How to Turn Your Consulting Firm into a Saleable Asset

As the owner of a consulting company there are eight levers you can use to speed up growth and the quality of your firm. If you want to grow your firm for an eventual sale, then the 8 Levers are crucial to equity value. Build your business plan around them and you can ramp up the value of the firm and your pension fund, whilst also enjoying high profits. Ignore them and you may have to live off an annual income for a long time and close your firm when you retire! Each lever is an area of opportunity to increase the probability of your firm delivering predictable profit growth. So use them to drive up your performance, enjoy the cash-flow that follows, and turn your firm into a target that trade buyers or investors will be hungry to acquire.

1. Sales and Profit Growth

Can you show a consistent growth in revenue and profits?

Sales and profit growth is a reflection, or an output of your performance in the other 7 levers below. A firm with a track record of erratic revenues and profits sends a concerning message to buyers and investors, so if you can show sustained revenue and profit growth AND high margins, then you have an attractive proposition. If you want to achieve this your top priorities are Sales and Marketing Process and Market Proposition, because if you get them right everything else falls into place.

2. Sales and Marketing Process

Can you predict top-line sales revenue with reasonable accuracy?

If you can then there's a high probability that you can forecast profits, which is why a quality sales and marketing machine is vital, because it delivers a healthy business pipeline and de-risks the traditional feast and famine issues often found in consulting firms. If you leave all your sales and marketing activity to one rainmaker, or serendipitous sales opportunities then you're hostage to fortune, your sales pipeline will be vulnerable and unpredictable. Lead generation should be automated and largely independent of any individual. A marketing-led firm, where prospects are attracted through a balance of 'pull marketing' and 'push sales' is more likely to deliver a robust sales pipeline.

3. Market Proposition

Does your value proposition provoke a 'WOW' or a 'so what'?

The more unique, compelling and targeted your value proposition, the better you can demonstrate that your firm can command market attention with greater ease than its competitors and the higher you can push up your fees. If you're in the 'me too' zone, then the risk of future profits is higher because competition risks are higher and you have to fight harder for business. A compelling value proposition helps you stand out in the crowd when a prospect is looking for a firm like yours!

4. Management Quality

Does your leadership team work 'on' or 'in' the business?

If you spend more time working 'on the business' then the firm is likely to be innovative, focused, and tightly managed with good KPI measurement and financial control. If your priority is working 'in the business' feast and famine follows like night after day because no one is looking after business development until it becomes a painful necessity.

5. Client Relationships

Do you have a well managed contact base?

The quality of your client relationships extends from your account management methods to the way you develop influencers, decision makers, dormant clients and old contacts. Good firms employ methodologies like Miller Heiman's Large Account Management Process (LAMP) and use a CRM system to assist in relationship development with individual contacts. Quality processes such as these enhance your ability to acquire, retain and build your client base, increase your revenue per client and improve the quality of your fee income.

6. Quality of Fee Income

Do you have a diverse client base and no bad debt?

If you have one giant client upon which your firm depends, then of course your business is at risk. A diverse client portfolio with income growth balanced across existing clients and new business is ideal. Add to that a robust approach to debt collection and billing, longer term contracts, resulting in zero bad debt and low working capital, then you're right on the money!

7. Intellectual Property (IP)

How much IP is in your very mobile people and laptops?

A systematic approach to knowledge management and building IP will make your firm more valuable because it de-risks business and enables the repeatable delivery of services at a high quality without being exposed to the expertise of key individuals. Also, effective IP development and management improves your market position by raising the height of the bar for competitors.

8. Consultant Loyalty

Can you stop your equity from walking out the door?

There's no point in winning all those new deals if you can't provide the skills and manpower to deliver, so you need an environment people want to work in, where they get recognition, reward, personal development and have fun. If you develop this environment, then the best people will be keen to join you to help keep your business growing and reduce their desire to defect to a competitor! Also, if you've locked your key staff into the future of your firm through profit-sharing and share options, then you'll have a team where all are focused on the equity growth of your firm and its future acquisition.

So in summary…

Wherever you are on the growth journey with your consulting firm, use The Eight Levers of Equity Growth as your template for success. If you are a fledgling firm then focus most of your attention on Market Proposition and Sales and Marketing Process because these will set the foundation for cash generation. However if you have an established business with a good profit record, the Eight Levers may help you to polish up your act before you take your firm to market to be acquired.


------

Tony Rice is a partner at Equiteq LLP, a consulting sector mergers and acquisitions (M&A) firm. The 8 Levers of Equity Value form the basis of a valuation and growth system made up of 80 best practice Key Performance Indicators, providing structured and financially quantified performance improvement. Visit http://www.Equiteq.com/EGA for more information.