Scott – we frequently develop abbreviated valuations for firms under 15 people. The metrics differ less by size than by market sectors, although there is less liquidity in smaller firms and therefore often lower metrics. Regardless of the valuation, in the end the price needs to align expectations of the sellers with the attractiveness and affordability of the offer to the buyers. And, oftentimes, it is as much about the terms than the actual price.
There are many options and considerations in terms of structuring a framework. A few:
Since most incoming owners do not have the cash readily available to purchase a significant portion of a profitable firm, it is important to look at annual cash flows for 1) the incoming owner(s), 2) the outgoing owner(s), and 3) the firm. Oftentimes, by a combination of allocating specific assets such as a portion of the firm's cash and AR, and by obligating some deferred compensation and/or future distributions to current owners, a firm can strike the right balance.
The AIA Architects Handbook of Professional Practice has a good primer. Disclosure: I authored the section on ownership transitions, but I do not receive any of the revenue should you decide to purchase the handbook or the chapter that contains information on transition planning.
Hope this helps.
Michael Strogoff, FAIA
Strogoff Consulting, Inc.
ownership transitions . mergers & acquisitions . practice management . leadership development . talent placement
This message is sent by Strogoff Consulting, may contain information that is privileged or confidential, and is intended exclusively for the person(s) to whom it is addressed. Access to this email by anyone else is unauthorized. If you have received this message in error, please notify us immediately and delete this message from your system.