Value Lies in The Eyes of The Beholder – Key Valuation Factors for Professional Services Firms

Chris Pierce-Cooke

Our Indigo Advisors Team has a wide range of custom experience as to what has most contributed to, or most detracted from value in particular professional services firms. Ultimately value lies in the eyes of the beholder, but they usually come armed with a spreadsheet and a calculator!
Our experience suggests that some factors are pretty constant in the value equation and should not be ignored or skated over.

What matters most in creating optimal value in your firm is having:

1 – a clear, realistic growth strategy, with prioritized investments identified and a supporting execution plan. You need to ask questions like: Where are we headed? Why? What do we need to get there?
2 – strong, consistent financial performance and effective financial controls. Purpose is always a valid driver but profit is typically necessary
3 – a robust cash-flow – running low will destroy the smartest strategy in no more than a quarter!
4 – sustainable competitive advantage. How effectively can you put a fence around your position and place in the market?
5 – a client base that is diverse and building. Every business needs a stable core but also a persistent re-fresh of its client roster. And subscription and license income are always a plus
6 – compelling, codified, readily transferable intellectual property – know-how in the heads of consultants doesn’t count for a lot
7 – professional management – not relying exclusively on entrepreneurial leadership
8 – a highly capable, engaged and aligned (top) talent team, that is appropriately incentivized
9 – an effective, fit-for-purpose operating platform that can scale
10 – a clear, positive, authentic narrative on your present and your intended future, that is proactively shared with your key stakeholders
We have yet to meet the firm that scores a perfect 10 on every dimension described here.
That is simply not real-life.

We know that success, appropriately envisaged, can be accomplished from almost any starting location.

That said, if you are actually scoring an imperfect three on several of these, it will not be a surprise that you have work to do if sustainable growth and/or a sale of the business is in your foreseeable future.

Is any one of these dimensions somewhat “dominant” in the Value Equation? If you don’t know clearly where you are headed, and exactly why it is imperative that you get there, then rating every other dimension is going to deliver outcomes that are “roughly right” rather than ones that are truly calibrated and actionable.

Your subjective assessment, filtered through our objective assessment, has the potential to create a valuable “scorecard”, and directly actionable set of outcomes on which future growth and further value in your business can be created.

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