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What's Your Practice Worth?

By Edward D. Heben

When it comes to the financial analysis and valuation of law firms, there is only one certainty: Law firm founders and managing partners will always over-estimate the value of their firms. This is not surprising among business owners or anyone who has an equity stake in a company. No matter the industry, it comes down to human nature. These individuals devote a greater part of their waking hours to growing and building their business and, in many situations, its value to them cannot often be quantified or defined by dollar signs.

The over-estimation of value is especially true in professional services firms where the most prized assets ' the partners and other professional staff ' ride up and down in the office elevators each day. Ironically, this is also the reason why valuations are often lower than expected. Oftentimes it is much easier to value companies that manufacture or sell hard assets (i.e., products and equipment) than it is to value the goodwill of a law firm.

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