Law Firm Valuation
Would you like to improve the law firm valuation of your practice?
If you can lift your law firm valuation, your retirement planning will be simplified as what you get for the practice can help you to meet your retirement needs.
Increasingly law firms are being valued in the same way as any other business. The standard way that most firms are valued is on the capitalisation of future maintainable earnings method.
I know that sounds like a mouthful, but what it means, is that the value of your law firm will be determined by the return on investment that a purchaser can expect to earn, after allowing for reasonable salaries for the principals.
For example, say you have a two partner firm that is making a profit per partner of say $300,000 p.a.
If a reasonable salary for a principal of your practice was $200,000 p.a., the return on investment would be $100,000 p.a.
If a purchaser was prepared to pay you say 3 times earnings for your practice, that would value the practice as $300,000 on a per principal basis).
If however you were able to lift the profit of the firm to $400,000 p.a. per principal, then the practice on the same basis would be worth $600,000 per principal.
You can see then that your law firm profitability has a major bearing on your law firm valuation.
The payoff though is enormous, if you can lift profitability, not only do you actually get to earn the extra profit, but your asset being your equity in the practice lifts in value as well.
The leverage from that is where you achieve the payoff. Earn the profit once, but get paid a multiple of the extra profit.
Visit the pages on our coaching groups below to see how we can help you to lift your law firm valuation