For Dick Testa, name partner of Boston's Testa, Hurwitz & Thibeault, a firm that has guided many high-tech companies through their own initial public offerings (IPO), the notion of taking a law firm public doesn't seem far-fetched.

"We already have internal accounting systems, sophisticated reporting systems, independent public accountants, and audited financials," says Testa. In other words, the burden of preparing for listing on a major stock exchange would be negligible.

But not many lawyers seriously dream of cashing out their firms through an IPO. Because of the many obstacles that prevent law firms from going public (for example, the Professional Code prohibits nonlawyers from owning shares in a law firm), no law firm has ever done an IPO. Still, assume for a moment that Testa, Hurwitz & Thibeault or Venture Law Group (profiled in the May 1998 Inc. story "When is a Law Firm Not a Law Firm?") or any other law firm could be structured in a way to overcome the problems. How would Wall Street value it?

There is no precedent for estimating the worth of a law firm. Testa says the task would be for firms to develop a breadth as well as depth of services and a track record of repeat business so Wall Street would see the value of a listing.

The inclination might be to start the valuation by looking at revenues and profits, say two or three times the current revenues. Or you might multiply the firm's projected income per share by a factor used to value similar industries. But Earle Yaffa, managing director of Skadden, Arps, Slate, Meagher & Flom, one of the country's largest law firms, warns against these simple approaches. A firm's earnings aren't what they appear to be because partners typically draw salary against the earnings. In addition, law firms reinvest a percentage of the earnings each year. "To get an accurate sense of what a firm is making, you'd have to subtract the amount you'd need to pay partners to keep them on after the offering," says Yaffa. "You might find out that the actual earnings are small figures."

Another way to value the law firm is to treat it as if it were any other professional services firm. Jim Davidson, a managing director at Hambrecht & Quist, an investment bank in San Francisco that held its own public offering last year, says that the personnel is the value of a law firm. "We'd need to know how dependent the firm is on a couple of key people, or does it have a broad base of talent? Did it complete 50 public offerings last year, and if it does 100 public offerings next year, will it have the people to take on the business?"

For now, a public law firm remains a mythical creature held to the realm of frivolous conversation around the golf course. "Sure, some guys wouldn't mind cashing out," says Skadden's Yaffa. "But given the professional restrictions, it's not as if we've even put pen to paper."

Joshua Macht is a former associate editor at Inc. magazine.