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Building Capital Values

Discover how to create and sell a valuable law firm by focusing on building a competitive business, separating ownership from operational involvement, and identifying strategic buyers.

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Building Capital Values

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  1. Building Capital Values Peter Scott Peter Scott Consulting

  2. “Value” • Desirability • The amount of money ….. for which a thing can be exchanged PETER SCOTT CONSULTING

  3. What does a lawyer have to sell? • On retirement? • On merger? • Sale? PETER SCOTT CONSULTING

  4. What does a lawyer have to sell? • Services / labour? • Hard assets? • Goodwill? (the difference between the net hard asset value and a total price) PETER SCOTT CONSULTING

  5. What do you have to do so you have something to sell? Need to create something of value: • which someone else needs • which they cannot provide for themselves • The value of which does not depend on your remaining in the business PETER SCOTT CONSULTING

  6. Three elements to creating something of value in a law firm • The nature of the business you create • Your relationship with that business • The need to find a buyer Above all you need to create a business PETER SCOTT CONSULTING

  7. 1. Need to build a competitive business • Providing clients with what they need • At prices THEY consider value for money • Do this better than the competition PETER SCOTT CONSULTING

  8. Need to build a business providing clients with what they need • Focus is all important • Focus on work types / client types • Sectors where there is / likely to be growth It is about picking winners PETER SCOTT CONSULTING

  9. Picking winners • Research / analysis of the market • What kind of law firm should we be building….. to create capital value? • Strategic planning to achieve objectives • Implementation PETER SCOTT CONSULTING

  10. Need to build a practice that is showing a pattern of… • Increasing turnover • Increasing profitability • On a sustainable basis • With a stable and growing client base PETER SCOTT CONSULTING

  11. 2. Your relationship with the business • You need to separate two elements: - your ownership from - your operational involvement • To reduce / eliminate the dependence of the business on your skills and labour for its continuing well-being • Recent service sector examples? - recruitment agencies - consolidators in accountancy? PETER SCOTT CONSULTING

  12. If you do this in a way that… • The business can continue without you • With a sustainable income stream • With sustainable profitability - then you may have something of value to sell PETER SCOTT CONSULTING

  13. How can you achieve this? • Build a team around you of professionals and managers • Delegate – NB leverage • Retain ownership PETER SCOTT CONSULTING

  14. Owner delegation and leverage Lawyers Managers

  15. Divorce your ownership So you can walk away from the business with your value either… - immediately on sale or - after a bedding in period linked to an earn out arrangement PETER SCOTT CONSULTING

  16. NewOwner delegation and leverage Lawyers Managers

  17. Retain ownership • Ensure all those who could take away something which could not be replaced are included • Keep equity tight - to enhance ownership value - to ease decision-making • But do you all want the same thing? • Working capital issues? PETER SCOTT CONSULTING

  18. 3. Need to identify a buyer • With whom there is a strategic fit • Who needs what you have • Who has the resource to continue the business (particularly if receiving your value depends on an earn out) You may need to sell the vision of putting the two businesses together PETER SCOTT CONSULTING

  19. Three elements… • The nature of the business you create • Your relationship with that business • A buyer PETER SCOTT CONSULTING

  20. Ensure you receive your value • The terms upon which you sell • How you structure the sale / merger Take advice PETER SCOTT CONSULTING

  21. A case study A law firm • 1 equity partner • 1 salaried partner • 2 other fee earners • No lease obligations PETER SCOTT CONSULTING

  22. The nature of the business? Focus on… • Growing sector - nationally based • Narrow areas of work • Broad range of existing and growing clients • Owner had built a reputation / brand PETER SCOTT CONSULTING

  23. A sustainable business? • A steady increase in turnover over several years • Corresponding increase in profitability • Cash flow was strong PETER SCOTT CONSULTING

  24. Do I have something to sell? • Nature of the business? • Owner’s relationship with that business? • Potential buyers? • Basis of valuation? PETER SCOTT CONSULTING

  25. Any questions? PETER SCOTT CONSULTING

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