How to Value & Sell a Consulting Business?
Selling a consulting business is an interesting endeavor because consulting is such a varied industry. Although all consulting companies are knowledge-led businesses that offer consulting services, no two of them are exactly alike, and their offerings, clients, and results will vary dramatically based on their area of focus.
Some of the most popular types of consulting firms include:
- Operations Consulting (sales, management, and manufacturing operations, etc.)
- Strategy Consulting (business, marketing, and environmental strategy, etc.)
- Information Technology (IT) Consulting (cybersecurity, software implementation, etc.)
- Financial Consulting (economic, tax, foreclosure, and fundraising consulting, etc.)
- Human Resources (HR) Consulting (compensation, recruitment, benefits, and synergy consulting, etc.)
- Marketing Consulting (digital, email, social media, and content marketing, etc.)
- Compliance Consulting (legal consulting, financial regulation consulting, etc.)
- Well-Being Consulting (health and wellness consulting, life coaching, relationship consulting, etc.)
Many consulting companies have taken a hit as a result of the COVID pandemic as businesses have begun to cut unnecessary expenses. Experts predict that the industry will decline by as much as 15% in 2020, but some sectors, like the financial consulting niche, are faring better than others.
Despite the doom and gloom, many consulting firms have been able to adapt, stay afloat, and even thrive. Experts predict that by the end of 2020, companies will begin hiring consultants again once valuations drop and businesses need consultants to get them back on track.
Plus, there’s significant money in consulting. In 2017 alone, the global consulting market was valued at around $262 billion. The industry continues to grow a rate of around 4–5% annually.
The bottom line is that if you’re interested in selling a consulting business, the industry is expected to rebound, and interested buyers can be found — you just have to know how to position yourself to entice and land them.
How do you do that? What’s the best way to sell your consulting business for the highest ticket price possible?
How Much Is Your Consulting Business Worth?
Determining a business’s value is never cut and dried. The process involves taking a microscope to your company’s financials and operations and then putting those numbers into various equations. Market conditions and market comparison also come into play.
Generally, brokers, appraisers, and financial experts use some or all of the following to determine your consulting firm’s value:
- Annual Sales (Revenue)
- Net Profit
- Annual Average Growth
- Position in The Market
- Customer Funnel
- Physical or Operational Locations
- Assets (For consulting firms, this would include your website, proprietary software, social media channels, etc.)
- Dependence on Owner (i.e., Can your consulting firm operate without you, or are you the face of the firm?)
- Internal Operations and Systems
- Liabilities and Debts
- Unique Selling Proposition (i.e., What makes your company better and different than any other one in your niche?)
To understand your value, you have to understand the industry at large and what buyers are willing to pay. Any potential buyers will want to ensure that they’re going to have a stellar ROI (return on investment).
Ultimately, your business’s value will reflect its actual value while allowing room for a buyer to come in and recoup their investment. In other words, if your business earns $150K a year, you won’t sell it for $15 million, because it would take a buyer a long time to recoup that.
Also, with consulting firms, the value is often tied to the talent. Sometimes, valuations will take into account the revenue generated by each employee. If you’re the only consultant at your firm, your value might be based solely on your assets, client base, and a clear handover strategy.
The simplest way to get clear on your value quickly is via a free business valuation calculator. Valuation calculators don’t always show the whole picture, but they give you an idea of your value.
How Can You Increase Your Value Before You Sell?
If you want to increase the ticket price of your consulting firm, you need to be sure that your company is in the best condition possible; in particular, you want your books and financial statements to be in order. If your financials are a wreck, you’ll be hard-pressed to find a buyer.
If possible, eliminate any outstanding liabilities and focus on increasing your profits. Buyers are looking for healthy companies with reliable income and room to grow. If your consulting firm isn’t consistently earning, or there isn’t a growth path, then work on resolving those issues.
Spend time identifying your unique selling points and make sure they’re in tip-top shape. Improve your relationships with your customers, if needed, and increase repeat customers if possible.
If you have any pending legal issues, resolve those before going into the sales process. Be sure to copyright and trademark any assets you own, and do your best to make your business processes seamless.
The 10 Steps To Sell A Consulting Business
What are the nuts and bolts of selling a consulting business? Every business sale goes through the same general process.
Before you get started, you should consider hiring a business broker, whose expertise is invaluable. A broker can walk you through the following ten steps and ensure that your business sells for the highest price possible.
The ten steps to sell your consulting business are as follows:
- Get a certified business valuation.
- Work to increase your value (if needed).
- Continue to run and grow the firm through the process.
- Define an exit strategy for yourself, your investors, and your employees.
- Identify a handover and growth strategy for potential buyers.
- Create a value proposition and sale documents for buyers.
- Find potential buyers. (Some examples of potential buyers include other consulting firms, entrepreneurs, equity firms, companies that want to add consulting to their business offerings, up-and-coming consultants, and more.)
- Meet, negotiate, and shortlist potential buyers.
- Decide on a buyer.
- Finalize the deal (Heads of Terms document, Due Diligence, Legal Sale and Purchasing Agreements, etc.)
Start The Process Of Selling Your Consulting Business
If you’re ready to sell your consulting business — get started today. The sooner you begin the prep and valuations, the quicker your business will be sold, and you can move on to your next adventure.
At Raincatcher, we’re experts at getting businesses sold for the highest possible price. We value our sellers, and we will walk you through every step of the process. In the COVID era, hiring a broker who understands the art of selling a consulting business is crucial.
Contact us today and let us help you get your consulting business sold.
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