Scale to Exit Your Law Firm with Ed Alexander

Jonathan Hawkins: [00:00:00] Welcome to Founding Partner Podcast. I’m your host Jonathan Hawkins. This is going to be a good one today. We’re gonna learn a lot today. We’ve got Ed Alexander is joining us and Ed, his practice. He’s a transaction lawyer primarily. And he has done a lot of represented a lot of law firms and sales and purchases.

And so if you. Have any plan ever to sell your practice or maybe even by practice. Definitely gonna want to listen to this. We’re going to dive deep into this some of the issues that Ed has seen. And even if you think you’d ever want to sell, my opinion is if you build it, as if you might be able to sell it, you’re going to increase the value and.

The joy of running the practice all along the way. So you should listen, even if you think you never want to sell. So anyway, Ed, welcome. Why don’t you tell us about yourself, where you are, what the name of your firm is and what you do?[00:01:00] 

Ed Alexander: Thanks, Jonathan. Yeah. So, my firm is Alexander business law and I’m in Orlando, Florida. I’ve been here for 31 years doing this. So, transactional lawyer from the beginning. And I guess I should say I had a little bit of experience with litigation, commercial litigation when I was a young lawyer, you know, and they needed help in one department kind of thing.

But I, Quickly determined that was not for me. So, so I’ve been transactional lawyer for what really my entire career, which is over 31 years, 31 years. Yeah.

Jonathan Hawkins: Well, the other thing I want to explore law is your second career, right? You did not start out as a lawyer. You were you an engineer? What,

Ed Alexander: Yeah. I was a systems engineer. I was working for a company that built custom integrated circuits. So the little chips that you see inside the computer and they were designing chips that were doing. The conversion from analog to digital that was occurring in the auto industry. So it was a really a fascinating time to [00:02:00] do that work.

Jonathan Hawkins: you know, that’s another thing we have in common. I got a degree in industrial systems engineering. I never really. Was an engineer. I co op during school, but I never really after school. I didn’t practice as an engineer. So why?

Ed Alexander: The education is, I mean, just wonderful, right? Because it’s like law school in a way it, it has a method of, it teaches you how to think about things and mathematics and physics and the ways of the real world. So I found it I loved it just like I loved law school. But yeah.

And then I moved from there into doing marketing for product marketing for a technology company. And that was really cool because I got to go out and do deals and it was really the first time I’d ever done deals. And I started to interface with it was a larger company. It was a New York stock exchange traded company and got my first taste of stock options.

It was a really exciting time and everything like that. And I worked with [00:03:00] in house counsel and I really decided this is a cool job. I think I might want to do this job. And so I actually went to law school at night while I was still a product marketing manager, which is something you can only do in your late twenties.

And early thirties, because it will just absolutely wipe you out. I was traveling various places and I would come back and run off to law school so I could go and then the next, you know, go home at 10 30, 11 o’clock at night, do a little bit of work. Turn around, get up at four in the morning and go out and do it again.

You know, and it was like insane.

Jonathan Hawkins: That is intense. That is intense. You know, it’s funny too you know, I’ll just say most, my, my impression is most lawyers basically went straight through undergrad into law school and then start practicing law. They don’t have that experience. And then they get into law, a lot of them, and they’re like, I hate this.

I want to get out. The grass is always greener. Where you do the opposite. You’re like, you’re in business and [00:04:00] marketing and all these things. And you say, no, I’d rather be a lawyer. Yeah. So why what made you think that’s what you wanted to do?

Ed Alexander: I wanted to do deals. I love putting deals together. Right. And, you know, after a while, you know, I, when we were doing these deals with these technology things, you know, there’s intellectual property issues, there’s finance issues, there’s all these issues. And, you know, we’re putting them all together and I’m working with the lawyers and I’m, you know, just, you’re kind of seeing how they think and how they do things.

And I’m like, Oh, that’s really interesting. You know, So that’s what made me want to be a lawyer is doing deals.

Jonathan Hawkins: So you had a full time job. You went to night school to get your law degree. You graduate. What’s next? Do you go to a firm? Are you working for a company? Do you start your own firm? How does that play out?

Ed Alexander: The company I work for offered me a job in the law department which was great, but they had on the only, at the time, they only had a position in the patent area and with the tech, not, I’m sorry. That was, I should have turned that off. I’m sorry.

Jonathan Hawkins: The dogs will be[00:05:00] 

Ed Alexander: The one thing I forgot.

Jonathan Hawkins: dogs will be barking soon. 

Ed Alexander: That one over. So yeah, the company I was working for offered me a position in the legal department. Now, the only problem was that the only position they had was in patent, which would have worked, you know, as you think about it from an engineering perspective, right? The problem with it is that I went from what I really wanted to do is go out and talk to people and put deals together.

And now I’m sitting in a 12 by 12 office with, you know, people shoving inventions in front of me and me having to write down and describe those inventions. So

Jonathan Hawkins: you know,

Ed Alexander: if

Jonathan Hawkins: You know, when I, so I went to Georgia Tech, so when I was in law school or right when I got out and people heard I went there, like, you’re a lawyer and you went to Georgia Tech, all of them like, Oh, so you’re a patent lawyer. That’s, I got that all the time. I’m like, no, I do not. No, I’m not a patent lawyer.

Sounds like you actually got to see it for a little while and you’re like, yeah, I’m out of here.

Ed Alexander: Yeah, I’m not a patent lawyer. Right. But you know, the the interesting thing is everybody [00:06:00] tells you, Oh you’re going to make a lot of money as a patent lawyer. Cause they’re in huge demand. Right. And you’re just going to be offered great jobs and all that. And after seeing it and being in there, you know, I came home like six months into it.

And I said to my wife yeah, I got to find a new job cause this is melting my brain. I cannot do this, you know? And that’s actually how we got to Florida because her family, her entire family had moved down to Florida. By the way, this was all up in New York, right? So I’m a Long Island guy and her whole family had moved down here.

