Before you hit the cruise ship or the golf course for good, put steps in place that will help you sell
BY THE end of their first year of operation, most design firm owners realize that running a business is dramatically different than working for someone else. Regardless of the size of the firm, there are myriad issues to contend with just to keep the lights on and the doors open. Between finding clients, looking after clients and managing staff, there isn’t a lot of time left to fret over the long list of other items that are critical to running a growing enterprise.
Early-stage business owners are excited by the prospect of building their own company. The last thing they want to think about is what happens when they or one of their partners decides to leave.
Inevitably, some life event – illness, retirement, death, or disagreement – will lead to a change in the way the firm operates. Is there a way to extract value from the business?
Comprehensive business and succession planning should always be done before starting any new venture. It will save countless hours, and headaches, down the road.
Chris Nobes, managing director of Campbell Valuation Partners Limited, works extensively with early to mid-stage business owners. As an independent organization, CVP can evaluate a business to determine its true value.
“When you have something of value, [your business], and you want to exit, there are generally only two ways to extract monetary value: sell it to a third party or sell it internally to existing partners or managers.”
According to Nobes, design firm owners need to educate themselves on how corporation acquirers assess the price of a business. Many owners don’t know how to measure the value of their company, nor do they understand the process of selling their enterprise.
“Understand the key drivers of value for your business and the sales process,” he advises, “and plan well in advance.”
What’s in a name?
Many design firms start as sole proprietorships operating under the founder’s own name. These solo designers understand the value of being personally involved in virtually all aspects of each and every client project; that is their promise to the marketplace. Nobes says this creates “personal goodwill” and while it’s good for you as a businessperson, it isn’t worth much on the open market.
Building exclusively on personal goodwill has its challenges. Clients may start wanting to deal only with the principal of the firm, making it more difficult to introduce new design professionals to the relationship or to transfer those relationships to someone else down the road. If a client is always expecting to work with the name on the door, the value of the business may be too intimately connected to an individual to be attractive to a purchaser.
Matt Warburton, owner of Emdoubleyu Design in Vancouver, B.C., suggests that very few design studios in Canada seem to put much thought into succession planning when they establish their business.
“It’s frustrating I’m sure for many designers who spend years building a name and reputation yet when retirement looms, [the business] basically ceases to exist when the computers are shut down and the lead players head for the chalet or the golf course.”
Design firm owners need to look for ways to transfer personal goodwill into commercial goodwill, that is, a tangible asset that someone is willing to pay money to acquire. Consider bringing on new partners or operating your business under a name other than your own. While Warburton’s firm is based on his initials, the name would continue to work well without him.
Nobody said that running a business would be easy. But beyond getting clients and keeping clients, a little bit of planning can go a long way to helping build a valuable asset that someone, sometime, will want to purchase.
Article originally published in Design Edge Canada magazine. www.designedgecanada.com
