Plan Your Exit From Your Law Firm with Tom Lenfestey 482

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Ever thought about buying or selling a law practice?! Our guest on the podcast today, Tom Lenfestey, helps lawyers buy and sell law practices. Law firm real-estate anyone?! 

It’s a topic that people ask us about all the time and it’s interesting because one thing we always hear people say is, “I wanna sell my firm. I’m gonna make it to some name that doesn’t have MY name in it.” It’s like the branding and naming is the afterthought to what your end goal with your law firm is. 

If you are opening a law firm, what’s your exit strategy? This and more is what we talk about in today’s episode. Listen in!

Episode Highlights:

  • 01:30 Meet Tom and hear how he got started in the Law Practice Exchange
  • 04:15 Why it doesn’t work for lawyers to sell their practice and just walk out the door, like a dentist
  • 05:50 What mistakes do lawyers make at the beginning when they found their firm AND what structural naming issues pop up when people want to get out.
      • Tom’s advice:
        • ➡️ Have clean financials
        • ➡️ Set up a firm brand that is apart from you
        • ➡️ Build out your systems
        • ➡️ Train your people
        • ➡️ Train and operate people on those systems
  • 10:35 How do you tell people you are selling your law firm practice? 
  • 13:26 What should people that are thinking about taking over a practice of another think about and ask about?
  • 17:13 What are some red flags you want to look for when you are thinking about acquiring a law firm?
  • 20:13 What is it like to work with Tom and his team to brokerage a deal and acquire a law firm 

Jim’s Hack: Find what motivates you! For me its reading books that get me fired up, like: “The 12 Week Year” or “Zone To Win”. You got to fill your brain with positive and idea generating material. 

Tom’s Tip: Read the book: “Built to Sell”: Creating a Business That Can Thrive Without You by John Warrillow.

Tyson’s Tip: Read the book: “Measuring what Matters” By John Doerr. It’s about how to track things in your business. What you should and shouldn’t track.  

🎥 Watch the full video on YouTube.

Connect with Tom:

Resources:

Transcript: Plan Your Exit From Your Law Firm with Tom Lenfestey

Speaker 1
Run your law firm the right way. This is the maximum lawyer podcast, podcast, your hosts, Jim hacking and Tyson metrics. Let’s partner up and maximize your firm. Welcome to the show.

Jim Hacking
Welcome back to the maximum lawyer Podcast. I’m Jim hacking and Tyson metrics.

Tyson Mutrux
What’s up Jimmy

Jim Hacking
Tyson, my friend, I just got back from my walk. It’s early November. It’s sunny outside, it was beautiful out. I had a nice chat. While we were talking. Becca was telling me all the things that I’m screwing up, which is always fun to hear. And I had fun talking to her and to you.

Tyson Mutrux
Yeah, the weather is I mean, this is fantastic. This must be what it’s like to live in like San Diego, because this has just been amazing for Missouri. In mid November, I guess early November. It’s been fantastic. Well, let’s

Jim Hacking
get straight to our guests. I’m very excited to have him on the show. His name is Tom Lenfest. D, he helps lawyers sell. And by law practices. It’s a topic that people ask us about all the time. Usually, it’s interesting, because earlier today, we had someone talking about changing the name of your firm. So you’re talking about branding and naming. And then the one thing I always hear people say is I want to sell my firm, I’m going to make it to some name that doesn’t have my name in it. So Tom, we’re glad to have you with us. Welcome to the show.

Tom Lenfestey
Yeah, thank you for having me.

Tyson Mutrux
So Tom, you founded the law practice exchange in 2013. So that’s, that’s really interesting. But tell us you really about your journey, how you got into that? And then really what’s going on with you today?