So. I started looking for a position in Florida and that, that job at that tech company was so good to me because I told you the options, but also I met all these executives. And so, you know, they all moved to different companies. So when I got down here, there was a guy who was the CEO of a company here. And I said to him, Hey, you know, can I do your work? For you. And he said, well, I can’t do that because, you know, you’re kind of new and we [00:07:00] got to have somebody else, but I’ll tell you what, I’ll call the firm that we, that does our work and tell him to hire you. And that’s how I got my first job. So it was

Jonathan Hawkins: Nice. So you go there and you said you were doing a little bit of litigation. How did that you know, when you got there, I guess you’re an associate you’re doing a little bit of everything or did you focus pretty quickly? I

Ed Alexander: So I work for a partner who was a transactional guy. So, and he was fantastic to really nice guy and showed really took time to show me the ropes and all of that. And, you know, so when he had deals, you know, I’d be working for him. Completely, but occasionally, you know, things would slow down as they do in a transactional practice.

And so, the law, the litigation folks would be going and they’d say, Oh, well, we can use you over here, you know, just to keep your hours up. So, so that’s how I got my taste of litigation

Jonathan Hawkins: here, we’ve got this hearing here’s the file, go cover it for us.

Ed Alexander: that actually happened. So it’s like, the lawyer says there’s one of the partners is like, Hey, there’s a hearing in Jacksonville. I want [00:08:00] you to go up and cover it. I’m like, I don’t. I don’t know anything about this. He’s like, yeah, you’ll do fine. So I got up there and it’s these three Jacksonville plaintiffs lawyers against my client.

Right. And the judge knows all of those plaintiffs. Plaintiff’s lawyers has no idea on earth who I am. Basically let me open my mouth for about two seconds, ruled in favor of the plaintiff’s lawyers, and then sent me on my way. And you know, I was devastated. And I went back to the partner and I was like, Oh man, I’m so sorry.

I, you know, I lost and all of this is like, you had no chance to win. Don’t worry about it.

Jonathan Hawkins: You know, it always starts that way. It’s no big deal. All you got to do is just show up and say hello. Yes. Yeah, that was my yeah, that’s hilarious. So, so eventually you started your own firm. And so, you know, the question I have for most people is you know, some people sort of always knew they were going to do it, they just sort of always had that plan or had a feeling they were going to do it [00:09:00] and then there’s others that really had no plan at all to do it and it just sort of happened for one reason or another.

What camp do you fall in?

Ed Alexander: I had always, I was always interested in it. I had played with the idea of doing it, but then I got the job and then I got the job and it never seemed right. Right. So, but I got the ultimate kick in the pants because the firm I was at, the partners broke up. They, you know, they were very nice people altogether, but for whatever reason it didn’t work for them.

Yeah. And And then two of the partners said, Hey, come over and go to this firm with us, performing a new firm. And then four months later, that firm broke up and I was very like, you know, agitated. So my wife had, we had two kids, one of whom was literally a little baby. When this whole thing exploded, I mean, she was probably eight or nine months old.

And I remember them telling us that the firm was breaking up and, you know, and it [00:10:00] would it be over like at the end of the month or, you know, that kind of thing. And I knew where my wife was. She was like a mommy and me thing. And so I drove over there and as soon as she saw me walk through the door, she knew something was.

And I’m like, yeah, I didn’t want to tell you this over the phone, you know? And so then I said, don’t worry, everything’s going to be fine. Everything’s going to be fine. But luckily I had a transaction going on from a client that I brought into the firm. And so that really sustained us for a couple months so I could get everything going.

That was a stroke of luck right

Jonathan Hawkins: Yes, that’s the other piece. When a lot of, when people go out, you know, some have a client or some clients or some matters and others have nothing. And so luckily you had something, but you know, that’s going to come to an end. You know, you saw the end of it. What’s going through your mind? You got a baby.

Yeah, you gotta bring in the money. I’m sure you’re, I don’t know, are you scared or are you just like, all right now I’m gonna go get clients. What did you do to fill the pipeline?[00:11:00] 

Ed Alexander: Yeah. No, I mean, I had already started to get to know people in the Orlando area. So I really put out the word that, Hey, I’m, Doing my own gig and people would send stuff, you know, mostly garbage stuff, but it paid the bills. So that was okay. And I did it for, you know, a while and got the marketing machine rolling and it just takes time and effort.

And when I wasn’t working on cases, which, you know, a lot of times wasn’t a lot, I would be out there, you know, Meet with people doing coffee, doing lunch, you know, whatever it took to get our name, you know, name out there and start talking, but it can be completely overwhelming. Right? I remember this time.

So this is like 96, right? And I’m trying to set up a computer in the office to connect to the internet. And I can’t get this thing to work for every, and it’s just like the little thing. That just sends you over the edge and, you know, there was so [00:12:00] much stress and pressure. I got to make money, you know, doing all that kind of stuff.

And and I tell you, it was just like the easiest little thing, just trip the wire. I’m like, I can’t do this. I can’t do this. You know? And luckily, you know, faith was like, my wife was like, Oh, take it easy. We’ll get this and, you know, kind of plugs the thing into the wall. And she’s like, yeah, we’re good now.

Jonathan Hawkins: You know, it’s the those sorts of moments, I think we all have them and they never go away. They just, Change. They’re just different, you know, these moments of self doubt. I do want to talk a little later. We’re not gonna get there yet, but I, you’ve got some your marketing has gotten very sophisticated and impressive, and so you’ve learned a lot over the years.

I want to get into that a little later. But before we do. You know, you start out I assume you’re just doing transactional work. At some point your practice evolves to where you’re doing mainly sort of I think business transactions. And then another [00:13:00] component of your Practice, I guess, or it’s sort of a side gig or a adjacent type company is you also co own a sort of a business brokerage to take me through sort of how you got there, how that sort of came about did you do it immediately or did that just sort of organically grow along the way?

Ed Alexander: The business brokerage happened when, so I had a client who was looking to sell their business and they asked me if I knew a broker, I could refer them to. And I didn’t know any brokers that I trusted enough to refer them to. And so they said, well, there’s this guy in our neighborhood. And so we’ll send them to you to talk to you and you tell us what you think of them.

So he sent me the listing agreement, which I promptly ripped apart. And I met with him and I said, listen, here’s the deal. Cause the listing agreement had a bunch of different things in it. But I said, you sell the business, you get paid. That’s the deal we want to have. Right. And he’s like, yeah, I can live with that.

