A small law firm owner client who wants to retire in 3-4 years recently asked me, “Is it a good idea to try to grow my revenues during my last years to enhance my firm’s value when it’s time to sell a few years down the road?” Sorry, but there is no simple answer, and I will fall back on the two words lawyers love to tell their own clients: “It depends.”
Here is what the analysis depends upon.
Can you increase revenue with minimal risk?
How confident are you that whatever you do to grow your revenue, it will succeed? If your plan costs a lot of money with only the hope you will get a return, be careful. If you don’t get the return you hope for, your last years won’t be as profitable. That’s not a good situation when your goal should be to increase your nest egg in your last years of practice.
Can you handle the extra revenue with few headaches?
Are you and your staff capable of handling the extra work? Many senior lawyers want to slow down in their last years and not work longer hours. And what about staff? Can your existing staff handle it? If not, do you really want to try to find someone new when we all know hiring qualified staff is easier said than done?
If your answer to both questions is “yes,” go for it. But the go-ahead is not necessarily because I believe the firm’s value will increase. It probably will, but there are no guarantees. The law firm marketplace remains too immature, underdeveloped, and fickle to assume anything.
That said, making more money in one’s last years is always a good idea if you aim to increase your nest egg before retiring. I always tell lawyers that the best time to make money is when you are practicing. But along with that advice, you need to avoid taking unnecessary risks, hoping the firm’s value will increase.
The bottom line: If you want to, and think you can make more money now, don’t hesitate to go down that path. Doing so will probably increase your firm’s value, but it may not have the significant impact on valuation that you hope, given the vagaries of the law firm market. Even so, the increased effort may be worth it in the short term since you’ll take home more money during your final years of practice.