How Do You Sell Your Practice if You're the Top Rainmaker? with Ed Alexander (Ep. 102) |

Selling a law firm, especially when you’re the primary rainmaker, is a complex and often daunting process. However, it’s not only feasible but can also be profitable with the right strategies in place. On this episode of The Lawyer Millionaire Podcast, expert insights from seasoned business attorney Ed Alexander reveal the path to a successful law firm sale even when the firm heavily relies on its principal attorney for business development.

Understanding the Challenge of Rainmaker-Dependent Law Practices

If you’re the key figure bringing in clients to your firm, the prospect of selling can seem intimidating. This owner dependence often leads to questions like, “Who would buy my practice?” or “Why would anyone want to?” As discussed in our podcast episode, transitioning from being the sole rainmaker to positioning your practice for sale requires planning and a team-oriented approach.

Steps to Making Your Law Firm Sellable:

Transition to a Team Approach:
- Begin by sharing your “know, like, and trust” factor with your team. This means clients should start interacting not just with you but with your associates and staff.
- Develop an intake process that doesn’t require your direct involvement, thereby ensuring continuity and building trust in the team’s capabilities.
Systematize Engagement and Client Service:
- Implement processes and systems to manage client matters smoothly when you’re not around. This includes creating a structured approach where you’re not the sole decision-maker or client handler.
- Aim for a scenario where you can confidently take extended vacations without work disruptions, indicating a practice that runs independently.
Automate Marketing Efforts:
- Maintain a consistent marketing presence that isn’t reliant on your direct actions. Regular newsletters, social media updates, and automated marketing strategies ensure a steady inflow of clients without relying solely on your charm and finesse.

Why Preparing Early is Essential

The most crucial takeaway from our discussion is the significance of giving yourself enough runway. Whether it’s three years or five, starting early allows you to gradually implement changes, test strategies, and refine processes, making the firm more attractive to potential buyers. This approach not only heightens profitability but also enhances your work-life enjoyment today.

Is Your Practice Ready to Sell?

Not all practices may initially seem sellable, especially if they’re overly dependent on one individual. However, even solo practices with the right systems in place and a predictable cash flow can find buyers, as highlighted by Alexander. Essential to this transformation is the adoption of recurring revenue models and maintaining a robust client database.

Final Thoughts

By preparing your law practice as a standalone entity, where you are not indispensable, you significantly boost its value. This transformation is pivotal, not just for a future sale but for enhancing daily operational efficiency and profitability. For law firm owners ready to embark on this journey, The Lawyer Millionaire offers insights and strategic thinking essential for successful transitions.

Resources:

Connect with Ed Alexander:

Linkedin: Ed Alexander
Email: Ed@AlexanderBusinessLaw.com
Website: Alexander Business Law
Website: Law Firm Exit
Book: The Power of Scarcity: Leveraging Urgency and Demand to Influence Customer Decisions
Book: 10x Is Easier Than 2x

About our guest:

Ed Alexander is an attorney, author, and founder/CEO of Alexander Business Law, PLLC in Orlando, Florida. Alexander Business Law helps their clients create greater autonomy and freedom with well thought out and profitable business relationships. Through education, advice, and guidance, their clients are able to enjoy their businesses and their lives.

Ed is admitted to practice law in Florida (1993) and New York (1994) and has been a business attorney since becoming a lawyer. He is the author of:

The Guide to Selling Your Florida Law Practice.
The Guide to Buying a Business.
The Guide to Partnerships and Partnership Agreements.
10 Common and Costly Business Killing Legal Mistakes and How to Avoid Them. A Business Law Bible for Entrepreneurs.
The Florida Business Contracts Handbook.
Florida Business Entities Handbook.

Before becoming a lawyer, Ed held positions in the tech world with a pacemaker manufacturer, custom integrated circuit manufacturer, and laser barcode manufacturer, as a systems engineer and product marketing manager. He has been part of teams that designed software and hardware for the first generation of defibrillator pacemakers, and custom analog and digital integrated circuits used in automobiles and healthcare applications. In 1995, Ed was awarded U.S. Patent, No. 5,468,952, for a 1992 miniature laser scanner computer invention.