And this business, they wanted, Way more than I ever thought this business was worth [00:14:00] and they wanted cash. And so I, you know, kind of thought, well, this isn’t really going to work out, but then he sold it for cash at that price. I was like, Oh, this is a pretty good deal. So I got to know him and that was probably 2005.

And then we did a couple more deals together and you know, the we pulled these deals together that looked like they were going to fracture and fall apart. And then we said, maybe we should work together more. Frequently. So that’s how we formed a brokerage.

Jonathan Hawkins: You know, it’s interesting in life how these opportunities sort of come across your desk and they start out, you know, as maybe a little seed and then over time they grow into, you know, a big tree or a plant. And it sounds like that’s sort of what happened here. And, you know, other folks out there, you know, when I started my firm, all these opportunities, that, that was one thing that sort of surprised me when I was at a firm.

I really didn’t see the opportunities. I don’t know why. I don’t know if they just didn’t come across my desk or what. And then [00:15:00] when I was on my own, it’s like, Oh, you can do this. You can do that. You can do this. And one of the hard things was figuring out what to say no to,

Ed Alexander: That is a huge issue. And a lot of you know, that, that can distract so many people, right? Because there’s all these shiny pennies everywhere. What shiny penny am I going to go after? Yeah. So sticking with a core and kind of recognizing those opportunities within your core niche or core service is really the important part.

So how do you make that distinction?

Jonathan Hawkins: Trial and error. I’ve gotten plenty distracted in the past. I’m a lot better now. I’ll say that I’ve gotten better now. You know, there’s only so much time, energy, money, bandwidth you’ve got, and it’s And there are so many opportunities, you know, it’s, I’ll probably misstate it, you know, this is a deal of a lifetime and you see like maybe two or three of those a year, you know, it’s like you can pass on this and there’s going to be another one.

There’s going to be another, it may be better.

Ed Alexander: right. Yeah 

Jonathan Hawkins: So yeah, you know, [00:16:00] I wish I could say I’m really good at it, but I’ve gotten better but I’m not perfect, that’s for sure. So, so you’ve mentioned your wife, Faith, who I’ve had the pleasure of meeting and having dinner with. And so, she works with you at your firm.

Has she always worked with you at your firm, or did that sort of change over time?

Ed Alexander: that changed over time. So I guess, you know, she’d work part time when the kids were in school and that kind of thing. But she really assumed a more prevalent role probably in 2014, somewhere in that range, 2013, 2014. And she really is the firm administrator and she’s got a great I mean, fantastic skillset in terms of the numbers and understanding how things operate here.

And, you know, I’ll. I was thinking about this before the call is like, you know, the distinction is I love numbers. I put together models and then she takes those models and she goes, yeah, that is an accurate. This is what you have to do. And she’ll plug in [00:17:00] the numbers to meet, you know, the things to make them accurate.

So she would never do the model and I would never plug in the numbers to make them accurate. So together it works out really well.

Jonathan Hawkins: Well, that’s good. You know, I’ve talked to folks and the folks who worked with their spouse. And then I talked to others who are like, I can not imagine ever working with my spouse. It would just not work. But it sounds like you guys have figured it out and it works well for you too.

Ed Alexander: It definitely works. Well, I mean, we’ve been married 40 years, so that’s you know, there’s a dynamic there, right? So, yeah, she’s got her space and I have my space and we, you know, she would be if you follow us or anything. She’s kind of the integrator. She’s the 2nd, right? I always have trouble with that.

One rule in EOS that says that if the integrator says no, then it’s no, no matter how good your idea is. But so she is definitely the integrator.

Jonathan Hawkins: Well, that’s good to have. And you know, somebody you fully trust there. I mean, that’s huge. And that’s hard to find. So it’s, I’m [00:18:00] glad you guys were able to make that work. You know, we’ve talked a lot changing subjects a little bit. We’ve talked in the past and we talked a little bit before we got on about Hiring, attracting talent.

And you know, it’s, it is a struggle for, I mean, it seems like every law firm owner I talked to and myself included you know, what sorts of things have you seen, you know, what sorts of issues and how have you dealt with the talent issue along the way.

Ed Alexander: Yeah. Some of the, I mean, the problem we get is a lot of people, when we post an ad or do something, you know, they’ll just throw their resume at it and it’s not even close. So there’s a, an enormous filtering component that has to go on. From what you’re getting in there. And then in the past, up until very recently, we’re getting very few qualified.

We’d get a ton of responses, but very few of them would be qualified for what we were looking for. And then we also have kind of a we asked them to tell us why they’re the best candidate for the job, why they [00:19:00] liked the advertisement. And then to give us their three books and I don’t really care what their three books are.

I just want them to follow the instructions because if they’re not following instructions before they have the job, it usually doesn’t work after they have the job. And you’d be surprised how many people just don’t do those simple little things, you know? And again, whatever the response is, it’s fine.

All I’m looking for is that you actually read the ad and followed the instructions.

Jonathan Hawkins: So you bake that into your job posting.

Ed Alexander: Yes, absolutely.

Jonathan Hawkins: I think that’s key. I may have to ask you offline. In the market now. So

Ed Alexander: That’s actually faith’s Bailey, which she handles that piece. We put together the job description together. All right. So that then feeds into the advertisement and I will, I’ll just give you a little piece. So I send it to my daughter who has more employees than I do, who is a millennial and who really [00:20:00] sets them up for millennials.

Like, so, Hey. Dad, this is the way boomers would done the ad. I’m going to show you how to do a millennial ad. And that’s, so there, there’s my secret

Jonathan Hawkins: All right. Well, I’m going to, I’m going to talk to, I’m going to talk to her too. I get that. So, so what’s your current sort of employee stack or structure your firm? So it’s you and faith and what else do you have there?

Ed Alexander: We have two staff members. So one is a kind of a client. Service and marketing, and then the others are a legal assistant. We have two attorneys. Both of them are kind of part time stay at home parents type of thing. And then we’re looking for right now full time paralegal.

Jonathan Hawkins: Yeah, and is that going to be a hybrid in house remote or do you care?

