When your business is based on the expertise, experience and services you've developed over the years, how do you put a value on it? Valuing a consulting firm can be vastly different than valuing other types of businesses. What is involved in the process of having your consulting business valued? What should you expect in the process? How is it different than how other businesses are valued? Here's a quick look into the entire process and why it uses different methodologies than those used for other types of businesses.
Selling Services: What's involved in valuing a consulting firm?
When a regular business is sold, the asking price or value is typically based on a complex series of calculations based on assets, liabilities, income and other aspects of that business. Machinery, real estate, market conditions, future income, goodwill and reputation all come into play when the business is valued. However, that process doesn't work as well when a consulting company is being valued.
Generally speaking, a consulting company has a much higher level of intangible assets. These assets can include expertise in the field, experience in the industry or specialty services that are hard to put a dollar figure on. What's the value of an hour of your time? For many people in consulting companies, it goes far beyond an hourly wage. It includes a significant amount of overhead, especially time spent in forming network connections, marketing the business and developing new programs for their clients.
In other industries that sell services, you can often estimate the value based on what other professionals in the area or industry are charging for their services. A lawyer, accountant or dentist are all able to charge a particular amount based on what the market will bear and what their overall expenses are. But when you're selling less common consulting services, determining and proving that value can be much more difficult. How do you prove the value of your consulting business when it matters the most?
Let's say a consulting partnership exists that provides evaluations of workplace safety. If one of the partners has a health issue that forces them to leave the business, how do you determine the value of that partner's share? When a business valuation specialist looks at the situation, they use a number of different methodologies to help calculate that value. They may look at the income that particular partner has brought into the business, and made adjustments based on that partner's contributions to the business, such as unconventional thinking, a reputation for driving innovations, goodwill in the community that has brought in more business and similar areas of concern.
By understanding the differences between valuing a consulting firm and valuing other types of businesses, you can get a better grasp of how the entire process works. This will help you make wise business decisions that will boost your business' equity, allowing you to grow into the future and reach your dreams. But don't settle for an average real estate agent who doesn't understand the complexities of your business or make a guess based on what similar businesses have sold for in the past. Make sure that your business is appraised by a certified business valuation specialist to ensure that you're getting a solid, accurate value for your hard work.