Tom Lenfestey
Yeah, absolutely. So by background, you know, I’m an attorney, CPA, and I was in the transactional world. And doing a lot of, you know, planning, succession planning, wills, trusts, other planning for a lot of professionals. So a lot of other dentists CPAs. And as I tell everybody, my journey with the law, practice exchange really started back then I would love to say, out of like, this passion, or, like, I’m going to change the profession, but I really think it was more of jealousy, that what I was doing was helping a lot of other you know, professional business owners, these dentists, they CPAs, you know, doctors, other specialists plan for their exit and help to transact and monetize the value that they had built. And I really just started to ponder why or who was helping lawyers do this. And so then it became my market mission to create the marketplace for helping really, you know, Cielos, to small firms, small ownership groups, buy and sell law firms. And so that’s really what we started back in 2013, again, just trying to provide the same opportunity that I felt other professionals had figured it out, and laws different, and I thought we could do it. And we’ve been on the path to really build that marketplace since to create, you know, continuation plans for lawyers, so allowing them to exit while their practice to keep going and allow them to monetize the value that they built in the process.

Jim Hacking
time you say lawyers are different law firms are different. Tell us why please.

Tom Lenfestey
Yeah, I think so many law firms that we see traditionally, especially you know, of a certain generation, right, if we’re talking about attorneys, or law firms that are retiring, so much has been built around their personal brand. And so they are the personal value they have of that heavy referral network, they haven’t focused as much on the firm as a business, as maybe, you know, the current generation is or, you know, hopefully, a lot of your guys listeners, a lot of your mastermind, your guild members, you know, to do that. But overall, we have to transition that over time. So what I tell people is what we do our transition based sales, they’re really not throw the keys and walk out the door. That’s a rarity in our world, some of our plaintiff practices, some of our practices can definitely do that. They build more of that firm brand, that firm, you know, operations. But so many of our, you know, small practitioners, they need time to kind of introduce and attach their brand to who their successor is. So that’s a little bit different than some of our dentists to get, you know, cash out at closing, you know, walk out the door a week later or anything else. But we figured out a great process to do it. It’s just a little bit different. It works well for lawyers.

Tyson Mutrux
Why do you think that that doesn’t work for lawyers because I’ve always wondered that myself, like, I hear these dentists all the time selling their practice, and then someone else takes over like I’ve got a friend of ours, she’s a dental technician and she works for a dentist and then it was purchased by another dentist and then you know, purchase to get and it’s it’s just to me like you we should build do the same thing as attorney so why why is that different?

Tom Lenfestey
Yeah, I think it is because of that either that personal network, you know, dental specialties, like if you go to like an endodontist and orthodontist in it, they operate very similar to you know, a lot of lawyers where they’re referral based, and so they’re similar. They have to kind of transition, you know, over time introduced, you know, kind of preserve those opportunities, but I do think Tyson it’s It’s the nature of where we’ve been as a profession of kind of building our, our law firm as an extension of us, versus building it really as a separate business. And I mean, I know that’s what you guys talk a lot about is, you know, focusing on that business that is not about just you, but is really a business to serve clients to build operations to build marketing to build systems. And I think the more we do that, I think there’s a shift, right, so we see that shift already in certain practice areas, with certain types of firms. And you know, we’re hopeful over the next 1020 years, we’ll even see more of it. So, again, jealousy is a powerful thing we can catch up to those other professions, we’re usually behind on technology, we’re usually behind on marketing. But as we get there, you know, it opens up other opportunities, like transactions where we will be able to, you know, throw the keys to somebody and walk out the door.

Jim Hacking
Here’s the question I asked myself all the time, Tom, what mistakes do lawyers make? At the beginning, when they’re founding their firm, a lot of people that listen to this show, have either just started their firm or about to start their firm, might be a few years in, talked to us about what structural naming whatever other issues that you see come up five, seven years later, when someone wants to get out?

