Welcome to our presentation on how to value a professional practice. By professional practice, we refer to dental firms, medical practices, accounting and law firms, engineering consulting companies, health service companies, architects, and other professional service firms. There are key differences between these types of businesses and other service businesses. The first one is price sensitivity. The cost of the service is not as sensitive as in non-professional businesses, and clients usually value their professional advisor so highly that they will pay what it is worth to get the right advice.
Professional people rely on their skills to attract business. In the early stages of the professional firm, this is the key driver of the business. Additionally, there is a high intangible asset base; since all assets within the professional firm are intangible, the owners need to come up with a way of making those assets transferable if there is to be value in the business. Due to the client relationship and the success of the practice depending on that relationship, there is a high level of goodwill and trust flowing.
As much as possible, the owner must endeavour to make the relationship with the firm more important than the relationship with any individual person. So how do you build value into the firm? The way to build value is to standardise the service offering, systemise the business, and demonstrate that there is a service ethic running through the firm. Aim to operate like a franchise so that clients receive consistent treatment regardless of whom they are dealing with in the firm. Transform your business from a personal entity into a brand. Building the business in this way ensures that a purchaser or an investor would feel comfortable buying it.
Ensure that this level of service will be provided no matter who within the firm is delivering it. Staff will want to buy shares in the entity, and investors will be interested in purchasing a piece of your firm if it’s set up like this. By doing so, you can overcome the challenge of realising value when selling a professional service business. When your professional practice becomes a brand, you will attract more clients, grow your business, and provide a nice nest egg for your retirement and your investors.
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