Platform: Selling up puts business practice in sharp focus - Concentrating on profitability and creating a strong management culture is vital for long-term business building, says Mark Madsen

The announcement in the pages of PR Week of yet another consultancy being bought or merged is enough to make the hearts quicken and mouths water of those consultancy directors who dream of their place in the sun.

The announcement in the pages of PR Week of yet another consultancy

being bought or merged is enough to make the hearts quicken and mouths

water of those consultancy directors who dream of their place in the

sun.



These seamless looking acquisitions or mergers belie the considerable

amount of hard work and general angst that involves not only the

decision to sell but also for the entire gut churning process.



In an industry bedazzled at times by its own image, it is often

difficult for its practitioners to focus on the one true purpose of

being in business - to make a profit and build that profit into a

saleable commodity.



The fact that it is not obvious in many agencies with incomes below

pounds 1 million whether the directors work as a way of life or as a

means to end causes many of the difficulties encountered in eventually

selling their businesses.



Like most service industries, the practitioners tend to be qualified by

experience rather than by professional training and, whilst there are

some extremely able individuals running both large and small

consultancies there are also considerable numbers of smaller

consultancies run with no clear business plan.



The ideal acquisition is an agency with: a clear market position;

clients under contract; loyal and dedicated staff; talented junior

managers; no lease problems; clean financial accounts, demonstrating

both growth and good cash management; and a principal who either wishes

to exit cleanly or who wants his or her consultancy to be acquired in

order to accelerate the company’s growth.



Unfortunately, many of the smaller consultancies are stagnating and

often do not have a clear market position. Most are prepared to handle

the full gamut of consumer, corporate, healthcare, business-to-business

and technology accounts across a wide range of industry sectors. Many of

their clients are charged at fee levels that, although profitable, would

be deemed uneconomic in a larger organisation.



The agency’s staff have joined because they want to work for a smaller

company and are often unsuited to the strictures of a larger corporate

body. Leases remain a problem hangover from the days when long leases

seemed the sensible option.



Accounts can demonstrate a track record of the business acting as the

personal fiefdom of the principal and can require complete

reconstruction going back several years in order to understand the true

profitability of the business.



Principals having been wedded to their business are often reluctant to

let go, even after agreeing to do so.



Planning the eventual sale of the consultancy business to a larger

consultancy will take several years of preparation in order to truly

maximise the value.



For those who simply wish to sell and depart, the simplest way is to

develop good second tier management which is motivated enough to put

together a management buyout - thus reducing all the problems to simply

agreeing a fair price.



Businesses have to grow or stagnate. Critical mass is an important

factor when client companies are looking to appoint a consultancy. If

selling or merging into a larger firm is the answer for growth in your

consultancy then start planning now. Whilst everyone wins the occasional

pitch the reality is that large firms win most of the time.



Mark Madsen is the chief executive of Macneil, a specialist search and

broking firm and chairman of a group of recruitment businesses



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