Tom Lenfestey
Yeah, absolutely. So you were just mentioning when we opened up about the, you know, having your personal name, and do you rebrand that, or anything else to a community or something that’s not attached to your identity. If you’re starting your firm today, then I would definitely suggest I’m a big believer in trade names, right? Filing those trade names with the State Bar, if you have to, or some states don’t require it, you know, just file it with your county or state. But you know, detaching, right. Even the big firms figured out, you know, a few years ago, that 18 names on a law firm header really didn’t move the needle, right. So most of them have collapsed to one name or two names. And it’s really to focus on that firm brand. You know, overall, it’s if the brand is you, it’s going to be harder to transition that to somebody else, if they see you as aging and retiring. Exiting. Right, the fear is, oh, you know, there goes, you know, Jim, and he is the firm, right, to a different degree of if you created something that is, you know, XYZ immigration law, you know, that is a little bit easier to say, Who is the attorney, right, that you don’t know as much. And I think that’s a lot of again, when we go back to comparable on dental accounting practices, others, you know, they have taken over those brands now, you don’t see as much, you know, Joe Smith, DDS, you see, you know, downtown Dental, you see these different things that are easier to kind of replace those owners. So I would say that’s one thing I would look at. The other is to really look at, you know, data, which for us, it is some of our lawyers, again, different times different structures, different focus, but we do a heavy Data Dive, not just financials, but on other metrics, the first question any buyer is going to ask is Where do the clients come from, right. And if you don’t really know where that is, and you can’t prove, you know, the history of that, that’s going to be a hard practice, you know, to get a buyer comfortable with, especially one that you may be want, you know, more cash at closing, you know, less earnout, or performance payment or otherwise. So, I would say making sure your firm does have the data, you’re tracking everything that includes clean financials, you know, the overall aspect of running your firm for Max tax breaks, it’s good for you, but also, it’s really tough. I mean, we’ve had lawyers that have come to us with, you know, again, negative or no income each and every year. And they say, Yes, I look at the revenue, right, I’m doing $4 million in revenue, it’s all buried in there and travel expense, and this and everything else. And the hard fact of it is, is we can’t get a lender to finance you know, probably that practice because it’s a flat net income practice, buyers are going to be less trustworthy of you know that so clean financials, having the right data, setting up a firm brand that is apart from you. And then overall if you’re going to do it and this is repetitive to what I think you guys talk about and you know, have the community talk about a lot is, you know, it is build systems, train people and train and operate people on those systems instead of you really be in the hub of everything. And you know, everything we do I said is transition by sales. Well if you make the transition plan easier, right of what your role is where responsibilities are, I can bring more buyers I can bring better terms to the table because essentially buyers will see that as a true business that has less risk of you department right you know you are less needed less valuable everything else but as somebody starting out new you guys know this that’s hard to say Oh, I’m gonna make myself not needed right away. But it is something to look at, you know, making the right hires developing those right process everything along the way so that you all have an exit option, right? You’re building towards that exit option, just like any other business or good planning, like if you’re opening up law firm, what’s your strategy? Are you doing it to maximize income? And then you’re just going to shut it down? Are you going to build value over time and have partners to it? Are you going to focus on building it up, and then cashing out one day? Right, equity starting to move in Arizona and Utah, I mean, you know, wherever you are, whatever practice you know, there’s a potential for, you know, that pay day or another lawyer coming in or law firm. So you should know what your exit strategy is, and try to build towards that.

Tyson Mutrux
So let’s say that Jim, he’s like, I’m done. I want to I want to get out of this practice. I don’t want to do immigration anymore. How does he get the word out the people that’s like, to me, like, I don’t ever see law firm for sale? You know, I think I’ve seen it one time, and I heard it through a text message chain. So like, how do you like, get the word out about it?

Tom Lenfestey
Yeah. So that’s part of the importance of where I thought, you know, the confidential marketplace of, you know, having brokerage for law firms, right, providing those options. So, you know, Jim’s looking for that nobody in the market should really know. I mean, if you go to, you know, our website, now we have, you know, 1015 public listings, we have another 30 Private listings behind the scenes, right. And that, again, just because of confidentiality looking for the right, buyer, anything else, the overall goal is to keep it confidential. And then it’s the outreach, if you are looking to go on your own, though, we tell everybody, you know, depending on the size of the practice everything else look around, you know, you’ve may have done a transaction, or a case with, you know, a younger generation attorney or next year with like, you know, with somebody that you’re like, damn, they’re a good attorney, they’re a good business owner of their firm, or maybe they’re unhappy at their current firm, and they’d want to be my successor over here. So a lot of it is just looking around to see that otherwise, legal insurers are a great asset for us because they get calls from attorneys that are saying, hey, look, I want to retire in the next few years, what do I need to do? And they have a great database, the Bar Association’s your guy’s Association, right as far as the members and getting the word out there the hard part is really cracking that egg open and so that’s why we operate so much on you know, hey, here’s a listing you know, you go to our website look, but you would never know it’s gyms for right and once we enter qualified potential buyer get confidentiality agreement signed. So as a service as a broker, a lot of times that’s our main purpose is to keep things quiet, while looking for the right strategic opportunity.

