Ep 3. Non-Lawyers Purchasing Practices: How to Increase Your Law Firm's Value and Strategize for a Profitable Exit

Unlock the secrets to transforming your law firm into a lucrative legacy! Todd Whatley joins us to dissect the seismic shifts that regulatory changes in Arizona and Utah are causing in the legal industry. We're talking about a whole new ball game for attorneys who have traditionally been in it for the long haul, with an eye towards retirement that often didn't include cashing in on their practice. But now, the landscape is changing, and we're here to guide you through the maze of maximizing your firm's value, strategizing your exit, and even attracting the keen interest of private equity firms. Together, we'll explore the key to not just enhancing your financial future, but to crafting a sustainable and enjoyable way of life that extends far beyond the confines of the courtroom.

This episode is a treasure trove of insights, drawing directly from the playbook of Marcus Lemonis and focusing on the pivotal three P's: people, process, and product. By sharing my own journey of evolving my practice into an attractive business prospect, I lay bare the transformative power of strategic delegation, operational efficiency, and targeted marketing. As we delve into the art of building enterprise value, from leveraging technology to smart hiring, you'll learn how to work smarter, not harder, and pave the way for a retirement that rewards you handsomely for your years of dedication. Don't miss this opportunity to reshape your approach to the business of law and secure a future that's as bright as your legal career.

Transcript

Speaker 1: 0:01

Welcome to the Lawyer's Money Show with your hosts, todd Wattley and Ian Weiner, where finance meets the legal profession. Here we dive deep into the economics of law practice, from managing your firm's finances to optimizing personal wealth strategies for legal professionals. Every episode we bring you insights, strategies and stories from leading experts to help you navigate the financial landscape of the legal world. Stay tuned as we uncover the tools and tactics needed to help lawyers make the right money moves so they can grow their career, manage their practice and optimize their wealth so they can focus on enjoying the life they've worked so hard to build. For more resources, visit us at wwwlawyerstotalplancom.

Speaker 2: 0:46

That's right. This is the Lawyer's Money Show and my name is Todd Wattley, and thank you so much for joining us. We're always super happy people take time to listen, and we would really like it if you subscribed and share this, and I think today's show is going to be really good. I'm here with my co-host, ian Weiner. Hey, ian Todd, how are we doing Good? So this came up over, basically, breakfast this morning and some things that are happening out there that we think attorneys really need to be aware of that may directly impact your practice that you're working at or the practice that you own, and if you own a practice, you particularly really need to tune in today and listen, because there's, I think, some exciting things coming up.

Speaker 3: 1:35

Okay, Some exciting things and some potentially challenging things. Okay, you know this is going to be pretty controversial in a lot of ways some of these things that are starting to happen. So the big headline is private equity firms have stayed away from law firms for a long time because the. Aba rule 5.4, you can't have a non-attorney owning a law firm, basically except in Arizona and now Utah, as I understand Okay.

Speaker 2: 2:06

So Domino's are starting to fall. Domino's the first Domino's started. I think it's going to go across the country and you as attorneys I as an attorney need to be very aware of this and I think there's some clever things we can do right now to help take advantage of this.

Speaker 3: 2:24

And this is one of the things that we're really passionate about and that we are wanting to help folks with. You know the typical small firm we'll talk about different size firms just for a moment but you know, solo practitioner or small firm, the typical retirement plan is to die for attorneys. Exactly I'm kind of joking, but that's. You know, everyone that's listening that's been in practice for a while. You probably know a handful of situations where that's exactly what happened.

Speaker 2: 2:57

I mean, there are stories of you know the attorney, you know locking the door one last time getting in the car and that's you know, the bar comes in, takes over your files, forms them out, people work it and the lawyer's family gets basically nothing out of that, or they retire. It's like, okay, I'm done here, y'all take my files, I'm done yeah.

Speaker 3: 3:18

Which is a waste. It's a waste and our argument is simply that that's that's so optimal. It could be, it could be better. Sure, you know, and I think the types of folks who we hope listen to this and that we really love working with are the types of are the attorneys that love their craft, they want to practice in some way, but don't want to be doing 80 hours a week at a certain point in their life. Me, you know Me. This is, this is part of the reason that we started. This was for you, and so the traditional path, especially for smaller firms, is suboptimal and, you know, selling the practice is challenging because non-competes really aren't a thing Right, and so one of the things that happens is, you know, you might get one times revenue for the, for the firm.

