Common criteria for buying a legal practice are geographic location and type of work but how does the size of a practice fit into the equation? Can a practice be too big or too small?
Let's consider various sized practices:
A legal practice with $200K annual revenue
This size practice would be ideal for a practitioner with a high level of competency in the field of work practised.
The level of fee revenue is too small for the current principal of the practice to be too involved ongoing as well as supporting an incoming buyer. If you need assistance, training or mentoring from the vendor-principal, there might not be enough earnings left in the practice for you.
Generally, this size firm is too small as an acquisition by an existing firm looking to expand geographically. There won't be enough profit in it after employee salaries.
If the firm was integrated into a nearby firm then it would certainly be viable for the acquiring firm. There could be scope for the outgoing principal to be employed in the larger entity.
A legal practice with $500K annual revenue
This size practice is usually large enough for a single buyer as well as providing ongoing work for the outgoing principal, ideally on a part time basis. If a vendor-principal wanted to keep working in the practice on a reduced-time basis it would usually be possible with a practice of this size. However, if there were two solicitors buying the practice together, the size of the practice might not be large enough in its current form to accommodate two full time principals and a hands-on ex-principal.
This could be a workable size for an existing firm wanting to expand geographically.
A legal practice with $1m annual revenue
At this level of revenue you are buying a business as much as a career platform. For the business to be sustainable and continue to grow, you would need a high level of expertise in the field of law. The firm would be big enough to accommodate a vendor-principal who wanted to continue on a part time basis.
This size firm represents an opportunity for an existing firm to expand in a new market, whether that is a geographic market or a new field of law.
Two solicitors working together would be ideal for this size practice. One may have more experience than the other. The combination of two buyers would add a degree of stability to the practice and could be regarded as a risk-minimisation measure.
A legal practice with $3m annual revenue
Whether you are an individual or a firm, an acquisition of a three million dollar revenue practice makes sense if it is part of a business strategy. The buyer will be a business-minded person looking to achieve a business goal. The success of such an acquisition will be determined by the extent that it fits into a business strategy.
I am not trying to restrict the parameters of what size practice you should buy. My role is to help you achieve your objectives. These objectives are typically a combination of career, lifestyle and business. Let me know what your strategy is so that I can present practices to you with the most suitable combination of location, type of law and size.