In 2015, Ed received the Partner Award from the University of Central Florida Business Incubation Program for more than 15 years of service. In 2014, Ed received the Judge J.C. “Jake” Stone Distinguished Service Award for his pro bono work over the prior 18 years as a volunteer guardian ad-litem for abused and neglected children. In 2013, he was awarded the Small Business Development Center Regional Volunteer of the Year Award. Ed was the 2018 Chair of the Small Business Resource Network of the University of Central Florida Small Business Development Center and taught New Venture Finance as an adjunct professor at the University of Central Florida.

Ed loves outdoor activities and traveling with his wife of 38 years, Faith. Most weekends you’ll find him bicycling, kayaking, sailing, or hiking. Together, Ed and Faith live the mission they help create for others with frequent travel, vacations and time off from the law firm to spend with family.

Transcript:

Darren Wurz [00:00:00]:
If you’re the top rainmaker at your firm, how on earth do you sell your practice? Welcome to the Lawyer Millionaire. Helping law firm owners scale profitably escape the daily grind and turn their firm into a wealth building asset. Are you thinking about the future of your law firm? Planning for exit and transition can be overwhelming. Succession planning is often neglected, but without it, the consequences can be costly, both for you and your family. Today we’re joined by Ed Alexander, a seasoned business attorney specializing in law firm succession planning and valuation. With years of experience guiding attorneys through successful transitions, Ed is the go to expert when it comes to preparing your practice for its next chapter.

Intro [00:00:51]:
We are on a mission to help lawyers and law firm owners maximize wealth and achieve financial independence. Welcome to the Lawyer Millionaire with Darren Wurz from Wurz Financial Services.

Darren Wurz [00:01:05]:
All right, hey guys. Welcome back to the Lawyer Millionaire podcast. And we’re here with Ed Alexander. And Ed is a really special guy because not only is he an attorney, but he’s also a law firm owner. And he specializes in one of my favorite topics, my favorite areas, which is helping law firm owners sell their law firms. And so he’s got some really great expertise to share with us on that topic today. So, Ed, let’s kick it off with a really powerful question I want to know, and I, I’m asking this because I have some clients who’ve been asking this question as well. If I own a law practice, but I am like the main rainmaker.

Darren Wurz [00:01:49]:
I’m the one who’s bringing in the clients. How do I sell my practice? Tell me how I do that.

Ed Alexander [00:01:57]:
Thanks for having me, Darren. Yeah, no, this is a, this is a huge problem. Right? But I mean, so kind of the first thing you got to do is give yourself enough Runway to address this problem, right? So it’s not going to be a situation where you can show up in six months and go from being the sole rainmaker to being able to transfer the firm. Now, to some extent, each of us, each of our attorneys has a book of business. And that book of business will have to be transitioned as part of the sale. But from a standpoint of transitioning. So what do we do? Well, first, you know, for most lawyers, the getting business is all about know, like, and trust. So what you want to start to do is to develop or push your know, like, and trust onto your team so that the firm takes a team approach to handling client matters.

Ed Alexander [00:02:51]:
Right? So while you may be the person, at least initially, who handles all of the consultations or the intake, the first step would be to move the people into an intake process that doesn’t involve you. And ultimately then to. While you’re the face of the firm and everybody knows that you’re running that shop, it’s making sure that clients understand this is a team approach. So that when they call in, they’re going to get the team, for the most part, they’re going to schedule a call with you. It’s never going to be that you call in and I pick up the phone instantaneously. Right. It’s a structured approach. Right.

Ed Alexander [00:03:32]:
So slowly but surely we get clients in. And it’s going to be easier with clients that are new rather than clients that have already been in the system and able to get you at the drop of a hat. But transitioning into that team approach model, and then once that’s done right, then we start doing a little bit more of the automated marketing. So we’re developing a newsletter that goes out. We’re sending regular updates, having LinkedIn posts or Facebook posts, things of that nature. Social media posts, I guess is the generic term for it.

