize, the years of experience, and the reputation with the judiciary in order to achieve the desired outcome. When you are very much focused on yourself as the marketable asset, even if you're not working in the business, the value of your company inherently goes down when you are not available to be marketed any longer.
Allison Williams: [00:05:56] Now you might say, well, once the lawyer gets to 70 years old, he likely wouldn't be marketed anyway. And that's true. That's part of the reason why most lawyers, when they haven't created enterprise goodwill very intentionally in their law firms, what they do is they tend to sell their book of business at the end of their career. So they say, I've got 50 files. I'm no longer going to handle these files, but these files come with retainers, so there's money on account. And then, of course, there's an ongoing relationship that you can sustain with those files. And depending on how knowledgeable a lawyer is about business valuation, a lawyer who has subscriptions in his or her firm where it is not just that the file will work through whatever current trauma or issue is going on, and then the file is dead and has to be regenerated or more, more clients have to come through that client by referrals or by additional cases, but instead the work continues to generate because there's an ongoing business relationship, right? Or there's ongoing fees that are generated and expected to be generated by virtue of the nature of the work that's done. If you don't have that or if you have that rather and you then negotiate a multiple of the dollars and cents coming over today, that's great for you. But that still is very limited, right? Because it's not taking into account all of the other assets that you would have in a law firm. And for a whole host of reasons, many lawyers don't go through the process of, of evaluation of their business, even an asset valuation where you can sell off things that could be of high value, like newer furniture, chandeliers in your dining area or in your, in your large conference rooms and things like that. They really just say, I'm done with the practice of law. Take my clients, please.
Allison Williams: [00:07:51] So I want you to be thinking about your law firm as an entity, it has many assets, but the greatest value when you are looking at a law firm would be typically through the income approach. It's usually going to be some multiple of your profit, right? And there's different approaches to how to value a business. This really is not about true valuation theory one on one. But I wanted you to get, to get to thinking about that because what you have to recognize is that enterprise goodwill is going to get you a higher value for your law firm. And when you create enterprise goodwill that multiple of your revenue stream, that multiple of your profit rather is typically going to be higher because there is a greater likelihood that after you are no longer personally in the business, that the business will continue on without you and that clients will still come even though they have no expectation of you being there, of you being the marketable asset that they are, that they're hiring or of you being personally involved with their case.
Allison Williams: [00:08:53] So I want to go over some factors that, that would be considered to increase enterprise goodwill, and we're going to do that right after the break.
Allison Williams: [00:09:09] Money comes from marketing and sales. Free time comes from people and systems. Law Firm Mentor teaches a four-pillar system that covers marketing, sales, people and systems. Every year we offer four live, interactive retreats dedicated to each of these key areas. All retreat attendees walk away with our proven system for crushing chaos in its tracks and moving them forward to the life they want.
Tiffanie Powell: [00:09:34] Hi, my name is Tiffanie Powell. I'm the owner of Tiffanie Powell and Associates PC, located in Chicago, Illinois. One of my favorite parts of attending Marketing For The Masters is the camaraderie because I've been able to attend other retreats. It's always great to come back. It feels almost like a family reunion. And not to mention Allison, I can never forget her. Her personality is so vivacious, even online and in her videos you can feel it, but in person, it's like she's speaking to your soul.
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Allison Williams: [00:10:27] All right, welcome back, we are talking about enterprise goodwill and the thing that I want to now do for, for us as we as we go into this topic a little bit deeper. It's to talk through what some of the factors are, what some of the attributes of enterprise goodwill are so that you can be thinking about how you can instill them into your law firm. Ok, now this is not an exhaustive list. And for, for some practices, this list might include things that are just not relevant to your practice. But I do want to talk about some of the most common factors so that you can start to put your eyes and sights on how you can drive up the value of your business as you are creating and growing your law firm. So the first attribute is contracts with customers, right? So I mentioned earlier the retiring lawyer who wants to sell his book of business, right? The contracts with your customers include current contracts, but it also would include contracts that have recurring revenue. The greatest value that can be created in a law firm is justifiable quantifiable recurring revenue.
