The Consulting Bible, 2nd Edition

Chapter 14Exit Strategies: Nothing Is Forever

Building Equity

At some point you will leave your firm or it will leave you. We know this. So you might as well prepare for it! (A business owner I know has a $7 million training and consulting operation, 14 employees, takes about $500,000 a year for himself, and can't sell the business. He's a slave to his own creation, and has to “feed” the staff.¹ )

In this first segment, we'll discuss building the worth and value of the firm—the equity. If you recall, there are two models that are desirable in this business.

• Model #1: The solo practitioner, who has no full‐time employees, has relatively few physical assets, may not have an office that is owned outside the home, and takes virtually all profits out of the firm yearly to use personally.
• Model #2: The boutique firm, which you own and which has physical assets such as an owned office, employees, and infrastructure, and where the owner invests a proportion of the profits back into the business each year in the form of salaries, benefits, expansion needs, and so forth.

I'll talk about building equity for both models here, and you can apply what is most applicable to the type of practice you have built or are building. Bear in mind that it's never too early to begin planning for high equity, but it can be too late. And, as I admonished earlier, confusing these two models will lead to disaster in most cases and seriously undermine equity, since no one wants to buy a flying goat, no ...