Darren Wurz [00:04:12]:
Yeah, I see that as one of the. One of the hugest challenges to a lot of law firm owners being able to sell. Sometimes we call it owner dependence, you know, the firm being so dependent on them. But I was literally having this conversation with one of my clients just the other day. And we’ll have to get you connected with them still very early in the process of thinking about when they want to sell. But they’re at least having that conversation. And it’s funny because they said to me, darren, we’re not your normal law firm owner clients. We don’t want to stick around forever.

Darren Wurz [00:04:51]:
But that is very much going to be their big challenge. They recognize that they’re the salespeople and the other people just don’t have. They don’t have the. The something, the charisma, the je ne sais quoi, whatever it is, or the desire maybe even to be that type of a salesperson. But, you know, I. I always. I always try to encourage people because so many times I feel like law firm owners feel that it’s impossible. But when you actually.

Darren Wurz [00:05:27]:
When I actually sit down and talk with them, we start to uncover there are maybe some things you haven’t tried before. Has that been your experience? Do you see a lot of law firm owners thinking that it’s going to be so hard. I don’t know if I’m going to be able to sell my practice.

Ed Alexander [00:05:47]:
A lot of times I get that question. And the question is kind of in the form of who would buy my bracket, why would anybody buy my practice? You know, those types of things, right. And I mean, you know, you’re an investment advisor. You know these things, right. It’s like if I have a pool of money and I can. And I can put that pool of money into an investment, I have a plethora of investments, right. And so at the end of the day, if I buy a law firm and it’s throwing off money to me in excess of the money I would make going to work for somebody, then there’s value there because there’s profit there.

Darren Wurz [00:06:22]:
Yeah, yeah, absolutely.

Ed Alexander [00:06:24]:
I tell the thing I would say, go ahead.

Darren Wurz [00:06:27]:
Sorry.

Ed Alexander [00:06:27]:
The other thing I would say, no problem. The other thing I would say is that your client really has the right idea because they’re looking at it years ahead of time. Right. And sometimes it does require that you kind of change up the makeup of your team because likely those. You know, if I’m the center of the universe for my law firm, I have what I call the hero mentality, right. Everything has to come through me. And so I’ve hired people who, either through training or through their natural tendency, want to do what I tell them to do, which technically. Which is usually the technical work of being a lawyer or a paralegal, that kind of thing.

Ed Alexander [00:07:09]:
And so now you’re kind of switching into the mode of, I’m now running a business, and I want those people to have the capability to do it themselves without me being involved.

Darren Wurz [00:07:23]:
Yeah, yeah, absolutely. You’ve got to start thinking a little bit differently that way. What are the other big challenges that you find get in the way of people, of law firm owners selling their practices?

Ed Alexander [00:07:41]:
The biggest one is a mindset, right? The mental view that, number one, you. You hit the nail in the head, which was, are we going to leave? Right. Some people think they’re never going to leave their firms, and I. I just don’t know how to help them. Right. Because what they’re on the track for is dying at their desk, which is. Leaves a mess for everybody. But so it’s the idea of there is going to come a time when you need to leave, and let’s plan for that time like we plan for anything else in our lives and get ourselves set up for it.

Ed Alexander [00:08:16]:
Even if you don’t plan to sell your firm, you’ve got to have a good succession plan because the worst thing in the world is to leave a mess for your spouse to have to clean up in the event of your death. And I’ve seen way too many of those, and it’s really unfortunate.

Darren Wurz [00:08:36]:
Yeah. Yeah. Is it, you know, is it worth. This is a question I get sometimes. Is it worth the effort and the energy of going through the process of getting my. My firm ready to sell, of scaling? You know, so. So many law firm owners I talk with feel like it’s. It’s so much more energy.

Darren Wurz [00:08:58]:
It’s going to be so much more work. I don’t want to have to do all this, all this additional work, you know, to get the firm ready to be able to sell. Maybe I just want to, you know, exist here and then, you know, and treat it like a job. Is it more work? Help us understand. Is it worth doing that additional work?

Ed Alexander [00:09:21]:
Yeah, that’s a. It’s a great question too. Right. Because at the end of the day, there is work associated with it because you’re making changes. Right. So it’s. It’s not going to be 100%. Make the change.

