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The Dimensions of 'Goodwill' in a Law Practice Sale
One of the thorniest issues in selling a law practice involves the issue of goodwill and how to value it. “Goodwill” is the reputation, client base and client loyalty that have been created over the life of the practice. Every firm represents an investment of years of hard work and financial resources in growing the practice and building goodwill. Goodwill is both an accounting term and a qualitative dimension. Understanding both helps the average lawyer better understand the sale of a law practice.
Qualitative Dimensions
At the end of the day, the value of a law practice is based on a lawyer's success and the many people that success has touched over the years. This is a significant legacy that contributes to organizational goodwill on retiring from the practice. It involves a lawyer's reputation, practice management system and way of doing business ' all the intangible elements that made the practice successful and provides the selling lawyer with what is most valuable to sell. The better a lawyer's reputation, the more value the law practice will have. A firm with positive, provable goodwill shows that a lawyer has been focused and passionate about the practice of law, and effective at client service. By contrast, firms with bad publicity, a declining client base, or malpractice and disciplinary matters have little goodwill.
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