David A. Fields Consulting Group How to Maximize the Exit Value of Your Consulting Firm (And Why You Should Plan Now)
One way or another, you’re destined to leave your consulting firm. Will you maximize the value you receive upon your exit?
Many consulting firm leaders treat their exit plan like dessert at a casual restaurant—ideally it caps off your experience well, but you devote scant attention to the subject until just before it matters.
Perhaps you harbor a vague notion that you’ll eventually wind down your consulting firm, or that you’ll engage in the process of securing a buyer sometime in the future.
However, as with any major endeavor or soufflé, when you act early and with the end in mind, you’re more likely to achieve a delicious outcome.
Understanding your ideal exit will inform your timing and your approach to transitioning out of your consulting firm. And, more importantly for the near term, your envisioned exit shapes your current initiatives and actions.
The reasons you started (or bought or lead) a consulting firm may influence your exit, so those reasons merit revisiting.
However, the world isn’t static, and neither are you. What you want to achieve on exit is likely to diverge significantly from whatever you had in mind when you entered the business. You may have fulfilled your initial goals, modified them or shifted your wants and needs wholesale.
You may be single-mindedly focused on reaping the highest financial payout possible. Fortunately, the largest contributors to a consulting firm’s market valuation are straightforward. (I elaborate on the drivers of a consulting firm’s market value elsewhere.)
Most consulting firm leaders are in this game for more than the money, though. And regardless of your motivations, optimizing your departure from a successful consulting firm rests on a simple maxim:
To maximize your exit value, you must understand your Exit Values
Your consulting firm undoubtedly touts firm-wide values – concepts like “integrity” and “perform high-quality work.”
Your Exit Values are different. Exit Values reflect what you want your firm to be or achieve when you leave. They’re most easily captured by completing the sentence below:
“When/after I leave, my firm will (continue to)…”
Examples of Exit Values
When/after I leave, my firm will (continue to)…
… be a great place to work
… take care of employees (at certain levels)
… serve as an incubator for ideas or people
… spin off cash to fund other ventures
… pursue a certain driving mission
… solve a certain, overarching problem
… serve a certain type or class of client
… perpetuate or expand intellectual property
… steward or build a certain brand
… increase status and influence in a certain industry
Those are just 10 examples among many possibilities, and you may prioritize entirely different values.
Once you’ve roughly identified your Exit Values, you can specify your goal for each value; i.e., your Exit Goals.
Exit Goals come in four flavors:
Sufficiency Goals – a certain level of achievement is good enough
Limitation Goals – you want no more than a specified level
Maximization Goals – you want the most possible
Maintenance Goals – you want to minimize change
Now that you understand Exit Values and Exit Goals, you’re well positioned to maximize the value of your consulting firm exit.
Action Plan to Maximize the Value of Your Consulting Firm Exit
There are at least a dozen different, viable planned exits from a consulting firm. To pinpoint the best type of exit for you and to create the highest likelihood of maximizing your value, execute four steps:
Step 1: Identify your Exit Values.
Step 2: Formulate your Exit Goals, noting what “flavor” applies to each goal.
Step 3: Determine the repercussions of your Exit Values and Exit Goals on how and when you intend to exit your firm.
Step 4: Mapping backwards from your Exit Goals, Exit Values, intended timing and type of exit, deduce the implications for how you will grow your firm, commencing with this quarter.
Have you given any thought to your firm’s exit and/or do you have any Exit Values?
Text and images are © 2024 David A. Fields, all rights reserved.
Thanks David, sage advice.
I would add a few other considerations in the exit planning process …
1. What is going to make your consulting firm attractive to investors (either internal or external) and who are these potential investors? This helps the owner develop a practice that they know can divested in the future; and
2. What amount of net wealth does the owner need to extract from the practice to fund their next chapter of life i.e. to be lived without financial restrictions; and
3. What are the owners personal aspirations once they leave the practice (personal development, recreation, health, relationships legacy etc)
Unfortunately too many owners forget about items 2 & 3 until after they leave their business and then regret their decision to leave because they either can’t fund their new lifestyle or are bored and unfulfilled.
Early planning (I call it master planning) makes all the difference.
All good points, Greg. Interestingly, quite a lot of consulting firm leaders/owners aren’t looking for investors (internal or external) or trying to maximize the financial value. Similarly, for many owners whose firms have created a hefty nest egg already, no more wealth needs to be extracted. Nevertheless, your advice is excellent.
Thanks for adding your wisdom to the article, Greg!