Ed Alexander [00:09:34]:
There’s going to be some back and forth and some movement in there. But at the end of the day, everything that you do to improve your firm for sale will likely improve its profitability today and improve your ability to enjoy that firm. Right. So that you have the time to do other things besides practice.

Darren Wurz [00:09:52]:
Yes. Thank you so much for hitting those two. More profit and more enjoyability. 100%. I couldn’t agree more. Because ultimately what you’re trying to do, right. Is get the firm so that it can operate without your direct, immediate involvement in everything. So, yeah, that is it right there.

Darren Wurz [00:10:19]:
If you’re a law firm owner listening to this, why should you think about getting ready for sale even if you don’t want to sell? It’s going to make your life better, you’re going to make more money, and you’re going to enjoy it a lot more as well. Ed, what are, like, the. The top three steps we need to take? Let’s say, you know, I’m a solo practitioner. Maybe I. Okay, well, maybe I have a paralegal and I’ve got an attorney working with me. I’ve got a small team. Right. What’s like, the pathway? What’s the map for getting my firm ready to sell?

Ed Alexander [00:10:57]:
So the first thing we would do is kind of like, take an analysis of the firm. Where is the firm strong and where is it weak? Right. Firms tend to be weak in something you identified a minute ago, which is the intake or I’m the only person who can bring the client on board. So we want to look at that first. The Second is, we want to look at who’s handling the matters and are they handling the matters independently? Are there some form of systems or processes that are out there and operational? Right. So that the kind of the, the, to me, anyway, the canary in the coal mine is what’s the length of the last vacation you took where nobody at the office called you? Right. If you could say that, it’s at least two weeks, but four weeks, you’re doing pretty well in that case. Right? Because people are handling what’s coming in without you.

Ed Alexander [00:11:55]:
And that’s where we want to get to, where you can go and take a four week vacation. And when you come back, there’s no fires and the firm is humming along. That’s the perfect spot to be in. Right. So, so then we move over into the marketing space. All right? Is marketing automated? Are there systems here or is this a roller coaster effect where we go out, we get a bunch of files, we start working those files and then we finish them off, we turn around, oh, there’s no more work. Now I got to go out and market again. And so the revenue takes that roller coaster of highs and lows and highs and lows because we’re not consistently marketing and bringing in a steady stream of clients.

Darren Wurz [00:12:38]:
Great, great. Okay, so who’s bringing in the clients, who’s servicing the clients? And what does that marketing process look like? Right, Those are the three things. Yeah. And in, you know, as you’re talking about those, getting those things systematized as much as possible. Hey, isn’t that just a great thing to do regardless?

Ed Alexander [00:13:03]:
Absolutely. Yeah. And it’s, it’s one thing to remember, right? There is no perfect practice. And you’re always, as you look at this, you’re always like, oh, this isn’t working right, and I got to go fix that, or this isn’t working right. But what we’re really talking about is kind of getting to the 70, 80 percentile comfort level. Because if you do that, then it really becomes a business separate and apart from the owner. And that’s really what we’re talking about here, is getting away from the, as you said, owner to independence. The owner being the hero.

Ed Alexander [00:13:39]:
The owner having to make every single decision all day long.

Darren Wurz [00:13:44]:
Yeah, yeah, 100%. Ed, is there such thing as too small of a law practice to sell?

Ed Alexander [00:13:54]:
I’d say yes. If you’re, if you’re solo and you know you’ve got a assistant or a part time assistant, something like that, there’s just not enough revenue in excess of what you should be making from a salary perspective to justify there being value to the firm. Right.

Darren Wurz [00:14:17]:
Okay. Yeah. Okay.

Ed Alexander [00:14:20]:
So otherwise I’m buying a job.

Darren Wurz [00:14:22]:
Yeah, there could be a. Too small. But even as a solo. Is. Are there. So you could sell a solo practice. What are the characteristics of a solo practice that might be sellable, perhaps?

