Building Capital Values

Building Capital ValuesPeter ScottPeter Scott Consulting

PETER SCOTT CONSULTING

“Value”Desirability

The amount of money ….. for which a thing can be exchanged


What does a lawyer have to sell?

On retirement?

On merger?

Sale?


What does a lawyer have to sell?

Services / labour?

Hard assets?

Goodwill? (the difference between the net hard asset value and a total price)


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


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


1. Need to build a competitive business

Providing clients with what they needAt prices THEY consider value for moneyDo this better than the competition


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


Picking winners

Research / analysis of the marketWhat kind of law firm should we be building….. to create capital value?Strategic planning to achieve objectivesImplementation


Need to build a practice that is showing a pattern of…

Increasing turnoverIncreasing profitabilityOn a sustainable basisWith a stable and growing client base


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?


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


How can you achieve this?

Build a team around you of professionals and managersDelegate – NB leverageRetain ownership

Owner

delegation and leverage

Lawyers Managers


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

New Owner

delegation and leverage

Lawyers Managers


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?


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


Three elements…

The nature of the business you createYour relationship with that businessA buyer


Ensure you receive your value

The terms upon which you sellHow you structure the sale / merger

Take advice


A case study

A law firm

1 equity partner1 salaried partner2 other fee earnersNo lease obligations


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


A sustainable business?

A steady increase in turnover over several yearsCorresponding increase in profitabilityCash flow was strong


Do I have something to sell?

Nature of the business?Owner’s relationship with that business?Potential buyers?Basis of valuation?


Any questions?

Building Capital Values

Documents

Transcript of Building Capital Values