Herman School of Business
Valuing a Service Business
You are a consultant providing a service. The client is paying for your expertise. Are you limited to only how many clients you can handle? Or do you do the smart thing and make your company, and not yourself, the “Brand.” So that people needing your services can allow your business to be more than just yourself?
Make no mistake about it, I owned Equity Partners, Inc. 100% after taking out my original two partners within the first three years of business. I was creating over 60% of the revenue and collecting only 33% of the benefit. It was a simple issue to quit the original EPI and begin anew with a different business structure. The other two partners actually thought it was a great idea. Their ego was even bigger than mine. They thought without me buzzing around them they could create their own client base and each take 100% of what they took in. They obviously didn’t get HERMANISM # 55: KNOW MATH OR NO MONEY. You see they were already getting more than 100% of what they brought in as my partner, since between them they only generated 40% of our revenue. Oh well, that’s another blog posting some day.
Back to “Branding your service.” I didn’t name the new company after myself, like one of my ex-partners named his new firm even though all of the revenue was from me. Because that would limit clients from accepting service from someone else as I grew the company. Over the years many people came and went as “partners” in Equity Partners, Inc. And when a client called us for services it avoided anyone from feeling like they were getting a second fiddle if the name on the door didn’t provide them with the service. Each person was an equal as far as the clients were concerned. And while my client base always called for me directly, new partners formed their own book of business which allowed for the ultimate goal I had. Having someone ready to buy me out when it was time and allow me to get value from a service business that didn’t rely on just my name, or my clients.
Just over five years ago I did indeed sell the company to one of the people I brought in as a 27 year old go-getter who by the time he was 35 could afford to give me a bundle of cash, and a five year pay out royalty which just ended this year. In no way could I have ever received the amount of money I got for a service business that almost exclusively came from “my clients” alone unless we had created the company as the brand and not me as the brand. And while I weaned my old clients off of relying strictly on me for services, I made a boatload of royalty money for staying home.
- Posted: 11 December 2007
- Comments: 0
- Category: Running a business
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