Ed Alexander [00:14:34]:
Yeah, that, that marketing system. Right. That, that’s where I would go with, you know, if, if you could have the way I would say if somebody came to me, they’re solo and they had a assistant, I’d say, okay, well, let’s, let’s get on somebody else who’s a producer who can take off some of what’s on your plate. The things that you don’t like to do. Let’s get them off your plate to another producer and give you the bandwidth now to go out and do a little bit more marketing to expand your revenue. But that’s a pretty easy lift. Usually that first person on board and getting, getting them to be producing revenue, that gives you some profit. And so, you know, if you look at it, that’s probably about north of a half million, north of 750,000, 600,000 in revenue.

Ed Alexander [00:15:27]:
And then at that point, things start to look a little bit different because as a buyer, I can come and sit in your shoes and there is some profit over and above what I would make working for somebody else.

Darren Wurz [00:15:40]:
Yeah, yeah, absolutely. When we think about selling practices from the investment world, you know, we’re used to the, the multiple valuation. Right. The PDE valuation. And we can, we can look at law firms the same way. I’m curious, you know, as you’re, you know, dealing with law firms, what are kind of the range of multiples that you’re seeing out there in today’s world?

Ed Alexander [00:16:09]:
The thing I think you got to remember is that when we’re talking about investing in a blue chip stock that’s. I don’t know what PE ratios are today, but let’s call them 20 or 20. They’re all over something like. Yeah, right. Well, and that’s, that’s the perfect point. They’re all over the place based on the risk profile of the underlying business. Right. And so when we talk about these multiples there, that’s just a number in space.

Ed Alexander [00:16:36]:
And what we need to do is evaluate what is the risk profile of the particular firm. So, so we get a range and, you know, if you looked at what the total owner benefit is in a small practice, that range might be 1.8 to 2.5 times the owner benefit. Right. In A larger practice, it might be three and a half times the ebitda or Earnings before Interest, Taxes, depreciation and amortization. I know a lot of lawyers focus on the revenue multiplier, but that, but the revenue multiplier doesn’t really do much if the underlying profitability isn’t there.

Darren Wurz [00:17:14]:
Right, right.

Ed Alexander [00:17:16]:
Yeah. So that’s kind of, I don’t know, you could use it as a back of the napkin type of thing. But ultimately you got to have a good or appropriate level of proper profit in your firm in order to make that happen. So, so those are kinds of the. Now, now, having said that. Right. So we’re talking about three and a half times ebitda, whereas now in terms of the market. Right, you’re going to get something like what, roughly seven, eight times that number in the market, right? Yeah.

Ed Alexander [00:17:48]:
And that represents the risk because when I invest in a law firm, I can’t just turn around and call my broker and sell it tomorrow where I can with holding a blue chip stock.

Darren Wurz [00:17:58]:
Right, right, right. 100%. Yeah. You know, the liquidity factor, you know, the pool of buyers, you know, all of that changes that, that risk profile of the law firm, you know, but you know, many law firm owners might argue, and I, I might argue this myself, your own business might be less risky, you know, in some ways because you control it, you know, but I, I get that completely.

Ed Alexander [00:18:26]:
Well, it’s definitely less risky for you, but for the buyer, they’re going to come in and see gobs and gobs of risk all over the place. Right? Yeah. Lawyers. Right now, unless you’re in a select few states, lawyers are the only ones who can own law firms. And so, you know, as a, as a rule, lawyers are pretty conservative when it comes to risk. And so they’re going to see risk everywhere. That’s what they’re taught to do.

Darren Wurz [00:18:52]:
Yeah. Do you see the I again, I know multiple range can, can vary depending on so many factors, but do you see different types of practice areas getting different levels of valuations like personal injury versus criminal defense? What do you see out there?

Ed Alexander [00:19:15]:
The ones that have long term client relationships are typically the higher multiple. So think estate planning or you know, a business firm that has ongoing business clients because that relationship is already there and there’s repeatable business. It’s one of the things that if you can find a way as a seller to implement a subscription or a client care program within your practice, that’s going to drive up the value of your practice.

Darren Wurz [00:19:44]:
Oh yeah, big time. Yes. Yeah. We’ve talked about that on the show before. The recurring revenue is so attractive. Definitely. And, you know, it’s not just attractive to a buyer. What a great way to, you know, build some stability in your income for your business.