Becca Eberhart
Thank you all this maximum lawyers community of lawyer entrepreneurs who are taking their businesses and lives to the next level. As a guild member, you will build relationships be held accountable, and learn strategies specifically designed to get you unstuck and accelerate your plan for growth. Members are also granted exclusive access to masterminds hosted around the country four times per year. And in 2023, we’ve added a half day workshop to each mastermind, where you’ll learn new skills while working on improving systems and aspects of your personal firm. Then take the hot seat on day two and work through your most pressing challenge. It’s all inside the guild to learn more visit Max law guild.com.

Jim Hacking
You’re listening to the maximum lawyer podcast. Our guest today is Tom Lenfest. D are talking about brokerages of law firms. And Tom What should people that are thinking about taking over the practice of another? What should they be thinking about for their due diligence? Is there is there a playbook on how best to do it about the right questions to ask the right reports to run like what should people be thinking about when they’re the one doing the acquiring? Yeah, if

Tom Lenfestey
you’re looking to acquire practice, first thing is, you know, baseline Are you ready to take on that practice, the responsibilities, the roles, everything else, you know, revenue growth sounds great. And again, if it’s marketing growth, and it comes in waves or anything else, but if you’re going to acquire a million dollar practice and you’re doing a million dollars, you’re talking about doubling your responsibility doubling, you know, that aspect is you’re really ready to do that. So that’s what I’d say first, second is definitely culture to really know the attorney know their team, if you’re going to look at acquiring that to make sure it is going to be a good fit. And the third piece is it is a financial gain. If you go into it without really running that, you know, projected return on investment analysis or projected cash flow. And I’ll give an example. We were basically engaged referred over to an attorney Personal Injury Attorney fully is like like I want to buy a practice I was approached by another just business broker who’s helping this attorney you know, two towns over sell their personal injury practice. And so we looked at that. The difference though, on this one is our attorney the buyer co counsels, you know, all of their litigation, right. So their fee structure their net It looks a lot different than this other attorney who does all of their own litigation. And so what we really worked through with that buyer prospect is to say, look, this practice that you’re taking over potentially would be paying for looks different under your platform, right? Because you’re gonna bring in this case, that’s $100,000, you know, potential fee to you. And if it’s gotta go to litigation, you split that 5050. To him, it’s 100,000. To you, it’s going to be 50,000. Right. And so it’s really looking at, you know, that mesh of does it really work from a return on investment, from a financial model, we tell a lot of our sellers that we work with that a lot of times the offer depends on the buyer model, right, the buyer structure and everything else, because our models for selling buying are all over the place, right, depending on the practice and everything else. But overall, a lot does depend on that, because just in that situation, to that buyer that we were dealing with that practice is less valuable, because they choose to take a higher expense and CO counsel litigation cases, if you’re a five year PII attorney in a leaving another firm, and you want to go in and work all those cases, that practice has a higher value to you, right, because you can go try all those cases and do that you’re gonna make that money that that seller was making. So a little bit of that I would make sure again, you’re ready, your firm’s ready or anything else, because it’s not easy to run law firms, right. And if you’re going to double your growth, and double, you know, hopefully your management, everything that comes with it, just be ready. And then you know, second and third culture, and then make sure you really run that financial to make sure it’s a good fit for you. So that’s a lot of what we do to make sure buyer and seller deals work, we run deals that are going to work for both. Not that they’re gonna be like, Hey, here’s the number and we’ve never tested it. Like lawyers don’t always like numbers, you know, the CPA side of me likes numbers. But I do think it’s really important to digest that show that framework, test any purchase terms, any models so that everybody feels comfortable, like, hey, yeah, this is going to work for both going forward, it’s going to be a success.