Speaker 3: 4:06

I mean, that's really and there's key man risk, key person risk, I mean. So there's some, there's some complexities and challenges here and so, with the the new interest that that PR firm PR I shouldn't say PR firms, excuse me, pe firms have in in law firms. I mean, they've they've been buying doctors practices for years Okay, you know, optometrist, dentist, you name it, other other professionals it is coming and I don't this, this won't be a philosophical discussion about who this is best for at this at this point. Right, you know, ultimately the client needs to have great representation and that's why attorneys practice anyway. But I think there's a huge opportunity for attorneys, especially in small to mid-sized firms, to look at their business as a business, not just a law firm, and build something that is saleable. And that's an interesting opportunity.

Speaker 2: 5:10

And that's where we come in. Honestly, that's one of the reasons we teamed up. I, as an attorney who have grown and sold a number of firms, know what this process looks like and in my current firm had you come in and thought I was doing a pretty darn good job you were. And you came in and looked at things and started being nosy and asking me questions.

Speaker 3: 5:35

I'm like, well, I'm pushing some buttons a little bit here's the answer, but of course, I know what I'm doing.

Speaker 2: 5:40

I'm doing fine, and you're like we can do this differently. What about this? I'm like, wow, okay, and so I realized I was not being optimal shall we say.

Speaker 3: 5:52

You know, even this month, you know we're trying to put some more systems in place and you're closing out an excellent month, best month ever, yeah, and you know we're ramping up, we're getting it going, you know. And so the idea is what typically happens and this isn't inherently a bad thing, but if you're listening to this you go, yeah, that's me, that's real life, there's some opportunity here. You know, attorneys are great at practicing law. Not all attorneys are great at building and running businesses Very few, I would say. And that's okay. That's actually probably a good thing. So if we think about it that way and build it that way, we can build it to be able to sell later on.

Speaker 3: 6:40

So this is the part that's hard for people and, I think, especially attorneys is you've got to build it to be able to replace yourself. But hear me, the opportunity is that you can replace yourself and you can still get revenue so you can be on the beach getting income from your business. And sometimes what happens is you buy the building downtown and you practice for 40 years and then you sell the building and that's your retirement plan. Let's be real, that does happen a lot, but if we make a plan for it. We can do even better here, so starting to look at it as okay. Not only are you practicing law, you have a practice, you're building a practice, but you're building a practice that is a functional business, that someone who comes in, who's not an attorney, who their job is to look at businesses and figure out how they can quadruple them in three years and then sell them again how can you make your business attractive? That's what we want to begin to think about. It's systems, processes and people.

Speaker 2: 7:44

Right. Well, that's why we're doing this show now, in early 2024, because we see this coming. It could be three years, it could be five years, but you need three to five years to start implementing some changes to make your practice look attractive to a private equity firm, and so can we talk about that just some of the preliminary things that people need to be thinking about, and then call us and have us come in and work with you to absolutely work on these things specifically for your firm.

Speaker 3: 8:23

Yeah, I think there's a handful of things. So one of the things that I believe is unique about the way that we help folks is we can help both on the personal financial side and on the practice financial side, and we look at all of it together. And I think that's really important because, in a lot of ways, most of the people that are listening to this right now, your practice is an extension of you, and that's a good thing. But we also want to. It's kind of this ebb and flow. We want it to work that way, but we also want us to start to build some separation over time so that you can walk away from the practice when you want to and on your terms. That's really the goal here, and so it comes down to.

Speaker 3: 9:05

I love Marcus Lamontis. I'm going to mess up his name there. He's got a great show called the Profit where he goes into small businesses and kind of helps out. It's a fun little show. He's a great. He's a really interesting business owner. This is on TV. It's on TV. It's been going for a number of years. He runs what is it? Camping World. He's turned it into a multi-billion dollar business. Really interesting guy.

Speaker 3: 9:34

But his shtick is people, process, product. If you get these three right, it's like a stool. We get these three right, we're good and I love the simplicity of that. So there's different parts of that. But if people, product and process is all you, this is going to be tough, and some folks want to have a lifestyle practice and that's great.