Darren Wurz [00:20:01]:
I mean, that’s why all the technology companies have basically become subscription software companies, you know.

Ed Alexander [00:20:10]:
Exactly. Right.

Darren Wurz [00:20:11]:
Yeah.

Ed Alexander [00:20:11]:
Yeah. I mean, the, the key there, right, is, is making sure that you take care of the client in any event, in any relationship. But if you don’t have that capability in your practice, because maybe you have, I don’t know, one off or whatever, the print newsletter and maintaining contact with clients to keep them in the loop and keep them as referral sources also has value. It’s not as valuable as a subscription, but that. That relationship has value. And obviously that has to be transitioned. But it’s much easier to transition that when there’s a team approach than necessarily if, you know, you’re doing everything in.

Darren Wurz [00:20:53]:
The practice, oh, 100%. You know, I’ve talked with law firm owners who’ve done a great job of maintaining that list. And then, you know, over the years, they’ve. They’ve compiled this list of thousands upon thousands of email addresses that. And not only just email addresses, but email addresses that are active. And then I have others who I’ve talked to that have been in business for decades, but haven’t captured that information. And it’s like, I mean, so much opportunity there that is. Is potentially being missed.

Darren Wurz [00:21:30]:
So I’m glad that you, you mentioned that. That can be a tremendously valuable asset for you.

Ed Alexander [00:21:36]:
It’s one. It’s one of those things. Sometimes it’s overwhelming. Right? So if I’m an older estate planning attorney and I have 25 years of client data, but I’ve not put it into any, you know, electronic form, God forbid. What I would recommend to people then is to go backwards. Right? So start with. In our case, we’re recording this in 25, so start with 24, and then go back to 23, and then go back to 22, and build the list over a period of time and start communicating with people. The other thing is, I really think a print newsletter is much more powerful than just the electronic newsletter.

Ed Alexander [00:22:19]:
And especially when you’re looking at clients, you’ve got all their information and it’s. And it’s worth it. You know what it. Let’s just go crazy and say it cost you $2,000 a month. I mean, you own that media, and that media is going to a bunch of people who know, like, and trust you. You can’t get any better than that.

Darren Wurz [00:22:37]:
Yeah, there’s a big. There’s a great argument for that in today’s world. You know, it’s funny, I. I used to do a print newsletter myself. Maybe I’ll bring it back. But, you know, it’s almost like the email has become the print of yesterday because we’re so inundated by email. It’s almost easier to stand out when somebody gets something in their mailbox, especially when they get something from somebody they know that makes a huge impact.

Ed Alexander [00:23:05]:
Right. And then if you include personal information in there, I know a lot of people hesitate to do that, but it makes that personal connection. Right. I mean, we obviously have a newsletter. We send it every two months. And my daughter recently got married. And in the newsletter, right after the wedding, you know, we put in all the pictures of the wedding and all of the. And had an article about it and, you know, all of this that actually got more comment and more interaction from people than any other newsletter I’ve ever sent.

Darren Wurz [00:23:40]:
Nice. Nice. Yeah. You know, it’s funny, whenever I get the, like the E cards, the. The holiday E cards, I’m like, it doesn’t mean the same thing to me. I’m like, it just seems. I don’t know, it seems silly to me. It doesn’t replace the paper card.

Ed Alexander [00:23:59]:
That’s right. Yes, absolutely. And then the other thing, I mean, if you really want to make an impact is take a. A box of materials, right? So a book you wrote, you know, some information piece, a few newsletter issues and some other things, and you put that together and then you send it to prospects so that they get a feel for who you are.

Darren Wurz [00:24:25]:
Yeah, yeah, absolutely. In kind of coming back to the mechanics of selling, I want to ask you a couple more questions and get your take on some of these other ideas. You know, a lot of times when. When law firm owners think about the prospect of selling their firm, they’re just thinking about it in terms of this. This one transaction. But there are so many other nuances, Right. It could be. It could be you acquiring a practice.

Darren Wurz [00:24:56]:
It could be you selling, maybe not selling in entirety, but bringing on some partners. And I see a lot of law firm owners that are very interested in maybe not selling everything, but selling a stake and retaining some form of ownership for a period of time. Have you seen that work?

