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Selling A Professional Advisory or Consulting Business

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Selling a private advisory or consulting business on retirement raises a number of specific issues and challenges for the seller and their broker.

A feature of the UK small company sector in the last 20 years has been the migration of experienced managers from the corporate world into various consulting professions, often setting up their own companies to offer advice to the SME sector. Many of these companies were started when the principals were already in the mid to late stages of their career, and they have now reached the point at which retirement is becoming a serious consideration.
 
What Are The Particular Issues Raised When Selling A Consulting Or Advisory Business?
 
The market for advice has grown well beyond the traditional legal, accounting and wealth management practices. For these long established sectors there are a number of active brokers and a well-established range of valuations. For the newer advisory practices in areas such as human resources, health and safety, environmental regulation, quality systems and marketing services the market is less well defined.

We have sold a number of businesses in these sectors in the last few years and have found a common profile. Typically they have between one and five consultants, they can be very profitable, but they have little in the way of tangible assets. The key assets of advisory businesses tend to be intangible assets and human capital in the form of customer relationships, customer contracts, brands, proprietary systems and other forms of intellectual property. Value will be based on the buyer’s assessment of the sustainability of the cash-flow generating potential of the business. The key word here is sustainable. Buyers will be understandably nervous about retaining customers when the principal retires, and will look for evidence that customer relationships are not entirely dependent on his or her personality and reputation.
 
Is My Consulting Practice Saleable?
 
So what makes the difference between a practice that might attract a potential buyer, and one that will have to be wound up on the principal’s retirement?

These are the elements that we have found are most important to buyers:

    The service is a “need to have” rather than a “nice to have” for the company’s customers – health and safety and environmental compliance are good examples of this;
    The amount of repeat or better still contracted business with customers;
    Turnover and daily fee rates must be such that the buyer can employ consultants and have enough retained gross margin to justify a purchase;
    The seller must be prepared to work with the seller for a short period after the sale to make sure that customer goodwill is retained;
    The size of the total market for the services and if it is expected to grow over time;
    The number of direct competitors in the practice’s market and territory.

Putting an accurate valuation on an advisory business is always a challenge. The keys to maximising value for the seller are retaining core staff, the practice’s ability to develop and maintain customer relationships to secure regular cash flow, and its reputation for integrity and service delivery.

 

If you are interested in finding out more about these and other issues relating to the sale of a private company one of our business sale experts would be delighted to talk to you in complete confidentiality. Click CONTACT ME to book an initial phone conversation or call us on 01604 432964.

 
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