Speaker 3: 9:56

If that's what you want, let's figure out how we can optimize that. What can we delegate? What can we automate? Where can we let you focus on the $500 an hour tasks that you need to be doing, not the $25 an hour tasks that the paralegal should be doing for you? So in a lot of ways it comes down to that.

Speaker 3: 10:18

But thinking about okay, how can the business be be formed so that it has more functions than just practicing law? How do you get new clients? How do you service those clients? How do you maintain those relationships over a longer period of time? And, you know, how do you create more value for them? That's, I think, some of the big things we want to think about. And so companies that aren't law firms have these functions right.

Speaker 3: 10:48

Think of even just the plumber. You know a pretty good sized plumbing company that has some operations. You know they've got marketing, they've got sales, they've got the fulfillment, the operations there, and they probably have someone who is doing the media stuff and their face is on the vehicles. I say plumbing companies because we all know one in their town who they're like, they run the show and then we have 50 trucks out and it's because they have built this machine and understand it that way. And so you know, for small to mid-sized law firms you know when you start you're doing sales and operations and marketing and you know all of those things. But over time, if you can put people in those roles, you can focus on the things that are of a lot more value that you can't be replaced in.

Speaker 2: 11:40

I tell my coaching clients all the time you should only be doing what only you can do. It's so simple and it's so hard to do. It's simple but hard to do. Yeah, that's a great, yeah. When I start working with coaching clients, they're typically so low and I mean so low, they are it. They have no secretary, they have no paralegal. Not only are they the only employee, only attorney in the office, they're the only employee. They're doing everything I might do, do, do.

Speaker 3: 12:12

Sister, you got to change this, yeah, you can make, you know you can make six figures and be comfortable doing that, you know. But adding in a couple little systems, yeah, and some processes, and now we can remove stress and that's a, that's a big piece, you know, that's, that's part of that process and that evolution, yeah. And so, you know, when we get these things in place and start to get these systems and processes in place, okay, now the business can begin to function without you. At a certain point. Now your role may change over time. Maybe you're the, the rainmaker, more than you are the technician, or you have a technician that's doing that stuff, you know, for you.

Speaker 3: 12:53

But that's when these types of things become really attractive to PE firms because, what they want to do is they want to go, and there's there's certain, you know, thresholds where it makes sense for them to look at it and where it makes sense for them not to. But if they can, if they can see your practice. And then you know a couple other practices that are maybe in the same region and they could go. Hmm well, you know, practice number one is really good at these three, you know specialties, and practice number two, you know their operations, and their marketing is phenomenal. Okay, now they're looking at it as how can we put these pieces together and rebrand, paint the walls, paint the website, if you will, and by bringing all of these things together? Well, we're separate, you know. They had different strengths. Now all those strengths are combined and amplified, and so that's the way that they think about it. Really interesting.

Speaker 3: 13:49

But when you do that, when you put together, you know a great rainmaker, great operations, people, great marketing and great fulfillment, it makes sense that the value of the business would would go up, you know, and so you could do that too. You could do that on your own if you want to, and that's not a bad thing. Maybe some folks that are listening to this are gonna do a little mini PE and buy some practices and put them together. That can be a great way to build wealth. You gotta have the tolerance for it.

Speaker 2: 14:23

But I think most people are just working every day and they need someone to come in and tell them here, let's implement this, let's implement that With a thought of, down the road, a private equity firm's going to like it that you've done this and offer you multiples of what you would get right now.

Speaker 3: 14:46

And if we build it with that in mind, we have more time to plan, we can handle the tax implications, we can put retirement plans in place to get your money out of the firm in a tax deferred or tax-free way. There's some cool stuff that we can do. So building it's one thing, but then, okay, let's say you are gonna sell whether it's internally, externally to someone else. Well then, what? Well, if we've been working on it all this time, we've got a plan for when that happens and we don't get blindsided by taxes and you end up paying a third of what you get to taxes. That changes the numbers a little bit.

Speaker 2: 15:26

Oh yeah, big time, big time change, so yeah. So if you're out there and you're listening to this and the thought of a sale is anywhere in your mind, and I would encourage you we've talked about this before even if you don't plan on selling, building a practice that you could sell is still good for your practice. It'll help make your life easier and, like Ian said, there's gonna be someday that you might rather be on the beach and let the office run by itself. I've got two vacations planned this year One's in Cancun, one's in Italy and I'm now gonna go and know that there's gonna be money made back at the office. That me being gone for two weeks to Italy will not mean that half of my month I'm not making anything.