Ed Alexander [00:25:23]:
Yeah. So kind of the. I’m going to sell out the majority interest and hold on to 20% or 25% of that kind of thing. And that can work. There’s a Couple of things that you got to be sure of, right? So first you, you got to know the buyer, right? So, so this is a situation where you want the buyer and you to be partners. You know, maybe, maybe 50, 50 maybe where you control the firm, depending on how that looks. And then ultimately there’s a buyout later on. Now that partner could come externally, a kind of a lateral, or it could be somebody you already have in the firm.

Ed Alexander [00:26:00]:
The risk with somebody you have in the firm is you probably hired them to be a technician and they may not have the drive to be an owner. So just, you know, you’ve got to look at that. But everything would, would, would, should be papered on the way in so we know exactly where we’re going. But that plan can work. It’s interesting. I attended a conference in November and one of the speakers was talking about it. He called it the perpetual law firm. And the idea is great, but at some point you’re going to be too old to participate in the law firm.

Ed Alexander [00:26:37]:
And that probably comes mentally before it comes physically. There’s a great book out there From Strength to Strength that talks about the decline of high performing individuals. And if, you know, if you, if you look at that, you realize, okay, well, moving now from the guy or gal who built the firm into now the guy or gal who’s going to mentor the people who run the firm and grow it from here on out is the perfect transition for, you know, an older lawyer to do. But that arrangement can work really well if everybody understands going in that’s what it’s going to look like. And everybody agrees. What are their expectations around work around pay, all of those things.

Darren Wurz [00:27:23]:
Yeah, yeah. Another similar thing I hear often is where law firm owners maybe own their real estate, they own the office building, and they want to continue to own the office building, but then after they retire, have the law firm continue to pay them rent. Where tell us how this could maybe go wrong.

Ed Alexander [00:27:49]:
Yeah, I mean, you know, so when I look at law firm financials and I see the rent number on there, that’s the first question I’m asking is who owns the real estate? Because if it’s a third party lessor, I know it’s at fair market value, whatever the definition is a fair market value. But if I, if it’s a related party, I know that it’s not at fair market value because either it’s too high or it’s too low, one of the two. So what you end up having to do in that transition then is go out, get Somebody to tell you what a fair market rental lease rate is for the building. And that’s the rate that the building has to have. Now, that is irrespective of what the owner’s payment is. It’s irrespective of any what the owner wants. It’s just what the market is. The impact of that, though, can back into what the law firm value is.

Ed Alexander [00:28:41]:
Because if I’m paying too little for rent, that means I’m taking too much profit out of the law firm. And the law firm profit’s going to go down when we adjust the lease rate and vice versa. You know, I may be shifting it over to the lease rate because there’s some tax advantage or maybe somebody else I want to get profit out of. The firm has an ownership interest in the real estate and then obviously we have to juggle what the true earning potential of the firm is. That cash flow that we’re going to use for our multiplier.

Darren Wurz [00:29:13]:
Yeah, yeah. And I often see those are, those are tremendous points. When you go to recast those financials, it may look a lot different. I also see this being potentially a problem, like many law firm owners are maybe living in a dream world where they think, you know, the law firm is going to just continue to exist in perpetuity and just pay me this rent forever and I’m just going to have this perfect client and this perfect, you know, tenant forever. But you know, what if the law firm wants to do things differently or, you know, things change, so there’s a lot that can potentially disrupt that plan.

Ed Alexander [00:29:57]:
That’s right. I mean, you know, if, if the, well, first off, absolutely, positively, your law firm property, the office from which your law firm operates should not be owned by the law firm, even if you own both. Right. And so the opportunity there is, you know, if you’re selling and the buyer wants to purchase the building, well, go for a, you know, try and set up a 1031 extra exchange or do something like that so that you can protect the investment that you have there and move it into a different, similar property. Right. So that’s an option.

Darren Wurz [00:30:32]:
Oh, great points. Great. So here’s a quick tip. Your, your law firm should not own your property. Right. You as the owner should own that. There’s a lot of advantages as to why that is tax wise and other. But yeah, that, that’s a, that’s a very great, great piece of advice, Ed.