Allison Williams: [00:11:31] Ok, justifiable in the sense that as soon as it transitions, when business changes, hands from person one, to person two that relationship remains intact because it's intact with the entity and not with the person. But then there's also the next offshoot of that, which is you want to have those recurring contracts of revenue coming in in the future. So once we have those relationships established, we want to keep those relationships and it is not just justifiable but quantifiable. We know exactly how much is under contract to be coming into the law firm for some defined period.
Allison Williams: [00:12:10] Number two contracts with suppliers and vendors. Now you might be thinking, Hey, wait a minute, if one could negotiate a new contract with your subpoena service, serving company or with your, your software licensing company. And that may be true, but a lot of companies will grandfather in prior rates. And so if you are one of the clients that signed on early with a new technology or with a supplier, or if you have a certain volume or just a relationship with the owner, you may have negotiated a really good rate and that obviously has an economic value when you're looking at what another business entity could have negotiated. And shout out to those of you that do negotiate in, in your relationships with outside suppliers. You have a lot more latitude there than you think you do. Keep your eyes on the prize there.
Allison Williams: [00:13:02] Ok, next up, employment agreements. Ok, now for a lot of us, we cannot have non-compete. We know that most jurisdictions do not allow. In fact, I'm not aware of any jurisdiction that would allow a non-compete for a lawyer. But you may be able to, in some jurisdictions, have non-compete or non-attorney staff in your law firm. So for instance, if you hire a marketing director and that person comes and is installed in your business, gets all of your intel for how you set up your services, how you set up your sales process, and has all of your avatars dialed in, And has,if you really done the work that marketing director, if they previously did not have a career in legal marketing and you teach them everything you know or you're outside marketing company teaches them everything they know, then that person has a value and obviously you could negotiate with that person a non-compete, right? So if that is an enforceable right in your jurisdiction, having that type of contract is extra value.
Allison Williams: [00:14:03] Ok, next up, location, right? Is your business across from the courthouse? Do you have the law firm with the premium spot? Or if you're a personal injury law firm, are you across the street from the hospital, right? So that somebody walks out? They've just been injured, the first thing that they see is your law firm or your law firms billboard.
Allison Williams: [00:14:23] Next systems, structure, and locus of control. Ok. The more systematized your business, the easier it is for you to hand over to the next person your law firm in a bucket. Ok, I'm using that very colloquially. When you talk about law firm in a bucket could be a basket, you know, frankly, could be a handbag. But the whole idea is that you've got your system style, then you can hand it over to someone. They could just come in that very next day. They could read about it and they could go execute. Now, presumably, they're going to still have some legal talent that you would have hired so they won't have to start from scratch. But they will at least have a process built out that they know that they can rely upon to repeatedly and consistently drive in the level of clients and revenue that you were able to produce when you ran the business.
Allison Williams: [00:15:12] All right, number six, this is the one that we talked about at the outset, right, that the business is not heavily dependent on the owner for getting the work done right. If you get hit by a bus tomorrow, does your business still run? If it doesn't, that is a great risk factor that the business will not produce revenue in the future, and thus the value will be lower.
Allison Williams: [00:15:34] Next name recognition. Right. This is something that I talk about a lot that your law firm should not be the law office of Jane Doe. If you ultimately want to sell it one day, because when Jane Doe is not there anymore, the business has remarkably reduced value. Now you don't have to go out and have a trade name, right? There are some jurisdictions that now allow for trade names. You could be the criminal defense law firm of America in Kentucky, and that's great if you're allowed to do that. But you might want to consider whether or not that's the feasible approach for you, for a whole host of reasons. Right. But name recognition is important. Does your firm have a value outside of you, right? I own the Williams Law Group, in Short Hills, New Jersey and people come to my law firm all the time, but have never heard of Allison Williams that don't know Allison Williams. They just know the Williams Law Group because it now has a reputation that's free-standing from me as an individual.
