Watch out.

I've been involved in this type of business for many years, including currently. Often the value (calculated based on cash flow or profit or "return on investment" or whatever such concept the accountants dream up) in such a business is tied to the consultants themselves. The actual bricks-and-mortar "value" is just a few computers and printers. If a consultant leaves, a chunk of the (cash-flow or ROI based) "value" of the company vanishes into thin air.

We (privately held) currently operate as if our business is worth nothing. It brings in cash flow and it pays taxes and salaries (commissions, in reality) so it has a "value" to ourselves, but anyone who wanted to buy the business (which isn't for sale) would be crazy to pay anything for it, because the consultants, including myself, would be gone the next day. If you the accountant, assigned some sort of present value to the cash flow that I bring into the business based on some assumed reasonable ROI, that would be a pretty big number, and if someone paid me up front anywhere close to that number I sure as heck wouldn't be working any more and I sure as heck wouldn't be living anywhere that had winter any more! And the hypothetical person who paid me that much for my share of the business would end up with ... nothing. (Worse ... a big debt.)

In a previous life, as part of a somewhat bigger business operated by someone else, the person who owned that business tried to get us (the consultants) to buy into the business, in an attempt to get us to somehow be more motivated in some way because now we owned a piece of the company. NOPE.

I agree with BrianPetersen: the notion that you can buy a consulting business with less than say 100 employees is just foolhardy. Even at 100+ employees it's a bit of a crapshoot- the entire value of the business can disappear rather rapidly as the employees depart.

"How many people work for your company?" - "About 20 %"

It happens so in any type of company just a couple of important guys leaving may reduce company value to nothing.

Learn to identify those guys and make them offer they cannot refuse.

"For every expert there is an equal and opposite expert"
Arthur C. Clarke Profiles of the future

When you buy a consulting company, effectively the only value they have is the relationships with their clients. You'd need a pretty good understanding of the business to make a good purchase, and identify key personnel that are important to those clients, for your investment to be worth anything.

At minimum you'd need to "buy" the retention of some key staff as part of the deal. Far, far easier said than done!

You can attempt to retain critical staff members by incentives or employment contracts or what-not, but ultimately if they're not happy, they're either going to be not there any more, or there physically but just writing numbers on their time sheets. And you can't prevent people from getting sick or having an accident or family emergency or what-not. At least in my area, an employment contract (including non-compete and similar clauses) cannot be upheld if it was signed after the employee in question was hired, so you can't just make people sign stuff saying they'll stay on.

Where I am right now, we explicitly have NO employment contract. I'm free to change careers or work for another company in the same field or whatever I'd like. But I'd be crazy to. It's too good to be able to set my own schedule and make my own decisions. It doesn't lend itself to the company being "sellable". I don't care, and the owner of the company doesn't care. It's better this way.

It takes a lot of time and energy to staff up a company, irregardless if they are good employees or whether or not they stay very long. Looking at an acquisition by Stantec, I think you could value each employee on average in a buy out at around 100k a head. Unless, there is a lot of work queued up, I think the value of a firm is just in not having to go through the hassle of finding employees.

I’d like to extend my sincerest tanks you to each of you for your candid and insightful responses.

With the personal aim of “owning” rather than “working for” it seems as if the morale of the story is pick one of the following general approaches:
1. Identify/purchase with extreme care by identification/retention of key personnel (e.g., profit sharing, partnering, etc.). Based on the good commentary above, purchasing an existing business seems a little risky given that I am probably in the 5 to 10 +/- person firm range where losing one or two performers could destroy the operation. Possibly work in the business first as a vetting step.
2. Start small/freelance, build a project history resume, partner up and grow from there.

Thanks again all!

I've gone with "option 2" and love it!

Please remember: we're not all guys!

I suspect Option 2 above is what Option 1 would quickly evolve to, unless you buy a company that has unreasonably communicative teachers included,

It might be a huge expense spared to NOT take Option 1.

