We are involved in the sale and purchase of law and accountancy firms – although in reality we concentrate on law firms, mainly because there are so few accountancy practices for sale at the moment.. We see both sides of each deal as sales occur and these are our tips for achieving a sale or purchase. If you read no further, the key to achieving a deal is to be flexible and appreciate the other side’s position.
What Makes a Successful Law Firm Sale?
Successful law firm sales all have one key factor. The seller has wanted to sell and the buyer has definitely wanted to purchase. Neither party has closed themselves off from discussions and getting to agreement stage.
The sales where offers had been made but nothing has happened are those where one side or the other has closed themselves off at some point in the negotiations and no further talks have been possible. This happens time and again, very often with buyers and sellers who really want to come to an agreement but just not been able to get over barriers they have effectively put up themselves.
Top Tips for Achieving a Sale/Purchase of a Law Firm.
The Seller’s Pride – Be Conscious of it
Quite a few buyers forget when making a purchase of a business that the seller has built that business quite possibly from scratch. The buyers make quite aggressive, confrontational and fairly rude comments during the process in the hope of persuading the seller that their business is not worth the amount they think it is and to drive the price down.
What often happens in reality is that the buyer will touch a raw nerve in the seller who will immediately take offence at everything being said to them, whether or not it is true or not. Barriers are instantly thrown up which very often don’t come down again.
We have even had sales where the seller has eventually agreed to a deal but never forgets the first offer that was made and it really sours the relationship.
Always when dealing with sellers, be respectful of the fact that this has been their business and still is, and regardless of what you think are the shortcomings, the seller most certainly won’t appreciate them in quite the same light!
Don’t Insult the Seller
This follows on from being aware of the pride of the seller. Never say anything to the seller that could be construed as rude, offensive or challenging the viability of their business. Buyers sometimes think that they need to behave like they are on Dragons Den or The Apprentice and make ridiculous offers, but at the same time insult the sellers. It is possible to make a ridiculous offer or a ridiculously low offer and do it in a way that does not offend the person you are making the offer to. Be conscious of the fact you are dealing with human beings with the same sensitivity as you have.
If You are a Serious Buyer, Don’t Make Ridiculous Offers
Following on from the previous tip, this is extremely important. Never, under any circumstances, make offers to buy other businesses where you are quite serious about the purchase but you put forward an offer that is so ridiculously low the seller is immediately, a) going to be offended, and b) think you are not a serious buyer. Your reputation will never recover from this throughout the negotiations and the seller will always be wary as to whether or not to accept any future deals on the basis that you have had to go up quite a bit in order to get there. If you are serious about buying a firm, by all means make a lower offer than you want to pay but do it in a way that does not come across as somebody offering ridiculously low amounts.
‘Front Load’ Your Offer
One of the biggest disparities between sellers and buyers is the fact that buyers always want to tie the sellers in for as long as possible to any deal and sellers often want to be keep their involvement for as short amount of time as possible. If you are a buyer it is a good idea to be aware of this, and the fact that the seller is selling for a reason, which is that they want to get out of the business and move on to other things. Tying them in for three years does not really enable them to do that, and for those three years they are effectively an employee of your business.
Furthermore, sellers want to see cash paid up front. Cash promised over a period of time is cash that is going to require an element of trust between both parties and, as you are most probably strangers, this is not likely to be forthcoming.
Don’t Make Your Offer Contingent on Future Events and Performance
This may seem a fantastic idea for you and something quite innovative. You indicate to a seller that you are prepared to offer them a lump sum upfront but then to have further money spread out over a period of time based on the performance of the business. You believe that the money you are offering is very generous and if the business continues to perform in the way it has been then you anticipate the seller making considerable amounts of money.
This is great, and very thoughtful and generous of you, but unfortunately it never goes down well with the sellers.
Quite often the feedback we get from sellers in these kind of arrangements, where for example an offer is £100,000 with 30% of the profits of the business over the next three years paid in addition, is that they could do this themselves simply by staying in work. They don’t need to sell the business in order for someone to give them the profits from their own business. To them it makes absolutely no sense, because all they are doing is handing over the business but then being reliant on the future profits of the business that they have just handed over in order to get paid the sale price.
Be aware that what you think as a buyer is a very generous offer, to the seller is simply a tie in to profits that they could keep themselves if they stayed involved for the next three years in their own business. It never goes down well and I have not yet come across any sellers who have been particularly favourable to this kind of arrangement.
Don’t Offer to Take the Business Off the Seller’s Hands
No seller puts their firm on the market to get someone to take it from them free of charge. It simply does not happen (or at least it does not happen at the moment). This is because every business has a value, whether this is their client base, their location, their goodwill, their reputation, their current employees who attract business or other factor, there is value there.
Sellers do not need to be told about handing over their business for free and being grateful for the fact you have offered to do so.
Even if you are to all extents taking the business for free, there are ways of framing it so that the seller sees that they are getting something in return for handing the business over. The usual method for doing this is to indicate the value you will be paying if for example you are taking over certain liabilities such as the professional indemnity insurance, and framing it in a way that indicates you are offering value rather than just taking something over.
Again, as with all these points, the way you word your offer is going to determine what level of success you achieve.
So much of buying and selling a business is psychological – the buyer needs to be getting value for their money and the seller needs to be getting value for their business. How people perceive that value is the way you frame it to them in your offer and your communication with the seller. Please be aware that the best types of business are done when both sides to a transaction get on with each other, have an element of trust in the other’s motives, and feel that they are dealing with parties they can work with in the future. Deals that do not go well are where one side attempt to behave like Gordon Gekko in Wolf Street and generally insult the other side at any opportunity they get.
For details of our law firm sales and purchase service please visit www.jonathanfagan.co.uk.