At his best, man is the noblest of all animals; separated from law and justice, he is the worst. – AristotleWe all have heard too many lawyer jokes. Do you know how many lawyer jokes are in existence? Only three. All the rest are true stories. This one profession is involved in all aspects of life, society, and business, and is spread across all countries irrelevant of size and location. Let’s see what a law firm is worth… Law as a business supports $350 billion in revenue in America, spread over 500,000 firms, and employing 1,500,000 people.
- Law firms are usually priced on a multiple of three-year average gross revenue. Think of it this way, what would you expect in referral fees if you were to send all your business to another attorney? 10%, maybe 15%, maybe 25% of the fees? Hence, if you estimate revenue from current clients for the next five years and charge a referral fee on that what could, you expect to earn.
- Keeping this calculation in the foreground, law firm value can vary between 0.5-1.25x of revenue. While importance is given to recurring revenue, or revenue that is generated from repeatable, transferable, and specific marketing activities.
- Law is one of the few industries where the valuation of practice not only depends on the buyer and seller but also on the client.
We may sometimes forget law is a business. Practices that support recurring revenue like corporate law, wills and estates, intellectual property, litigation are generally worth more than practices that cannot guarantee a steady stream of revenue like personal injury, immigration. Evolving practices in regulated areas like cannabis are most sought after.
Law is one of the great healing professions…
While the medicine heals the body…
The clergy heals the soul…
The law heals societal rifts…
Bharat Kanodia – Founder and Chief Appraiser