We're fortunate as engineers that people are willing to pay us good money for what we know and can do - not just traditional employers. Presumably, you've been practicing engineering for sometime in the service of an employer. I recommend looking for a side project to start with. This will give you invaluable insight into the business side, which will greatly reduce the risk of purchasing an existing business.

It's hard to give advice with the information we have. In any event, my first suggestion would be to think through these questions and write down your thoughts in a notebook that you will continue to use and refer to throughout this process (and share you answers here, if you'd like more thoughtful responses):

If you purchased an existing business, and everything worked out fantastically - better than you would have let yourself ever imagine - what would that look like? In terms of business and personal life, income, amount you work, type of work you personally do, types of clients, number of clients, long-term value/exit plan, etc.

What is your time frame for key milestones on to this vision?

Why is this your time frame?

What's your budget? To BUY and RUN the business?

What would you need to finance? How were you thinking of financing it?

What is your current situation? Your current experience?

What's your network of potential clients like? Of potential referrers?


- Rob Campbell, PE
Learn precision engineering at practicalprecision.com

If someone is selling a business, they are not selling because it is making too much money

"If someone is selling a business, they are not selling because it is making too much money"

Or perhaps they are retiring. Moving on to a more profitable business (like land development).

My Dad recent sold his dentistry practice when he retired. He got some money for the equipment and the building but the client list is what had real value. He had other dentists in town offer to buy him out just for his client list so new dentist wouldn't move in and start up shop. If you don't have work, that client list has the value of your time needed to drum up work.

The client list only has value if the clients choose to stay with the new owner.
With smaller firms, it's hard to come in as a new owner and be able to replicate a 30 year relationship.

If you either acquire or start your own business, do so with an eye toward making it a sellable asset at some point in your life. Built to Sell and The E-Myth are good references in that regard. But both of those - especialy The E-Myth - are heavily focused on the process of how the work is done and how the business is run. Built to Sell also focuses on "productized" services, which is related to sales to a degree, in that they are easier to market and sell.

But you need to think about your sales and marketing in greater depth, not only to make the business easier to sell, but to make your life easier while running it and to reducing the boom/bust cycle (both of which, not coincidentally, a buyer will value as well). My consulting business, like most, is primarily based on networking and referrals. But networking and referrals can be done half-ass and only when you finish the last job, or can be done systematically and regularly. Book Yourself Solid and Get Clients Now are good references for how to do consulting sales and marketing well.

To help me with ongoing outreach - both by providing a system and tools - earlier this year I subscribed to Contactually.com - a customer relationship management tool - for $60/month. It's been well worth the investment.

I also started to publish articles in my discipline as a way of generating inbound leads (people who find me via search) and to make the sales process easier. It has worked wonderfully for the latter. I never had an easier time closing a sale than my last two big ones; the clients both referenced the articles during the early sales calls. I'm also building an email list from my site, primarily based on that content. This is another tangible asset.

You will also need to learn how to sell, even if your leads are introduced to you by mutual acquaintances. The first sales book I read after going out on my own - and still my favorite - is How to Become a Rainmaker.

Two last points regarding building a business that doesn't make you lose your hair and that you're more likely to be able to sell someday:

(1) Niche down. "I help companies whose products depend on precision motion or optics for success to achieve break through levels of performance; I leverage years of experience and expertise with advanced analysis and modeling to achieve those results quickly and cost-effectively, without wasteful build-it-and-see iterations." That's my business and positioning in a nutshell.

(2) Have an idea of how you would like to exit (acquisition or sale). Acquisition by a larger firm seems most likely and lucrative. Who would be a likely acquirer for your business (it helps if you have a narrow focus)? Actually build relationships with those companies and similar ones, and keep the value they would derive in mind while designing and building your business.

- Rob Campbell, PE
Learn precision engineering at practicalprecision.com

Talk to the clients. I've seen them arrange deals when faced with the prospect of loosing an important supplier because the owner was retiring.