Lawyer Monthly - November 2021 Edition

30 WWW.LAWYER-MONTHLY.COM | NOV 2021 THE IMPORTANCE OF DUE DILIGENCE WHEN BUYING A LAW FIRM While there may be many reasons why a buyer wants a particular firm – its location, expertise in a specific area or a lucrative client book – the prospective buyer must do proper due diligence. This process is the most important part of your search and should be initiated at the earliest opportunity and before exchange of contracts or completion of a purchase. The primary purpose of carrying out due diligence is to acquire enough information about the firm to discover if the business you are buying is what you are expecting. You will also need to find out if the risk in the practice is being properly managed, is a sound commercial investment and whether the business is worth what they are asking you to pay. Due diligence is effectively an audit of a firm’s affairs to establish its assets and liabilities and evaluate its commercial potential. It is a vital step when buying a business and will give a thorough review of financial records, legal issues and the market positioning. It will also look at historical records and future projections, as well as any possible risks that may exist. Benefits The due diligence process allows a buyer to better understand the business they are buying into and learn whether the price they have offered is fair. If the due diligence process is carried out early on, it allows you to deal with any issues upfront or hidden liabilities which may not have been disclosed. This information can then be used as a strong bargaining tool to negotiate terms, including deferred payments. Conversely, the buyer may be able to seek warranties and indemnities from the seller. This essentially gives the buyer a right to claim a portion of the purchase price back if any of the foreseen problems arise. Legal diligence There are specific rules for a solicitor’s practice regarding Professional Indemnity Insurance (PII). This is a requirement of the Solicitors Regulation Authority (SRA) for anyone in practice and the costs of this The Importance of Due Diligence When Buying a Law Firm Paul Dodgshon Sales Director, Business Partnership Winnington Hall, Winnington, Northwich, Cheshire, CW8 4DU Tel: +44 0161 393 6978 E: paul.dodgshon@business-partnership.com www.business-partnership.com It is crucial to conduct due diligence ahead of the purchase of any business. When the company in question is a law firm, however, the factors worth considering are notably different. Paul Dodgshon, Sales Director of national business broker network Business Partnership, outlines the importance of conducting due diligence when buying a legal firm. Paul Dodgshon is Sales Director of Business Partnership, a unique national franchise network of 25 regional offices in the UK connecting business sellers with business buyers. With over 15 years of experience helping businesses sell quickly at maximum value, Paul understands the practical and personal issues involved in selling a business, and Business Partnership provides a personal, professional and confidential service to buyers and sellers alike.