Ed Alexander: I’m thinking in house because I’ve noticed with the hybrid people that communication is a little stilted. It’s so much easier to have a face to face communication than it is [00:21:00] to Have to set up a call and be on a phone and that kind of thing. I don’t know. Maybe that’s the boomer in me, but that’s the way I

Jonathan Hawkins: You know, I’m similar I like in office, but you know part of it may just be I just don’t know how to do it I just you know, I got to figure that out. Well, we’ll see Well, cool, well, I appreciate giving you background on your firm now Let’s talk about your practice and a big part of your practice now is representing lawyers, law firms, and I’ll just call purchase and sale of law practices.

And so that might mean a lot of different things. So why don’t you sort of explain the different scenarios that you get involved with when somebody is sort of transitioning to practice, we’ll say.

Ed Alexander: Yeah. So, I mean, if you look at the practice transition in particular you know, I have, there’s really 2 flavors of it that I. Put in one is kind of the external transaction and the other is the internal transaction. So you might say the internal transaction is kind of [00:22:00] adding a partner, but putting the succession plan in at the time that you had the partner.

So that question is addressed. At the start, and we don’t have to negotiate later on. And then the other one is the external sales. So kind of the way that we do it is we want to get a baseline of where we are today. We call that the reality check. So it’s like, okay, what’s the financial performance?

How many people do you have? You know, where is your business coming from? We want to kind of do a complete analysis on the firm and then we’ll look at, okay, well, who is on your team that maybe you want to add on as an equity holder and if you don’t have anybody, what’s your window for doing a succession, right?

Is it 10 years or is it next year? Right? So that’s kind of going to give us the realm. But yeah. So then we take from there and we, Okay. Feed all this information back to the owner and we have the owner kind of give us, okay, well with that, this is now [00:23:00] what I want to do. And so there really are three options, right?

So it’s, I want to put some work into the practice and make it grow and be what I really want it to be, or maybe what I need for my retirement. One of the two, do we have somebody we can bring on board or. That’s on board. That would be a good candidate. Or do we need to now market outside? So those kinds of three options that they have.

Jonathan Hawkins: So as, in your experience what, is there a certain type that you see more of, an internal versus an external?

Ed Alexander: Internal by far and it makes sense because it’s the lowest risk transaction. There is the big issue that people have with law firms is, oh, well, if I buy it, what if the clients leave? Right? Because I’m a new person and we have a way to deal with that. And we can talk about that as well. But in an internal transaction, you’ve got a senior risk.

Lawyer, not necessarily older lawyer, but a lawyer who’s [00:24:00] experienced, right? So experienced lawyer who’s already with the firm, who knows all of the people inside, who knows the clients who’s done work for these people, right? So there’s a, just a natural trust transition that goes on. And so the likelihood of clients leaving is.

Much, much lower, if not nearly zero.

Jonathan Hawkins: Okay, so I want to dive into the dynamics a little bit. And there’s really two sides of the coin, as you know. You’ve got, you know, that’s transitioning out or says they want to but oftentimes I think they have a hard time letting go. They may have extremely unrealistic expectations. They may say they want out, but really they don’t.

So how do you deal with that? And what have you sort of seen?

Ed Alexander: One of the most important questions I ask people when they tell me they want out of their firm is what is your second act? Like, what are you going to do after you sell your firm? And there’s a little story I learned early on when I was working [00:25:00] for that attorney in the transactional area. We had a client who had created this business and this is in the nineties and somebody came and wanted to buy it from him for millions of dollars, right?

So he, he basically created a multimillion dollar asset out of zero. You know, here I am, I’m a young guy. I’m like, Holy crap, that’s wonderful. I mean, you’re making millions of dollars. And this guy was so excited when he first started talking to us. But as the closing got closer and closer, he got worse and worse.

He was just at downright unhappy, you know, as this was going on. And the reality was his business was his life. He did it. All the time. It’s all he thought about. Right? And so the thought that now he would have nothing was scaring him. Right? So the money’s great, but what am I going to do every day? And so I always ask that question of lawyers.

What is the second act? Right? So what are you going to do? Great. You can play golf for a [00:26:00] month. You can fish for a month, whatever. You can do all of that. That’s like an extended vacation. But what are you really going to do after that? Yeah.

Jonathan Hawkins: Yeah, I mean, I’ve seen it. It’s huge. You know, you’ve got the, I call it the die at your desk folks who just say, I’m never going to quit. Now it doesn’t mean you don’t transition your ownership. You can still practice all you want. But you got that sort of contingent. Then you got some that are just, they can’t get away fast enough.

And then you’ve got the ones that, you know, Maybe want to get out but they can’t because their personal house is not financial house is not necessarily in order but let’s talk about the other side of the dynamic and that’s the senior associate or the other attorney i’m curious your experience, but I can tell you some of the things i’ve seen so You know as a generalization Lawyers are risk averse bunch as a generalization They’re not sitting on piles of capital and when they’re presenting with the offer to buy ownership into a firm, some of them are like, hell yeah, [00:27:00] I’m doing it.

But others are like nope, not going to do it. And then, you know, I’m sure you’ve run the numbers, but the way I sort of look at it is, you know, you’ll see at a hundred thousand dollars, you can, you have any investment you can put it into. So you can put it in a savings account or a money market account or the S& P.

or real estate or whatever, and get some expected return. And if you run the numbers on a law firm, usually it’s going to exceed any return you get anywhere else, but they still don’t want to buy in. So what have you seen on the sort of the buy in side?

Ed Alexander: It’s actually been, I mean, to me, it’s shocking because I, you know, and I think it’s partly because you, if you haven’t been an owner, you don’t really see what it’s like to be an owner. And so, you know, we do our deals like typically. Somebody’s coming in, they don’t have cash. So the owner the scene, the lawyer who is the senior lawyer [00:28:00] is financing a hundred percent of that purchase price.

And we structure it so that it’s all paid for with the profits that come out of the law firm. Right? So I mean, you know, if somebody said to you, buy an operating business for zero down, and the business will pay for itself, would you say no? But I’ve seen lawyers say no to that, which just boggles my mind.

Jonathan Hawkins: isn’t it?

Ed Alexander: Yeah. So, you know, the there’s, you’re not going to get beyond. A person who just isn’t is so risk averse that is just something that’s beyond their capability. Right? And that’s a personality issue. You’re going to have to figure out early on, because if you’re hiring somebody to be your successor, you have to understand that person has to be you.

