Valuation and Consulting Engineers – A mixed approach

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Consultants News, of Peterborough, NH, is probably the most respected consultants news letter published and global distribution. While back, because they get many questions about “how to assess the consulting company”. . . . . whether they are mid-sized companies taken over by industrial giants or founding partners assess a fair assessment when new partners are appointed. To deal with coverage cn had this subject, they asked Charlotte based consultant and valuation analyst Paul A. Halas, Jr., to outline his assessment as it applies to consulting companies

Thomas D’Ufrey said: . “The value of a thing is known by its lack.” For consultants that modern question might be “how much is worth consulting in real dollars.”

Someone suggested last Institute of Management Consultants (IMC) conference consulting practice is really nothing more than specialized companies that value is the sum of hard assets as well as the actual profits.

But this is not so simple. And there is no single formula to determine the basic food. My method, which I call Halas Business Valuation System (HBVS) blends several protocols to evaluate the business.

This blended approach allows analysis to factor in more than just an income stream and other assets (which, for the smaller companies in particular can be a significant part of the value). The key to this approach is to consider such as goodwill, cyclical factors and excess corporate income adjustments of several formulas valuation.

It should be discussion, I use HBVS approach, hard data only, not esoteric or subjective inputs, with three actual consulting firms of different sizes. Side by side comparison of the three companies are shown in Table 1.

1. Micro-niche business, $ 200K income

In this case, the current owner has built a company from the beginning, 30 plus years ago. With a current staff of five (part and full time), the owner has built an excellent reputation with hundreds of customers and is now looking for work. In fact, the slowdown is already underway and the owner prefers to be available for “guidance” rather than take part in the daily grind. Sensing the owner of the value of concentrates mostly on reputation, industry experience, solid relationships that have been established and the real estate company has gradually acquire

In this company different formulas valuation generated value. From $ 220K to $ 477K, with a combined value of $ 333K. This final value represented only slightly above the value of business property, due to modest incomes and profits. In the owner’s own words “practice would be a great place for a new owner who would be interested in business development. Its revenues could double with minimal effort.”

as many small, owner-run business, this company may not have produced a valuation in accordance with the perception of the owner. This is usually because the food is the owner of the intellectual value attributed to customer lists and value of reputation and relationships. Unfortunately, as with any service business, customer relationships are the only valuable to the extent that they are active and producing profitable revenues. This practice would certainly represent an excellent opportunity for the next owner, if he / she is ready to “beat the bushes” for new projects.

2. Small / medium-sized public companies, $ 2.5 million income

This company was also founded decades and currently serves hundreds of customers in a variety of industries. With a current staff of 17, presents the company from polls and surveys, the operating skill enhancement programs to corporate strategy and culture. A true general consulting business, but one that is very well managed and one where the CEO is a consultant and often the projects.

By the same method, the valuation range of $ 2,2M to $ 3.9M, with the balance, the industry average of $ 3.4M.In this example, the real profits are exceptionally healthy, produce excellent reasonableness number. The company epitomizes old investor axiom: “Is it better to buy a company that owns $ 700,000 in assets and produces a $ 300,000 profit, or a company that owns a $ 300,000 property and produces $ 700,000 in profits” Unlike the previous scenario, the Consulting Group is shining an example of what can be done with proper market planning, use client list and, of course, people resources.

3. Mid-size niche business, $ 17.5 income

This is well positioned niche companies providing advice to a large industry. Present staff number 108 and many projects are international. The company offers a comprehensive set of services and maintains an excellent reputation in its niche. Its CEO is also a consultant and will be directly involved with client projects. When discussing material values, underlines his reputation and people assets. This company has a management style that is dedicated to customer service, while providing its own people with better-than-average quality of life.

Here, four assessment produced a range of values ​​from $ 6.6m to $ 9.8M, with the balance, the industry average of $ 8.7m, roughly 0.5 times earnings.

Implications

This exercise focuses on down-to-earth usefulness beyond subjective business valuation system, consistent and comprehensive approach to determine the market value of consulting companies. Performance and assets pull no punches. In connection with this article for these three companies, the latest PERFORMING period of contributing to the final value of these such companies. After evaluating thousands of companies in more than 20 years, we find a mixed approach to be the best, because the financial valuation is not necessarily related to the size of the company. One might consider using a multiplier of 4 to 7 times earnings if needed to replace the broad brush, all-encompassing approach. But to get the real income can often be difficult and frustrating. Generally, P & Ls do not provide the whole picture.

conclusions

In many cases, management consulting firms blessed with unique features, such as intellectual property, customer lists quality, and thorough knowledge of key industries or markets. These factors are important and can be used with either the seller or the buyer may set the base valuation.

Information based system, the baseline is about facts and intuitive data. Subjectivity can come into play, but only after the financial resources have produced a price that seems fair to both motivated seller and a willing and qualified buyer. Put more simply, it’s hard to get excited about market presence when the P / E ratio is in the teens. Need we say more.

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