Tyson Mutrux
I’ve got a similar question to what Jim asked you, it’s kind of the opposite of that in what are some red flags that you should be looking out for whenever you’re looking to acquire business? Because I mean, maybe the financials look good and everything, but like, what are some of those landmines that you might be looking out for?

Tom Lenfestey
Yeah, I would say, you know, number one is, you know, look to the valuation, the biggest mistake we see in outside valuations, of course, we believe our valuations are the best. But you know, that’s, you know, almost 10 years of doing this as transactions, our valuations are for market approaches, right? So we are valuing goodwill. But what we see a lot in outside valuations is they forget that a lot of attorneys produce a lot of the revenues, right, they do a lot of the legal work in the firm’s, and that has to be counted, that’s a negative hit in a lot of firms to their overall value. And so we looked at that valuation, don’t just take it for, you know, again, what the statement is, or anything else, we’re still in a pretty conservative valuation metric for law firms. I mean, on an earnings multiple, like an adjusted earnings multiple, we’re somewhere between two and three and a half our bigger firms break that number and kind of go beyond the most firms are somewhere in there. So if you see an earnings, and somebody’s asking you for five times in earnings, like red flag, right, look at that, and see why it is and really run that return on investment. The other is, as I kind of mentioned already, if they don’t know where their clients come from, you know, stop, really only do that deal. Probably if it is some kind of, you know, merger Joinder of counsel relationship where you’re going to pay on a percentage over time or otherwise. And then, you know, I really think the third is, you know, red flags are thinking internally as well. Even though a lot of attorneys some play up how hard they work, some play down how hard they work, but it’s really, could you step into their shoes, right? Could you step into this attorney this seller shoes and do what they do? Or do you have somebody on your team or people on your team that you can divvy that up for? Because that’s the overall piece? The fourth one that I would say is, you know, I call it would you like to take them to lunch? These are transition based sales. So overall, if you’re looking at something that this person is going to have to help, you know, introduce referral sources, transition clients, right, you know, anything of that nature. Do you like them enough to take them to lunch on a weekly basis? Could you work with the seller on that? And it seems like a simple question, but overall, you’re going to be working with them and you want to make sure you have a communication, ease with them to basically, you know, work through those different questions, work through that and make sure it happens. If you look at somebody and you say, I don’t know if I really like him. And it is a transition based exchange. Don’t do it, right because the communication will break down quickly that Transition Plan with most practices is the key to success. And if you can’t implement that, right, because there’s a communication breakdown, or just culture breakdown or otherwise, you know, don’t do the deal.

Jim Hacking
I would love to know what it’s like to work with you and your team. Do you consult even before someone’s thinking about acquiring a practice? Do you help them go out and find the practices? What does it look like, in that realm?

Tom Lenfestey
Again, absolutely. So we help you know, again, sellers looking for their continuation, their exit strategies, we consult with, you know, everybody that you can go through, go to our website and schedule a call, we’ll do a discovery call, see if we can help you now or in the future, or whatever your direction is. But from the seller side, we really look at it as you can add your listing to our website, if you want to kind of go you know, the list it yourself process, or we can help you on a full brokerage service platform. So we offer kind of both of those opportunities to that we believe in our process, our team, everything else, but for some practices, they want to test the market. And so we offer that as well, we have our buyer database, we of course are trying to drive this is really the marketplace. So to the buyer side also, again, great place to come, you know, look through, we can present any opportunities that we currently have in market or that we would have, we also have certain buyers that have engaged us to really go on a search. And so will actively go and, you know, search for practices for them to acquire, those may be specific practice areas, geographic regions, otherwise, that we’re really trying to play matchmaker, but just from the buyer side, in those capacities. So our overall mission is really to make more of these deals come together. And so anyway, we can do that, you know, from helping in the process, helping in the valuation knowledge, helping them to deal terms or structuring, we’re happy to do so whether you’re a seller or a buyer, or just need some strategic planning on valuation, you know, internal succession or otherwise,

Tyson Mutrux
it’s great, because we have a lot of guests that we interview on here, as you as you know, and like, you can tell, you know, what the hell you’re talking about Tom, so this is great. So I’m hoping that if people are thinking about selling their firm or buying a firm, I hope that they hire you. If someone is looking to hire you, how do they get in touch with you?