Somewhat entrepreneurial, right? They can’t be a maverick entrepreneur and they can’t be somebody who just wants a regular paycheck and no risk [00:29:00] whatsoever. They have to be somewhere in the middle. So that the personality piece, but then the conversation about how you introduce this is so crucial because the minute you bring this to an attorney in your office and you say, Hey, we’re going to, We’re going to have you buy in what they’re thinking is, Oh, I already have a mortgage.

I don’t want to, I don’t want another one, right? It’s just going to be more money I have to put out every month. And so you’ve got to explain how the firm pays for itself. And so we do that. Running through numbers with them, and that’s the other thing you face is that most attorneys are just absolutely 100 percent not numbers people, right?

And so it’s got to be a very step by step. Here’s how we did this. Here’s what this looks like. Here’s how we’re doing this, right? To get them comfortable with the numbers and typically takes a couple of meetings to really work this stuff out.

Jonathan Hawkins: So another question I see a lot or statement, I’ll say a [00:30:00] lot of lawyers out there, they just say, my practice is not worth anything. Nobody would ever want to buy it. Why in the world would they want to buy it? What would you say to those kinds of people?

Ed Alexander: Unfortunately for a lot of lawyers, it’s true, right? They own a job. They don’t have a practice. So, but the reality is like, if you’ve got a practice and you’ve been doing this for a while, you have a client base. You’ve got an annuity. People keep coming back or at least come to you because they were referred by other people who know that you do a good job. If it’s only you doing that good job, you are absolutely right. There is no practice there. But if you’ve got a team and you set that team up properly to do the work, to take care of the clients, then yeah, you’ve got a business and you can slot somebody else into that business. Now, You’re not going to get up and walk away.

Right. And I think, you know, it’s important to understand there are really 3 types of law [00:31:00] firms in the world. Right? So there’s this what I call a process firm, which is very bankruptcy, for example, where it’s do the work. And process as much as you can through there’s more relationship firm, which would be like commercial litigation and that kind of thing where there is an ongoing relationship.

And then there’s brain surgery firms, which, you know, you’re higher in the lawyer who’s specifically known for this 1 little, very narrow issue. And you’re doing it because it’s a bit the farm issue. Right? And so when you’re talking about. Yeah. Process firms, you may be able to walk away, but for most firms as the owner, when I bring somebody else in either through an external or an internal transaction, I have to stay around because the clients have to, and the clients in the referral sources have to understand that things are going to stay the same.

They’re not going to change that much. And so when we do an external sale, we typically do that as an of counsel arrangement so that [00:32:00] Yeah. That person’s there to answer questions and do those kinds of

Jonathan Hawkins: Yeah, I mean, that’s the thing. So even in a relationship or even in the brain surgery practice, you’ve spent your entire career putting your name out there and developing relationships. There are avenues, it may not be a, Hey, I’m getting a check and I’m walking away the next day kind of thing.

But if you connect yourself through up council, some other relationship, there’s a way to at least. Somewhat monetize the assets that you have built, which are like the relationships or whatever, or the name. And so, and shutting down a law practice and walking away doesn’t happen. You don’t just go in and turn the lights out.

It takes time. It takes money. It takes effort. So you’re going to have to do that anyway. It may be a little bit easier to step somewhere else and at least get somewhat of a revenue stream out of it, you know?

Ed Alexander: Absolutely. I’ve had conversations with people who come into me and say, well, I’m looking at this because I, you know, I don’t want to shut down the [00:33:00] practice because then they realize, Oh, well, wait a second. I gotta find places for the cases or finish the cases out. Right. I gotta, Ride out the lease, right?

I have to keep my people for as long as I possibly can to finish out the cases I, and then I gotta get the files to somebody who’s gonna, either the cl the former client or somebody who’s gonna ma it’s a nightmare. So

Jonathan Hawkins: Okay. So there’s the people out there that. That basically have the jobs. We’ll call it the owners that have the jobs. But they’re like, wait a second maybe I can prepare and position this thing to at least do some sort of sale, what are some of the things that a law firm owner could do now to begin to set up their firm in such a way that it might be attractive to a buyer somewhere down the road.

And the one other piece I’ll add is. When should they start? What kind of runway do they need really in your mind to, to set this up?[00:34:00] 

Ed Alexander: the runway piece, it’s a, it’s always a good question ’cause I’ll get calls from people who want to be out by the end of the year and you’re like, yeah, I’m sorry. I can’t do anything for you. Right. And it’s a it’s. It’s a kind of a, it depends answer. So just to be a good lawyer, it depends, right?

The perfect answer is you’ve got 10 years before you want to do it, right? Because you can bring people on, you can transition out slowly. People, the clients, the referral sources, you can transition those, that goodwill very slowly. All sorts of good things can happen. I like five years. Because five years is a good number.

If you bring an internal person into five years and you self finance a 10 percent or greater interest in the firm, then when they own that 10 percent or greater interest under the current SBA rules, they can go get a partner buyout loan and buy the founder out of the firm and then [00:35:00] essentially amortize that over like a 10 year period.

And so, that can be really nice. And it kind of gets you started on that path. So I like the five year number. So, but if I was starting today and I didn’t, you know, I was like, Hey, being truthful to myself, I got a job, right? So what am I going to do? Number one, hire people who can take the non legal work off your desk.

Even if you don’t think you can afford them, hire them. Because that’s the most important thing you can do. You should not be, certainly shouldn’t be keeping your own books. You certainly shouldn’t be setting your own appointments. Et cetera, et cetera, all of those things. And then go out and get that marketing system rolling.

So make it an actual system and a process, not a hit and miss so that. There’s a calendar, there’s a list of referral sources. You’re touching those referral sources once every 90 days. You know, and so make it a systematic process. There’s a lot of content out there [00:36:00] about how to do a referral marketing system very well.

And I would definitely take a look at that. And then I would also do a print newsletter by far the most important thing you can do to stay connected. With the people who are sending you business or are invested some way in your practice.

Jonathan Hawkins: All right. I want to talk about that print newsletter for sure. I’m about to launch mine. I want to dig in a little bit there, but yeah, I’m with you. So I think. three years, probably at least five, 10 is better. And I tell people at least the ones that are starting now, it’s like, go ahead and start planning now.

