Recently a client asked me to help her sell her company. The challenge became obvious once we started to look at the business machine. She could not extract herself and still have a company, she was the major producer, most of the costs were built on building and maintaining her business and the other people in the company were really dependent on the spin off from her business. She has a business practice and not a company.
Just like you anticipate that a law firm has multiple practitioners, each contributing, often a law practice has a lead practitioner and in some cases a few people who support the business of the leader. While both practices and companies are businesses, they require different machinery and have very different futures. Looking at the value in a sale is a great way of defining the difference.
Most companies are built with the concept that the company will either be sold at some point or continue to produce revenue and profit regardless of the lead person. Business is generated because the machine works without having the key person serving as the machine. The machinery can be changed, upgraded or added to. Production can be increased by adding components or processing and producing greater quantities. The machine is not person dependent.
When looking at the operations and opportunities available to a business, knowing whether or not you are building a practice or a company is important in terms of the structure you put in place. In the case of the client mentioned, she had worked hard to build what she thought was a company and was very surprised when the offer she received was basically a signing bonus, generous split on her production and override for producers not on her team working primarily on the business she generated. Her disappointment came in that she had done everything that the franchisor told her to do, that her professional certification classes had suggested in terms of space, support staff and support tools and systems for producers. She thought she was selling a company and expected to have the offer calculated based on the company production, market presence and opportunities the growth would offer the buyer. After all, this would expand the buyer’s geographic foot print into a lucrative market with an already known presence. The buyer could recruit producers, put a manager in place and she would go into full production with her team. The numbers were there.
It is fine to have a business that is designed as a practice or with the machinery required to be a company. There are wonderful opportunities for both but they are not the same operationally and the opportunities both near and long term are very different.
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