Many of our clients spend years building a consulting firm and dedicate the majority of their careers to the task. It is very common at some point in the life of a firm for the owner, or owners, to suddenly come to the realization that they have built something of significant value. However, the equity value in a privately held consulting firm is not a liquid security (like gold, or shares in IBM), so how does an owner turn their equity value into liquid cash? In this series of blogs we will cover not only the different options available for realizing equity value, but also the key stakeholders that a firm owner will likely want to protect in the context of a transaction.
Fundamentally, the exercise of extracting value from a consulting firm requires placing it (or part of it) in the hands of a new owner. That might seem self evident, but in the professional services industry it is never enough to simply find someone willing to extract the financial benefits from a going concern (as you might for a traditional manufacturing business). In a people business, we are always looking for the right partner. That is why making deals in this space is difficult and requires special expertise and experience. It is also why many transactions start with industry relationships between the buyer and seller, whether that is a competitive relationship or a partnership.
The importance of relationships is also what drives the next important category of considerations: stakeholders. The overall ecosystem of people and partners that is important to your business now becomes even more important in the context of a sale of your business. If you have an important client, that client will be important to the buyer as well. And that is true for employees, providers, contractors and so on. It isn’t enough for you to want to treat your stakeholders well; a buyer will want to know what the stakeholders are going to think about the deal.
As you can see, there are many things to think about as you prepare to realize the value of your firm. There are also several avenues to consider when planning an exit – so what’s the most important single thing to remember? There is no substitute for proactive planning, so develop a relationship early with a professional advisor who can guide you through the preparatory steps to what is likely to be the single largest financial transaction of your life.
We will be exploring the different exit options in more detail in future blogs.
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