Darren Wurz [00:30:54]:
I want to ask you just a couple of last questions before we go. Sure. The first is if, if you were, I know we talked about a lot of things, but what’s like one, one of the top key things you want people to take away from today’s episode if they’re thinking about maybe selling their practice in the future.

Ed Alexander [00:31:14]:
One big takeaway for them today, give yourself enough Runway. Right. If you’re thinking about selling in the future, it’s not something that you can say, oh, well, it’s five years down the line. I don’t need to think about it now. I’ll think about it in four years or three years. You know, the, the more Runway you give yourself, the more likely, number one, it’ll be a successful transaction, and number two, it’ll be worth your while and you’ll, you’ll make some money out of the firm.

Darren Wurz [00:31:41]:
Love it. That’s great. Fantastic advice. And my next question, Ed, we are firm believers in continuing to learn and expand our knowledge. And most law firm owners I know are avid readers. We just started a book club for our clients and other law firm owners, actually. It’s free and open to any law firm owners who want to join. And we’re going to be reading a whole bunch of great books to help us all just be better with our finances, better leaders, better at everything.

Darren Wurz [00:32:13]:
Right now we’re reading the Psychology of Money by Morgan Housel, which is just a fantastic book. I’m curious. Yeah. You’ve read it. Fantastic.

Ed Alexander [00:32:24]:
Oh, yeah. Wonderful book.

Darren Wurz [00:32:26]:
All right. Well, along those lines, what are you reading right now?

Ed Alexander [00:32:31]:
Why that? Well, what I’m reading is a book about scarcity. It’s the power of scarcity. But if I had to recommend kind of a classic or one of the, you know, there’s so many books that are good. A lot of them are bad, but some of them are really good. And one of them I would say is like 10x is easier than 2x. Not, not because you’re going to 10x your firm, but because the principles in it are around perhaps the most important mindset you could develop, and that’s understanding the 8020 rule.

Darren Wurz [00:33:04]:
Yes, yes. I’m glad that you recommended that. That is also one of my favorites. Fantastic book. All right. Well, Ed, thank you so much for joining us today. In closing, why don’t you share with our listeners where they can go to learn more about you.

Ed Alexander [00:33:20]:
So if you want to learn more about, you know, actually exiting your firm, we have a free download, it’s law firmexitsuccess.com and you can get me on LinkedIn at Attorney Ed Alexander or alexanderbusinesslaw.com.

Darren Wurz [00:33:38]:
All right. Thanks Ed.

Ed Alexander [00:33:39]:
Thank you.

Darren Wurz [00:33:40]:
A big thank you to Ed Alexander for sharing his insights on law firm succession planning. Be sure to check out the show notes for all the details and links to learn more about Ed and his services. It’s so important to plan your exit strategy before you need it. Even if you never plan to retire, understanding your firm’s value and having a clear plan in place can make all the difference in securing a successful and profitable future. Addressing your personal and financial planning as you near exit is equally important as addressing the business. And here at the Lawyer Millionaire, we help law firm owners integrate their business transition with their personal wealth strategy so you can land the plane successfully and enjoy a fulfilling retirement. If you’re ready to start planning this process, jump on a call with me to learn about our Strategic Wealth Advisor program designed exclusively for law firm owners. If you enjoyed today’s episode, leave us a review.

Darren Wurz [00:34:46]:
It helps us reach more law firm owners like you. And don’t forget to join our book club to connect with other growth minded attorneys and law firm owners. Well, that’s a wrap for this episode of the Lawyer Millionaire. Remember, your law firm should be an asset, not just a job. Take control, build wealth and create the future you deserve. See you next time.

Outro [00:35:14]:
Thank you for listening to the Lawyer Millionaire. Click the Follow button below to be notified when new episodes become available. This content has been made available for informational and educational purposes only. This content is not intended to represent investing or tax advice. Always seek the advice of a qualified investment or tax advisor with any questions you may have regarding your own financial circumstances.

How Do You Sell Your Practice if You’re the Top Rainmaker? with Ed Alexander (Ep. 102)