Allison Williams: [00:16:33] All right. And then the last and final. One that we're going to talk about are your sales force with metrics. Now, this is important because you want to have not just the ability to sell yourself, but you need to have someone who is consistently repeatedly bringing in clients at the rate necessary. And depending on the size of your firm, this could be one person, it could be two people, you could have a whole team of salespeople. Certainly, your intake department needs to be built out, but you need to have sales happening on autopilot, right? With trackable metrics that you can consistently and reliably look to, to say this is what we can reasonably expect in revenue and consequently in profit, because you got to engineer your profit in this law firm.
Allison Williams: [00:17:17] All right, everyone. Today we have been talking about enterprise goodwill, which is the value that you want to have your, your entity be separate and apart from you. Now, this is something that we really, really focus on here at Law Firm Mentor. Our Chrushing Chaos Masterclass, which is absolutely free, is coming up next month, where you're going to be able to learn the tips, the tricks, the strategies of how to create systems in a law firm, and how to have your team create those systems so that it runs without you and ultimately increases the value of your law firm. So I highly recommend that you register for it. The link is in the show notes, but it is Law Firm Mentor dot net forward slash masterclass. I am Allison Williams from Law Firm Mentor everyone. Have a great day!
Allison Williams: [00:18:07] Thank you for tuning in to The Crushing Chaos with Law Firm Mentor podcast to learn more about today's show and take advantage of the resources mentioned. Check out our show notes. And if you enjoy today's episode, take a moment to follow the podcast wherever you get your podcast and leave us a rating and review. This helps us to reach even more law firm owners from around the country who want to crush chaos in business and make more money. I'm Allison Williams your Law Firm Mentor, everyone. Have a great day!
Allison C. Williams, Esq., is the Founder and Owner of the Williams Law Group, LLC, with offices in Short Hills and Freehold, New Jersey. She is a Fellow of the American Academy of Matrimonial Lawyers, is Certified by the Supreme Court of New Jersey as a Matrimonial Law Attorney, and is the first attorney in New Jersey to become Board-Certified by the National Board of Trial Advocacy in the field of Family Law.
Ms. Williams is an accomplished businesswoman. In 2017, the Williams Law Group won the LawFirm500 award, ranking 14th of the fastest-growing law firms in the nation, as Ms. Williams grew the firm 581% in three years. Ms. Williams won the Silver Stevie Award for Female Entrepreneur of the Year in 2017. In 2018, Ms. Williams was voted as NJBIZ’s Top 50 Women in Business and was designated one of the Top 25 Leading Women Entrepreneurs and Business Owners. In 2019, Ms. Williams won the Seminole 100 Award for founding one of the fastest-growing companies among graduates of Florida State University.
In 2018, Ms. Williams created Law Firm Mentor, a business coaching service for lawyers. She helps solo and small law firm attorneys grow their business revenues, crush chaos in business and make more money. Through multi-day intensive business retreats, group and one-to-one coaching, and strategic planning sessions, Ms. Williams advises lawyers on all aspects of creating, sustaining, and scaling a law firm business – and specifically, she teaches them the core foundational principles of marketing, sales, personnel management, communications, and money management in law firms.
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My Favorite Excerpt From The Episode:
TIME: 00:01:46 (35 Seconds)
So there's personal reputation, which is your personal goodwill, i.e. that someone would pay value to have you think about personal goodwill being what you bank upon when you change law firms. So if you're working at John Doe's Law Firm and you want to go to Susie's Smith Law Firm, when you interview with Susie Smith, you're going to be selling yourself right. The person becomes the entity value. When you are selling a law firm, your reputation may be a part of the ultimate value that's being purchased.