I mean, it may be 20, 30, 40 years from now, but the things you do now and just having the mindset, I mean, it’s really a lot of the mindset instead of You’re just driving as fast as you can. And then the cliff is there. And as you’re falling over the cliff, you’re trying to put it together and do something, you know, no, you want to build the ramp and the wings and the [00:37:00] parachute, everything.

So you’re ready when you go off. Right.

Ed Alexander: right.

Jonathan Hawkins: So, let’s talk about

Ed Alexander: That sounds like an Evel Knievel

Jonathan Hawkins: know. So, print newsletter real quick. So, we’ve talked about that a little bit. What’s your experience with that? You know, most lawyers, I mean, We sort of play in a world where a lot of the lawyers are doing that, but I would say most lawyers out there, they’ve never even heard of it. They think it’s just completely foreign to them.

So what’s your experience with the print newsletter and number one, doing it and then generating referrals and business out of it.

Ed Alexander: So I know it works because whenever we send it out, I get comments on the articles that are in there. Right. We use sign graphics to do ours. Kia is fantastic. We’ve worked with her to do the book covers and, you know, the marketing and those types of things. So, yeah, so I would recommend design cause they do a really good job.

But if you don’t, you know, in, and in that case, we’re [00:38:00] writing a couple of the articles. So I’ll write an article and Faith will write an article. And it’ll be very personal. So if you, this latest issue was about our daughter’s wedding in Italy that we went to in so, and I get, I got great comments, you know, people come, Oh, this is fantastic.

You love Bellagio, you know, that kind of thing. So I know people look at it and I know they see it. And frankly, even if they don’t, If they throw it out, my name and picture is at the top. So I’m boom, top of mind awareness right then and there. So it’s a wonderful investment and I have gotten referrals off of it you know, People will like, we can see when it goes out that we will get calls from people.

So there is a direct correlation. Could I tell you there’s an ROI, a specific ROI or something like that? No.

Jonathan Hawkins: So do you do it monthly or is it every other month? How often do you do it?

Ed Alexander: Every other month. Yeah. And then we do it to about, I think we have four or [00:39:00] 500 people. On the list. I’m, I may be a little bit high on that. Maybe that’s the, we have an e newsletter too. And I don’t remember what the distinction between the two was, but I thought the e newsletter was probably in the thousands and the print newsletter was, yeah, right around that 400, something

Jonathan Hawkins: You know, it’s interesting. So I’ve had a weekly email newsletter. Forever for years and I, it has been effective for me. Although often goes in spam, people unsubscribe, they don’t look at it. There’s all these things. And in my view is always, Hey, I want to give them a short piece of value that very quickly they can look at and just delete it and not feel overwhelmed.

I get some email newsletters that are just. So long and dense that even if it’s something that I think I want to read, I’m like, I’ll come back and I never do. But my attitude was sort of, if they just see my name, that’s good enough. But the print newsletter have to, they have to stay, they hold it, you know, so they really see your [00:40:00] name.

They can’t just hit delete or unsubscribe because it’s coming next month or whatever. Right.

Ed Alexander: Right. Right.

Jonathan Hawkins: So, so there’s some more.

Ed Alexander: I guess I could call you and tell you not to bother him anymore, but I’ve never had that

Jonathan Hawkins: you’re still going to get it. So there’s some other marketing things you do that I definitely want to touch on. But before we get there another part of your practice I think is sort of valuation. So a question I get a lot is what’s my firm worth or how do I, Figure out what it’s worth.

So how would you answer that question?

Ed Alexander: So the value of a firm or any business is a function of two factors. The first is how much money does it generate? And the second is what’s the likelihood that money is going to continue to be generated. Right? And so, The first thing that we do is we find out what is the cashflow and there’s different measures of cashflow.

The one that we’re typically looking at is either a owner benefit or EBITDA earnings before interest taxes, depreciation, and [00:41:00] amortization. And so we’re looking at This may not come as a surprise to you, Jonathan, but sometimes lawyers put personal expenses in the business. I don’t know. I’m shocked by it.

So what we do is we back out those personal expenses. And then there are some times where we have to actually increase expenses. We just had this the other day, the lawyer owned the building they were in and paid no rent. So. Obviously, they wouldn’t rent it to a buyer for nothing. And so we have to put in what the market rent would be if the buyer came in and rented that building.

All right. And same thing like a working spouse. So, if you have a spouse that comes in and you don’t pay them, you got to adjust the salary to a market rate for somebody to come in that kind of thing. So. That gives us the cashflow. And then the risk factor is basically all about some of the things we talked about a minute ago, which is, well, are these matters coming in?

Is the lawyer everything, right? Does the lawyer make all the decisions? Does the lawyer talk with all the, [00:42:00] is the lawyer do everything in this process? That is the highest risk firm that you can get. And Most people aren’t going to buy that or if they buy it, they’re only going to buy it on an earn out basis.

Right? And then the other side of that is I’ve got a team and I’ve got intake and I only look at the, you know, the biggest cases or I only get involved in one or two pieces of the legal pie where I’m, you know, best at it or something to that effect. Right? And so you’ve got a marketing system, you’ve got a, yeah.

Intake system, you’ve got a case production system, all of those things that now that’s a real business, right? So that’s not going to be one where when it transfers to a buyer, all that revenue is going to go away. And so that will give you a higher multiple. So typically you get a multiple of the cash flow.

Right. And that multiple is going to vary depending on the risk. But there are, we subscribe to databases and so we’ll compare the firm against [00:43:00] other firms that have sold that are in that database both in terms of their metrics and in terms of the. Previous transactions. And that’ll give us an idea of what the multiplier will be.

And then we can adjust the multiplier based on risk profile that we have. So if the very low risk profile will bump that multiple up for a very high risk, it’s going to come down quite a ways.

Jonathan Hawkins: You know, it’s it’s interesting. I say this all the time. You can’t, as an owner, it’s your firm, you’ve got the vision, you’ve got the direction, you can’t be completely absentee for sure. But the irony is the less the firm depends on you, the more valuable it becomes in the eyes of somebody else.

Right. I mean, for all those reasons you just went through. And so, you know, to the extent you can strive to sort of. Detach yourself, at least from the day to day operations. Again, you’re never, you’re going to be the driver, the visionary, the one that pushes it, no one’s [00:44:00] ever going to care as much as you do, but for all the other things, you know, remove yourself.