Speaker 3: 16:19

Which is in some cases a 60, 90 day cycle. That catches up to you in the next quarter and that's where bottlenecks come too. I think what's scary when you do that? If you've got the team right and I think your team is great right now you leave and you come back and it's like wait, they didn't really need me that much. They're doing great on their own and that's okay. That's part of the process. That's a scary thing, but it's also like oh, your kids are growing up, you know, yeah, your kids are successful.

Speaker 2: 16:50

They don't need me as much, which is a good thing.

Speaker 3: 16:52

Yeah, but it comes down to what do you want to happen and can we be thoughtful about that before it happens so that we can plan? You know being proactive in planning is always going to create better outcomes. Sure, and I think something that's interesting. I just want to go back to the valuation thing for a second. You know we talked about whether or not you want to sell, whether that's internally to your kid, you want to sell it to your kids. You know whether you want to sell to someone else.

Speaker 3: 17:22

Building enterprise value, making the company worth something, is just a good business practice. Okay, let's say you do eventually want to expand in three years, maybe you don't want to now. But life changes. I'm going through this in my world right now. I ran a lifestyle practice and I decided I don't want to do that anymore and so I'm having to expand and do these things that we're talking about. And you know, when you get to that point, if you've done the right things to build enterprise value, things like borrowing capital to really ramp that up become a lot easier. Yeah, it's a little self-adapt that you don't think of. That can really accelerate growth and make it a lot easier to do stuff. And when you're in that growth phase, you know, the sooner you can delegate the tasks that aren't, you know, worthy of your time. I guess maybe that's kind of an aggressive way to say that, but it's true the more flexibility you have to be able to grow. If you're trying to grow but you're still having to do everything, it's tough, you're gonna miss opportunities.

Speaker 2: 18:32

Absolutely. I mean if you could be going to an event where there are good potential clients there, but you can't go because you've got to sit at the office and draft documents or do a complaint or make phone calls. You've just missed out on a huge opportunity and putting systems in place. Sharing that responsibility a little bit, it's just multiples of the time that you spend.

Speaker 3: 18:59

I had an epiphany and it was. I was talking with a colleague and it was about hiring and I'm behind where I should be in hiring. I should be transparent, okay. So this is an area where I'm like okay, I know the plumber's got a leaky faucet a little bit, and the way that I've done this is I've used technology to get me through a little bit longer. Sure, that's how I've done it.

Speaker 3: 19:22

But talking with him, he said this may surprise you, because advisors are a little bit like attorneys, but a little different. He goes this may surprise you, but there are people that like to do paperwork. I was like, what do you mean? Like, oh, no, no, there's people that they love to get it, they love to get stuff organized, they love to get it straight, they love to make sure things are done right. Like they enjoy that and I'm going wait a minute. You mean that I can pay someone and they'll be happy to do that. They won't be grumpy Like, yeah, there are people that are good at stuff that you're not good at or you don't want to do.

Speaker 3: 19:57

That's a big shock to me. It's a gift to them to give them an opportunity to do it. It's a total mindset switch. But it's important, you know. I mean you can create an impact in your community by helping great people to have a great place to work, and they don't want. You know, not everyone wants to own a firm, I mean even attorneys. There are attorneys that are listening to this going. That's not for me. I don't want to own the firm. I want to punch in and punch out and make great money and not worry about stuff, and that's great. But providing that to them, I mean, that's a, that's a, in a sense, a service that you're providing.

Speaker 2: 20:36

Someone does on that firm that that person works at. Well, yeah, and I hate to draft documents, hate it with the passion. It's tedious, I just don't like it. I want to walk in with documents and here's your documents and actually hired an attorney who hated doing meetings but loved to draft documents. She would just. Her ideal day is to sit back in her office and draft. I was like what is wrong with you, what, what? And so it's like this is kind of cool. She loves to do what she does, I love to do what I do and we don't have to do each other's job and we're both doing what we love to do, which created fantastic documents and fantastic meetings, because I could walk in with these fantastic documents and they thought I was amazing and it did exactly what they wanted. It's like life was good to get her to go do a meeting. Sometimes it was difficult and I was like this makes no sense to me, but this is perfect.

