Selling Your Professional Service Firm: A Primer

I’ve written this book because selling your business is quite possibly the biggest financial transaction of your entire life, and you’ve never done it before and will likely never do it again, and you really need to be smart about this. I recently did a quick study on the likelihood that a firm in a particular, narrow vertical would have a successful exit—defined as someone else purchasing, for real money, a majority of your firm’s equity. It’s not a great sales tactic to give you that number at the start of a book you just purchased, but the answer was roughly 1%, or 1 in 90. Ouch. To use marketing firms as an example, roughly 1,000 firms are purchased every year in the U.S., of the roughly 90,000 firms that exist in the country at any given point. Of course, firms exist over an average lifetime that spans multiple years, so the odds of a successful purchase increase as a firm gets nearer its maturity, but they still aren’t great. But there’s an important corollary to that truth, and it’s this: There are many things you can do to improve your odds, turning that likelihood into a 1-in-4 chance that you’ll sell your firm. And then once you do set yourself up for a possible exit, there are some fantastic inside techniques to maximize the upside while also minimizing the risk. This book is generally about selling your firm, but you can easily flip these principles around and be more successful at buying a firm, too. We’ll also cover many other elements of mergers and acquisitions (M&A) and the larger succession picture, including the requisite valuation of your firm. This is not a textbook, though, and it doesn’t cover some of the deeper intricacies of the legal and tax implications of a transaction. It’s just a handbook to help you think differently about your options. You’ll buy and sell more houses than you will businesses, and even though you’ll need to hire professionals to help you, it’s very much in your own best interest to understand the lingo and basic concepts so that no one takes advantage of you. So why not educate yourself? The information in this manual comes from hard-earned experience in guiding 200+ transactions on both the buy- and sell-side, including searches, partnership splits, internal transfers, and everything else you can imagine. Our experience comes from firms in the marketing, creative, and digital space, but the principles all apply to the larger professional services space. Wherever you are on this adventure—just starting or wanting to do the next transaction without getting burned—enjoy the journey to one of the biggest decisions you’ll ever make. By the way, I wrote this book with no particular length in mind. The goal was to say what needed to be said, without any filler. To that end, you’ll find some extended explanations where appropriate, and in other cases all you really need is a bulleted list to understand a concept. I’m assuming that you’re smart—and that your time is valuable—which is why I’ve worked hard to keep this as succinct as possible. One last note: The information in this book is designed roughly for firms in the $5–$50M range. Selling a smaller firm than this carries some unique challenges (which can be overcome), and firms bigger than this range have many more options. For example, the role of the principal and the nature of the earnout isn’t nearly as important, there are more financing options, and there is generally less risk. So understand that the principles in this book apply most everywhere, but they are particularly apt for firms in that $5–$50M range.