Another thing I see a lot of, and I think we’ve talked about this, but it’s when a lawyer says, Oh, my firm is, you know, 60 percent profit every year. And then the question is, well, how are you, what do you mean by profit? So tell me your, I think I agree with you on this, but what’s your definition of profit in a law firm for a law firm owner, we’ll call it.

Ed Alexander: Yeah. So, you have to be as the law firm owner, you have to be compensated at fair market value. And everybody in the firm has to be compensated at fair market value. What’s left is the profit, right? And what you’re talking about there is a proxy for profit is EBITDA. Right. Because you’re taking out the non cash expenses.

And so that really is a good way to get to what a profit number should be. Now, the thing that we focus most on is owner benefit depending on the firm size, that’s going to be a better [00:45:00] mold multiple to look at. In other words, the data to look at then necessarily an EBITDA because EBITDA typically are.

Are firms that are going to be, you know, north of probably four or 5 million. Right. And so you can kind of take a look at that. And in any event that’ll give you an idea. And you should be, if you look at SDE, so owner’s benefit should be like 35 to 40%. That includes your salary.

It includes the car that the firm pays for you and the travel that the firm and all of that should be 35 to 40%. And that’s a real number. If you have 60%, quote unquote, profit, and you’ve backed out a salary for yourself, you must be working, you know, 80 hours a week or your associates are incredibly underpaid or something is going on there because it just doesn’t work that

Jonathan Hawkins: Yeah. The other exception would be if you’re a high end plaintiff’s trial lawyer and you’re popping in. Okay. multi million dollar verdicts every year, [00:46:00] every other year that’s going to skew for sure. And you know,

Ed Alexander: But Jonathan, the one thing to think about there is you can get that high in a year, but the reality is those cases are going to take a significant amount of work. So year over year, if you were to smooth out the, you know, you get a verdict in 2023, but you worked on it from 2020 all the way on to 2023, right?

So you got to smooth that revenue over the entire period to make it. Reflect what the reality is, right? And so it looks great for 23. Oh my God, our profitability is 60%. That’s wonderful. But that means it likely means that if that was one big thing going through your, you know, your firm, there’s one huge case that your profitability was lower in the years when you were doing the work on that case.

So that’s why we like to smooth it to make it reflect a little bit more of reality.

Jonathan Hawkins: that’s a great point. Although I do know some firms that are basically doing that multiple [00:47:00] times every year. It’s crazy but to that, it’s because of the performance of a certain attorney, they’re just really good travelers and they attract the cases. That kind of firm. Is hard to sell.

I’m not sure you can

Ed Alexander: Yeah. That’s a brain surgery firm.

Jonathan Hawkins: so, so another question, I don’t know, you know, you mentioned 35 to 40 percent and it depends on the firm. I mean, you’ve got, you know, for example, some of these high volume firms that maybe advertise a lot or they require a lot of bodies to process the work. They may be at a lower, on the lower, End of the profitability versus some of the, you know, more higher end work might be on the higher end of the profitability, but what should a firm really shoot for?

Generally speaking, and if it’s below a certain number, what are the, what’s the number that warning warning sirens should be going off? You got a problem. You need to fix this. Okay.[00:48:00] 

Ed Alexander: If you’re below 20%, the warning sirens should go off. Right. And even if you’re a really high volume firm with a lot of bodies you should really be at 25%. Right. I mean, at the end of the day if you look at it, you were mentioning it before about investments, right? There’s, if you look at those investments that you’re just talking about before, like, Oh, I can go buy a T bill.

Well, there’s zero risk of that, right? I’m going to get my money back or the world is going to end. One of those two things is going to happen, right? But on the other end is, you know, I can invest in high growth stocks, right? And so my return on investment on those high growth stocks should be in the.

18 to 20 percent range historically because of the risk, those things could go away. So thing that’s more risky is your law firm. So if you can take the money and put it into high growth stocks with less risk than your law firm, and you make more. Then your law firm, you should do that because your law firm is not a good [00:49:00] investment.

Right? And so when you start to see your go below 25%, that’s the really critical warning sign that, Hey, your law firm is not becoming a good investment. Of course, you got to back out all the stuff that you get out of the law firm. Right. So important to do that.

Jonathan Hawkins: so, this may be a good segue into some of your marketing stuff. You’ve got some really cool marketing things going on. And one of those is you’ve got this thing called the scale to exit program, which love the name. And that may be part of the analysis that we’ve sort of gone through a little bit today.

But what is the scale to exit program?

Ed Alexander: It’s the three to five step program that we take lawyers through. So the first thing is we want to do that reality check that I talked about before. Where are you today? And then what are your goals? What do you want to accomplish? Then from there we do kind of this this feedback, right? So we go over everything with the lawyer so that they can evaluate, is this going to make it, is this [00:50:00] going to work for me or not? And then based on that. They get to decide, Hey, what’s basic choosing their exit. So which is the best thing for me now? And that’s where we go with three options. We got the internal transaction. We have, let’s grow the firm. So, spend some time doing some key things that are going to add a lot of value to the firm.

And then the other is let’s go for an outside exit. I’m

Jonathan Hawkins: And so. Who is that program for? Is it for, you know, anybody who thinks they may wanna sell? Obviously if they wanna sell in three months, that’s probably not for them. Is there an ideal sort of client that, that would be a good fit for this program?

Ed Alexander: anybody who is looking to sell and has, you know, three years or more before they need to sell is going to be a great candidate for the program. The key to this program is you got to have the mindset that really got to [00:51:00] grow the firm. If you come into the program burnt out, then it’s not going to work for you.

You’ve got to come in with the mindset that I’m going to make some changes that are going to benefit me in the long run. And so, I’m willing to kind of maybe change my mindset a little bit. If you don’t have that right now, right. A lot of lawyers do have that, but if you don’t have the mindset is let’s get the mindset right so we can start to bring people on or do the things you need to do to make this firm saleable and to have a really successful exit.

Jonathan Hawkins: So, yeah, I think that’s really cool that you’ve, I think you, you’ve trademarked that name, right? Well, we should say, yeah, when we get off, you gotta, I’m not a trademark attorney. Go for it. So another thing you’re really good at and you’ve done in the marketing side is you’ve got a number of books that you’ve published.