Speaker 2: 21:36

You just don't know how, opening up and saying, yes, we need to hire someone, we need to put in these processes and that's what we can help you do. Both of us have been there, done that and we would love to help you implement this. Yes, buy your time back. Get your time back. Yeah, and you need some time. You can't.

Speaker 2: 21:59

You know, one day you're going to be watching the news and saying, hey, private equity firms are buying law firms now and they're offering top dollar. And you're like, oh, I think I should do that. No, you should have been doing that years beforehand. And this is your call to say you need to be doing that. And if you don't know what you're doing, we do. Let us help you do that. Call us, let's have a conversation and figure out what you know. Let's look under the hood. You're going to have to share things with us. Let us look at it and figure out what needs to be done, and let us help you do that. Build a plan to do it. And four or five years from now, when this is up and going, you'll be like, hey, this is kind of cool.

Speaker 3: 22:47

You know we can't, we can't do all the steps for you. We can help chart the course, and I think that's what's really important. I mean this is they're starting to look at accounting firms. That's that's becoming a push. Right now One of my, one of my colleagues he's he's working with a firm that they're a financial firm. They've got a brokerage, they've got.

Speaker 3: 23:10

But they are starting to gobble up CPA firms when they when they can and they're going to, they're going to help transition the CPAs over a period of time. But they are looking to consolidate things and they are. They are waiting in the wings for when they can start doing this with law firms, and so that's it could be scary a little bit and I think I think there is a there is a bit of like it is sobering a little bit, because not everything that PE touches turns to gold for the people that get get bought. You know, people who make the most money in PE are the PE guys at the top, you know, and so that that's just that's part of it.

Speaker 3: 23:55

But if, if you are just kind of skating by and letting you know, you're just used to kind of collecting, you know the random cases that come in. You don't have a marketing machine, you don't have good systems. When this starts to happen, they will have good systems, they will have the top and, frankly, most cutthroat people come in and clean, clean up and get it, get it tight, and that hurts the little guy at the end of the day. Now, if you're, if you just want to be a solo and you want to do that really, really well, you absolutely can, and your clients that are going to pick you are going to love you because of that. But you've got to be clear about what your value is. You know, just being an attorney and being open for business may not be a, is not a long term value proposition. Let's put it that way.

Speaker 2: 24:50

Yeah, I mean, we have tools in place, we have ways to help you do all of those things. And I have learned a lot over the last two months, and I don't want to go into, you know, extreme detail, but it's. It's amazing how you can show up really high on Google searches, you can get in front of people. I mean, there are so many tools out there nowadays that within a month, we can help you reposition yourself, get those things in place and get your phone ringing and it's, it's incredible, right, it's super cool. It's just a matter of doing it. Yeah, you know. So start now. You know, think about it now, call us, let's have a conversation, see where you're at, where you think you want to be, and then we might can tell you where you should be to make yourself more attractive to the possibility of selling.

Speaker 3: 25:48

And it's really just about figuring out what you want and that's the hardest part and then just making a plan to get there and taking the right steps along the way.

Speaker 2: 25:58

All right. So thank you all very much for listening today and please give us a call. We just have them call the office number 479-601-4119. That's my law office. They will answer generations legal group, but this is a delegation thing.

Speaker 3: 26:15

Yeah.

Speaker 2: 26:15

It's a delegation thing, so just tell them that you've you're an attorney, you've listened to the podcast, you want to talk to Todd and Ian and she will get your information and we'll call you right back and have a conversation.

Speaker 3: 26:30

Okay, that's awesome, free, one way to protect your time. We're showing you how we do it right now.

Speaker 2: 26:39

Exactly, exactly. So, all right, thank you all. Please subscribe, please share with someone that you think may be thinking about selling or wanting to increase the value of their firm, which I would think would be anybody. But yeah, please share, please like, and we'll see you next time.

Speaker 1: 26:58

Thank you for joining us on the Lawyer's Money show. We hope today's episode has provided you with valuable insights and actionable advice to enhance your financial well being. For more information, to access show notes or to explore further, please visit our website at wwwlawyerstotalplancom. We look forward to guiding you through your financial journey. You can give us a call at 479-485-1911. Until next time, keep striving for excellence in both law and finance.