The hidden value in your management team

management-team

There is no doubt that leadership and management in any organization is critical to building business value, but did you know that it’s also a focus of most consultancy buyers’ due diligence when considering a purchase?

On a recent webinar, Equiteq Chairman Paul Collins answered questions on why management quality is important to consultancy buyers and investors.

  1. How do you manage the potential conflict of building the profiles and skills of managers to attract a buyer when these managers may want to leave after a sale?

The focus of buyers during due diligence is on the top two levels of leadership in the business – the board leadership and the business unit leadership. Managers at this level are often required to stay with the new firm for a period after sale.

If your managers are intrinsically involved in every significant operational activity, then a buyer would be reluctant to see them exit. But if a manager’s responsibility is easily transferable, then there is a greater chance of a buyer allowing a manager to move on.

If you’re a business owner who wants to exit immediately after selling, rather than staying in the business during an earn-out period, you need to make yourself superfluous to the day-to-day running of the business before entering into the sale process.

Not sure about what an earn-out is? Here’s our blog on the 10 critical success factors for earn-outs: part 1.

  1. What is a typical span of control for a practice manager in a consulting firm?

In our experience, a unit of ten people is a good number to build a business on. For instance, if you have a market sector head overseeing a number of client managers, project managers and consulting delivery resources, this works well. Ten people produce around $1.5-$3 million in revenue, depending on fee rates in your market sector.. Once you’ve built a sector up to you can then repeat the process which is a good way of building the business.

  1. How does it look to a buyer if we purposely slow growth to catch up with working on the business and getting the planning, measurement, policy and support systems in place for a sale?

There are both positives and negatives to this approach. Buyers are most interested in the absolute profitability in the 12 months prior to sale plus the ability to grow the consultancy in the future. So what should be of concern is that such a strategy to delay growth will negatively impact a firm’s profitability.

However, on a case-by-case basis, having adequate systems in place might demonstrate the robustness of your business, making future growth stronger and therefore more attractive to buyers. The key is finding the right balance, which depends on the individual circumstances of your business.

Finally, here’s our key takeaway from the webinar:

Do: Spend enough time working ‘on the business’ as opposed to ‘in the business’. You won’t grow if all management time is dedicated to client and staff issues.

Don’t: Outstay your welcome if you do manage to sell to an investor after achieving your growth ambitions. It’s better to move on to the next venture or the beach before you fall out with your new owners.

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

If you are preparing to sell your consulting firm and would like to discuss your plans, please get in touch.

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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