And which, you know, I’m working on one, it’s going to take me forever, but I’ve got the outline I’m sketching out, but, you know, I guess, take us through your process of the [00:52:00] books and sort of how has that been helpful in marketing your practice?

Ed Alexander: So the first book I did in 2005 and I had written a lot of blog posts and things like this about kind of mistakes that people made in their loft in their businesses. And so I just put them all together and then I edited it for way too long. And then I went and got it published. It actually had started out.

As it’s funny because, you know, Ben talks about this, it actually started out as a photocopied kind of special report and then it got expanded as I added stories and things like that to it. And so, I brought that everywhere when I, in 2005 you know, I was looking for business. I would hand that out to anybody who wanted it, that kind of thing.

And it really got people to, you know, send me stuff, which is what I wanted in 2005. And then interestingly enough, I made it into a book and then I don’t know, there’s something about like, Hey, I got a book and people love that. And they’re [00:53:00] really impressed by it, which is great. And so then I, you know, waited a while.

I kind of ran that one out and then I started other books. And in 2018, I don’t know, it just seemed to get really prolific and do a whole bunch of books at once. So we did the Got the partnership guide. We did the buying a business guide. We did Florida entities and all that. And then the final one that we did was the guide to selling your Florida law practice.

And that one has really been helpful for a lot of lawyers. So

Jonathan Hawkins: Yeah, I think that’s really cool. So a new project you’ve done or new ish, podcast now, which. I think it’s really great. I you pump out some really good information on there. Your solo episodes are really good. You talk about some of the things we’ve talked about and so anybody, any lawyer out there that is thinking about selling or not, I still think they should listen.

So what’s the name of that podcast?

Ed Alexander: Law deals.

Jonathan Hawkins: All right, everybody go out there and subscribe to that. So we’ve been going a while, [00:54:00] but I do have a few more questions. So, Have you seen any, you know, there’s all this talk about non attorney ownership in law firms. Everybody, you know, we know Arizona, DC has sort of had a version of it for quite a while.

Have you seen anything? Are you hearing anything on that front?

Ed Alexander: Well, Florida rejected it outright. I mean, I think the vote was unanimous rejection of it for the board of governors. Probably about a year, maybe even a year and a half ago. So, I don’t see it coming to Florida too soon. The it’s interesting to me because everybody’s worried about private equity getting into this.

And I think if you’re a high volume plaintiff’s personal injury bankruptcy, you know, one of those process firms we were talking about. I think there’s some risk for you in that. I don’t, a lot of the firms don’t have the returns required by private equity. So, you know, maybe that’s not such a big issue.

And I don’t see them you know, necessarily [00:55:00] doing anything in the, you know, Individual like, estate planning or something like that. Right. It’s a little bit too fragmented. I think for that to work with their type of model, but the real benefit for lawyers and the thing that I think is short sighted is that like me, I have a partner in the business brokerage who is guy, super intelligent, really good business deals.

He’s a ASA, which evaluation guy. And could I, would I love to have him as a partner in my law firm? Absolutely. Positively. Right. And so, I think that there would be value for, you know, that type of thing. If you’re a family lawyer and you’ve got a really good psychologist or something like that, and you want to keep them, come bring them in.

It, they can be a minority interest holder in the firm and still not direct what goes on. And the CPAs have had this for a while, right? Cause you can be a non CPA. Owner or owners up to, you know, 49 [00:56:00] percent interest in the firm and that’s wonderful cause they can bring on the consultants and they can do all the things that they want to do and have them as partners.

So I think there’s value for the legal industry in it. I think maybe the concern is a little overblown, kind of like AI. But

Jonathan Hawkins: You know, I’m with you. And the other, the another distinction I would make is like all of your staff, not even like a high level executive level. I mean, like, you know, your front, even your receptionist, if you wanted to give them a little piece and, At least having the flexibility to do that. It would align interests.

Everybody to feel like they’re rowing in the same direction. In theory, at least they might work a little harder because they’re like, Hey, I if I do, and they’ll bring you ideas, I mean, it, I think it would open up some opportunities. I mean, I do know that you can profit share with your staff and all that.

Most States allow that generally speaking, subject to certain rules. But I just feel like. internal ownership of non [00:57:00] lawyers. I see no reason why you shouldn’t be able to do that. It’s just sort of crazy to me, but we’ll wait and see, right? We’ll wait and

Ed Alexander: Yes. Yes.

Jonathan Hawkins: so, you’ve been at it for a long time with your own firm.

You’ve advised many law firms for those law firm owners out there. Any words of wisdom on, you know, or advice on. Operating their firm, getting it set up for more, to be more profitable or potentially to sell one day.

Ed Alexander: You know, lawyers, I think, have a tendency to want to be the hero and to do everything right. And have this idea that nobody can do it as good as I can. And the most important thing you could do is change that mindset to you cannot do this alone and you have to have a team behind you. That team is not going to do everything the way you want it done exactly.

[00:58:00] And you’re going to have to live with that because that’s the only way that the practice is going to serve you, your team and your clients. And that’s honestly, if you don’t do that, you will be burned out. You won’t have a practice that you can sell and life is going to suck.

Jonathan Hawkins: Yes, I bet you there’s people out there experiencing that right now.

Ed Alexander: I’m sure there is.

Jonathan Hawkins: Well, this has been real fun. So for people out there that want to get in touch with you, maybe explore the scale to Exit program, what’s the best way to find you?

Ed Alexander: Well, you can go to alexanderbusinesslaw. com. And the scale to exit program there is on the services. You can reach out to me on LinkedIn. And it’s attorney at Alexander in Orlando, Florida. So love to hear from anybody. And then if you want the book on the guide to selling your Florida law practice, which by the way, you The only reason it says Florida there is because I referenced the Florida rules, the bar rules in there.

But it really would apply [00:59:00] to any state. But ultimately you can go there to lawfirmexitsuccess. com lawfirmexitsuccess. com.

Jonathan Hawkins: Nice, ed, thank you for coming on. I look forward to seeing you in person in October. Right. Yeah.

Ed Alexander: here. Yeah. I’ll be there. Good.

Jonathan Hawkins: Well, appreciate it.

Ed Alexander: Jonathan.