Building Capital Values Peter Scott Peter Scott Consulting.
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Transcript of Building Capital Values Peter Scott Peter Scott Consulting.
PETER SCOTT CONSULTING
“Value”
Desirability
The amount of money ….. for which a thing can be exchanged
PETER SCOTT CONSULTING
What does a lawyer have to sell?
Services / labour?
Hard assets?
Goodwill? (the difference between the net hard asset value and a total price)
PETER SCOTT CONSULTING
What do you have to do so you have something to sell?
Need to create something of value:
which someone else needswhich they cannot provide for themselvesThe value of which does not depend on your remaining in the business
PETER SCOTT CONSULTING
Three elements to creating something of value in a law firm
The nature of the business you createYour relationship with that businessThe need to find a buyer
Above all you need to create a business
PETER SCOTT CONSULTING
1. Need to build a competitive business
Providing clients with what they needAt prices THEY consider value for money
Do this better than the competition
PETER SCOTT CONSULTING
Need to build a business providing clients with what they need
Focus is all importantFocus on work types / client types Sectors where there is / likely to be growth
It is about picking winners
PETER SCOTT CONSULTING
Picking winners
Research / analysis of the marketWhat kind of law firm should we be building….. to create capital value?Strategic planning to achieve objectives
Implementation
PETER SCOTT CONSULTING
Need to build a practice that is showing a pattern of…
Increasing turnoverIncreasing profitabilityOn a sustainable basisWith a stable and growing client base
PETER SCOTT CONSULTING
2. Your relationship with the business
You need to separate two elements: - your ownership from - your operational involvement
To reduce / eliminate the dependence of the business on your skills and labour for its continuing well-being Recent service sector examples?
- recruitment agencies - consolidators in accountancy?
PETER SCOTT CONSULTING
If you do this in a way that…
The business can continue without youWith a sustainable income streamWith sustainable profitability
- then you may have something of value
to sell
PETER SCOTT CONSULTING
How can you achieve this?
Build a team around you of professionals and managersDelegate – NB leverageRetain ownership
PETER SCOTT CONSULTING
Divorce your ownership
So you can walk away from the business with your value either… - immediately on sale or
- after a bedding in period linked to an earn out arrangement
PETER SCOTT CONSULTING
Retain ownership
Ensure all those who could take away something which could not be replaced are included Keep equity tight
- to enhance ownership value - to ease decision-making
But do you all want the same thing?
Working capital issues?
PETER SCOTT CONSULTING
3. Need to identify a buyer
With whom there is a strategic fitWho needs what you haveWho has the resource to continue the business (particularly if receiving your
value depends on an earn out)
You may need to sell the vision of putting
the two businesses together
PETER SCOTT CONSULTING
Three elements…
The nature of the business you createYour relationship with that business
A buyer
PETER SCOTT CONSULTING
Ensure you receive your value
The terms upon which you sellHow you structure the sale / merger
Take advice
PETER SCOTT CONSULTING
A case study
A law firm
1 equity partner1 salaried partner2 other fee earnersNo lease obligations
PETER SCOTT CONSULTING
The nature of the business?
Focus on…Growing sector - nationally basedNarrow areas of workBroad range of existing and growing clientsOwner had built a reputation / brand
PETER SCOTT CONSULTING
A sustainable business?
A steady increase in turnover over several yearsCorresponding increase in profitability
Cash flow was strong
PETER SCOTT CONSULTING
Do I have something to sell?
Nature of the business?Owner’s relationship with that business?Potential buyers?Basis of valuation?