Selling a law firm is one of the biggest decisions an attorney can make. But with so much attention on private equity and MSOs, it's easy to overlook the many other options available to law firm owners, especially those running smaller or solo practices.
In this episode of Financially Legal, Emery Wager sits down with Justin Farmer, founder of Private Practice Transitions, to discuss what selling a law firm actually looks like. With over a decade of experience helping attorneys value, prepare, and sell their practices, Justin shares what makes a firm attractive to buyers, the different ways to structure a deal, and why preparing for an exit should start long before you're ready to retire.
This is the final episode in our three-part series, So, You Want to Sell Your Law Firm?, moving from the regulatory side of MSOs to actually selling your firm.
There's More Than One Way to Sell a Law Firm
Private equity and MSOs have dominated recent conversations about law firm ownership, but they're only one part of the market.
Justin explains that while larger firms are currently attracting the most attention from MSO investors, smaller practices may become increasingly attractive as the market matures. Larger platforms could begin acquiring smaller firms to expand their operations, creating opportunities for owners who wouldn't traditionally qualify for a private equity deal.
But an MSO isn't necessarily the right choice for everyone. Traditional acquisitions, mergers, internal succession, and gradual retirement arrangements remain viable options. Some attorneys want to continue practicing without managing the business, while others are ready to step away entirely.
The right structure depends on what the owner actually wants from the transition. Justin emphasizes that sellers need to be upfront about their goals. If an attorney wants to retire in a year, agreeing to a long-term operating role just to secure a deal can create problems later.
What Is Your Law Firm Actually Worth?
One of the biggest challenges in selling a practice is the gap between what an owner believes their firm is worth and what a buyer is willing to pay. Justin points to unrealistic valuation expectations as a major reason transactions fall apart. Owners often see decades of hard work, client relationships, and personal investment. Buyers, however, are evaluating the firm's ability to continue generating revenue after the owner leaves.
And that leads to one of the most important factors in law firm valuation: how dependent the business is on its owner. A firm might look extremely profitable on paper, but if its founder handles client acquisition, billing, marketing, operations, and legal work, a buyer has to account for the cost of replacing those responsibilities.
As Justin explains, evaluating a firm based on EBITDA alone can be misleading if the owner's replacement costs aren't considered. The less a business depends on its founder to operate, the more valuable it can become to a potential buyer.
How to Increase Your Firm's Value Before Selling
The good news is that many of the factors affecting valuation are within a firm's control.
Justin identifies two major opportunities for law firm owners: reducing owner dependency and improving pricing.
Start by delegating. Owners who handle every aspect of their practice often create an artificial ceiling on growth. Hiring people to manage billing, marketing, intake, and administrative work allows attorneys to focus on higher-value activities while building a business that can operate independently.
Then take a closer look at pricing. Justin encourages attorneys to think beyond billable hours and consider the value of the services they're delivering.
For practices where it makes sense, subscription-based services, packaged legal offerings, and recurring retainers can create more predictable revenue. Instead of relying entirely on the number of hours an attorney can work, these models can help firms build a more consistent financial foundation while offering clients greater transparency around legal costs.
Both changes can make a practice more sustainable today and more attractive to buyers in the future.
Understanding Deal Structures, Earn-outs, and Financing
Not every law firm sale involves a single payment at closing. Justin explains that transactions often include several components: cash at closing, deferred payments or earn-outs, potential equity, and compensation for the seller's continued involvement. Traditional acquisitions may be financed through conventional lending or SBA-backed loans, while MSO structures can offer opportunities for sellers to retain equity and participate in a future sale.
That potential second payout can be attractive, but it also introduces additional risk.
Earn-outs deserve particular attention. Some are based simply on the seller remaining involved for a certain period. Others depend on maintaining revenue or hitting ambitious growth targets. Justin cautions owners against treating every promised dollar as guaranteed compensation. An earnout tied to unrealistic growth expectations may look impressive in an offer but never actually materialize.
Understanding how and when you'll be paid is just as important as the headline purchase price.
Preparing for an Exit Before You're Ready to Sell
One of Justin's biggest recommendations is to start planning early, even if selling isn't on the immediate horizon. That means understanding your personal financial goals, incorporating the business into your estate plan, and building systems that allow the practice to operate without your constant involvement.
It also means asking yourself two important questions: How much longer do you need to work, and how much longer do you want to work? Those answers aren't always the same, and they can significantly influence the type of transaction that makes sense.
For some owners, the best financial decision may be to continue operating the firm rather than sell immediately. For others, the opportunity to step away from administrative responsibilities or reduce personal risk may outweigh the potential financial upside of waiting.
Ultimately, preparing for an exit isn't just about making a future sale easier. It's about creating a stronger business in the meantime.
Going Further
Whether you're planning to sell next year or decades from now, the work you do today can shape your options later.
At Confido, we help law firms modernize their financial operations through digital payments, disbursements, and automated workflows, reducing administrative work and helping firms build more efficient, scalable practices.
To learn more, visit confidolegal.com or connect with us on LinkedIn.
And don't forget to subscribe to Financially Legal on YouTube or Spotify for more conversations on law firm finances, ownership, and building beyond the founder.
