Sales and profit growth (Part 2)

Sales and profit growth cropped

Lately, we’ve been running a series of free 30-minute webinars to help attendees grow the equity value in their consultancy firms and prepare for a sale of their business. Attendees at each webinar submit questions, and we’re going to be sharing and answering these questions in a series of blog posts. This week we’re looking at the final part of the Q&A session during the webinar on what your company’s sales and profit numbers say about how you run your business. You can read the first part here. 

  1. Which is more valuable to a buyer, a consultancy with (a) a lot of clients with lower revenue per client, or (b) fewer clients with higher revenue per client?

Client concentration is a risk for any organization. Buyers would be worried if your consultancy is earning 70% of its revenue from a handful of clients. This would cast doubt on whether the business would be able to sustain its current revenue levels should any of the clients leave or cut back on their spending.

The quality of your clients is a critical factor for attracting buyers, and it is important to have key clients that demonstrate your ability to service and sustain such relationships. However, spreading client concentration shows buyers that your offerings have the potential to be applied to their clients as well, and that your firm has resilience in its target market.

Tip: Try to diversify your client concentration and offerings as suggested here in our eight essential tips for planning for growth and exit.

  1. What is the minimum revenue level that buyers will tolerate?

Our latest buyers research revealed that, on average, buyers are on the lookout for consultancies at the $30m mark. However, from our experience, anything above $5m will attract potential buyers.

While smaller buyers might have an appetite for smaller firms, it’s the bigger consultancies that larger buyers are interested in. The greater the revenue level, the more interest it will attract.

  1. Would it be important to develop new revenue models other than time and materials?

When buyers acquire a services consultancy, they effectively acquire the value of the personnel and their expertise. However, with technology changing how all kinds of services are delivered, buyers are increasingly looking for ways to scale their consulting acquisitions by leveraging other intangible assets, including the target’s intellectual property, in order to generate further revenues without necessarily adding people. They will take this into account when considering future projections.

A consulting firm that strikes the right balance between high margin consulting work that relies on expertise and advice, and longer term service offerings that require less manual effort, are particularly attractive to buyers. This is not easy to do, but worth pursuing, as new service-based revenue models that follow an advisory offering can provide a way to scale your firm without adding new people.

To sign up to listen to a recording of this webinar, please click here. To view other webinars in the series, please click here.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners prepare for sale and sell their business. Register here to gain full access.

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