Understanding the Value of a Law Firm

There are many skills and subjects of study that students studying law or business at the Abu Dhabi Polytechnic would benefit from learning. One in particular is learning how to analyze the value of a law firm. Knowing how to value a firm can be beneficial to a number of careers related to business and the law. This skill can be used to enhance the financial and legal consulting services that a student may wish to provide to clients. In addition, law students can use this information when they decide to leave a firm and enter into partnership with their colleagues. This is often a sensitive time in the life of an attorney as they must negotiate the terms of their departure, including how much of the law firm they would be entitled to become a part owner with the junior partners. It can also benefit those students who are looking to join a law firm, take it over, or invest in it when the founders retire.

Everyone interested in law and business should be familiar with law firm valuation. This includes key personnel such as law firm partners and associates, as well as prospective clients. Knowing this information can help to reassure investors that the firm is in good hands and that their money is not being put to waste. It can also convince a firm that has sufficient funds to expand their operations legitimately if they have a solid plan and strategy in place. A firm would especially benefit from having this information when they go to sell the firm to other key individuals. By knowing how to value a law firm, the firm can then negotiate for a reasonable and fair price for the firm before selling it off or bringing in new partners.

Most often, the most valuable asset of a law firm is its people, however, a law firm cannot be sold without the physical assets. To value a law firm, one must consider more than just finances: Most law firm owners and potential buyers consider productivity, prestige, culture, and overall management when deciding on the value of a law firm. Some of the basic methods of valuation include adding up the firm’s current and future financial assets, evaluating the firm’s public and private reputation, and assessing the culture and stability of the firm. However, law firm owners and senior partners typically prefer Quadrant Evaluation – this example is likely the most common approach to law firm valuation. These owners and senior partners want to understand how their law firm stacks up against their competition in terms of quality, value, foresight, innovation, and sustainability (the “Quadrants”).

Just like how every little detail is important in valuing a law firm, every little detail a law student picks up in a classroom setting is important. This is similar to how a law student can pick up several important legal and business skills simply by knowing how to value a law firm.