Tom Lenfestey
Yeah, absolutely. So you can visit us at the law, practice exchange.com That’s the law practice exchange.com You can call us 919-789-1931. We’re on all the socials. While most of the social sir, I can’t keep up with all of them. But from that standpoint, but yeah, the law, practice, exchange that calm, you know, go there, we have some good resources for you to go through. We’re happy to have a discovery call with you see if we can help you times that you know, that aspect of when the time is right for everybody. So, you know, overall, just look at that. But feel free to learn and know more. So when the time is right, you can move forward.

Tyson Mutrux
I love it. All right, we do want to be respectful of your time. So we’re going to wrap things up. Before I do, I want to remind everyone to join us in the big Facebook group, if you’re interested in that, you know, discussing marketing ideas, business ideas, whatever it may be with other attorneys, just search maximum lawyer in Facebook, and you’ll find us if you’re interested in a more high level conversation, join us in the guild, go to max law guild.com. And you’ll find out more information about that. And while you’re listening to the rest of this episode, if you don’t mind leaving us a five star review, we would greatly appreciate it. Jimmy, what is your hack of the week,

Jim Hacking
my hack is find what motivates you so my wife and my son loves a tease me they say that I keep buying the same book all over and over and over that they’re all like you, oh, you are the 12 week year rezoned when they say, Dad, you just get the same book over and over. But these books get me fired up, they get me motivated. When I’m on the treadmill, I’m reading, I’m trying to listen to stuff that’s gonna get me motivated. And you gotta fill your brain with positive and idea generating material. Now, there is definitely a time for quiet and for reflection. I’m down with that. But I find it really helpful to be listening or reading a couple books at a time different ideas will come to me. And even though my wife and son think it’s pretty funny that most of my books have similar titles. They’re not all the same. I’m getting good ideas left and right. So I encourage everyone to do the same.

Tyson Mutrux
I think most of the books are the same, that it’s just the repetition. You’re just, you know, it’s over and over and over again. It’s finally sinking in. So but there’s nothing wrong with that. That’s good. All right, Tom, we always ask our guests to give a tip or a hack of the week once you get for us.

Tom Lenfestey
Yeah, absolutely. It’s probably been mentioned on the podcast before otherwise. But my tip on that book for would be go rebuilt to sell. Right? If you haven’t read it before by John Warrillow. It’s a great easy read. It’s also a concept that maybe this is a combined hacker Tip of the Week. Focus on the business, right focus on growth on marketing the business, not you personally and delegate and elevate another good book there from the traction aspect, but do that but build us out John Marlowe.

Tyson Mutrux
So phenomenal book. I think Jim recommended that to me a decade ago such a good book. So really good stuff. Absolutely. Another book for everybody just get your bookshelves ready. And this one is on measuring what matters. It is by John Doerr. And it’s how about this for a subheading, how Google Bondo and the Gates Foundation rocked the world with OKRs. So if you if you want to know how to track things i We hear all the time, like, hey, and what what should I track? What should I track, yada, yada, yada, read this book, it’ll give you that basic overview that you did on what you should track and what you shouldn’t track. And if you want to sell your firm, maybe you could take these numbers and then hand them off to Tom and he can help you sell your firm. But Tom, thank you so much for joining us really, really appreciate this. I really enjoyed this podcast. So thank you so much. Yeah, absolutely.

Tom Lenfestey
Thank you for having me.

Jim Hacking
Thanks, Tom.

Speaker 1
Thanks for listening to the maximum lawyer podcast. Stay in contact with your host and to access more content content, go to maximum liar.com. Have a great week and catch you next time.

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