I hope no one fell on their Pentel pencil after last week’s conversation about my somber outlook for our professional fees. Relational positioning is the way to go; transactional positioning (or the purgatory of operating in the middle) is not.
On to this week. It’s not all doom and gloom! First, you can change the type of valuation services you offer. Second, 1-to-1 client work is our traditional service model, but it’s not the only way to generate practice revenues. On both counts, you’ve got options.
And if you’re new to the blog, welcome aboard. This is what we do!
From the Wednesday (April 19) BV Wire: Many Small-Biz Owners Don’t Want to Retire. The Wells Fargo/Gallup Small Business Index survey (taken four times over the past 10 years and a very worthwhile read) finds that, if money were no object, 53% of US small-business owners would continue working in a full- or a part-time capacity. Only about one in four say they would retire completely. And only 30% say they have a succession plan in place.
My take: As I mentioned in previous posts – here and here – I don’t believe there will be a “tsunami” of exit planning engagements. To be sure, appraisers who specialize in this niche will find work … but they won’t be drowning in it.
#1 – Change your valuation services
At the end of January, I wrote about taking the pulse of the BVFLS industry. Ron Everett, CPA, CVA of Business Valuation Center, LLC. After reading two consecutive IBISWorld reports that downgraded the outlook for the BVFLS industry, Ron wrote a 15-page paper to express his take on the current state of our industry.
In Part 3 of that report, titled “Taking Action in the New Valuation World: How to Re-invent Your Practice by Creating and Capturing New High-Value Client Opportunities,” Ron summarized our industry’s major service offerings and assessed the typical engagement characteristics in the chart below.
Here is Ron’s conclusion:
If you … are operating primarily in Tier 1, Tier 2 and Tier 3, you may not be headed for immediate extinction as the IBISWorld Reports would lead you to believe. But, your future business life will continue to be more challenging as competition increases, prices continue to fall, and commoditized online reporting services take over formerly lucrative parts of the valuation market.
The not-so-subtle implication here is that Transactional Opinions, Consulting, and Transactional Services (Tiers 4, 5, and 6) are how and where you want to grow your practice.
Armed with this information, what you do may depend on how long you’ve been in the profession. If you are nearing the end of your practicing years, I’d say stay put and ride it out. If you are at the beginning of your valuation career, I think the pain of change will be vastly offset by the long-term prospects of those higher-value opportunities.
#2 – Develop alternative sources of revenue
Our traditional client service model is a 1-to-1, 1-and-done, fixed-fee business model. We sell valuations to one client at a time. The valuations are custom ordered and custom made … we can’t resell them. We are always on the hunt for new clients to replace the ones that only needed us for a one-time project.
It works well … until it doesn’t. It certainly doesn’t scale if you are a sole practitioner. And you’re reluctant to turn away work or raise fees to moderate your pipeline when you get “too” busy because you’re afraid it won’t last. So you work more hours. And do less of the things that matter most to you.
It’s the epitome of working harder, not smarter.
If you want to replace the revenue being eroded by the pricing in this model, you need to develop new models that generate alternative sources of revenue. For example, what valuable products/services could you create that your audience of clients, prospects and referral sources would want to buy?
It starts with being known for what you know. Then leveraging that knowledge (intellectual property), educating your niche, and selling that product/service multiple times and charging per order – which makes the business model scalable.
Jim Hitchner is my poster child of choice for the person in our industry who has most successfully leveraged his skills, knowledge, experience, education, and training by creating and selling books, webinars, newsletters, toolkits, etc. for his audience.
It’s the epitome of working smarter, not harder.
In real life
What am I doing? Given my time horizon (I’m 60), I am sticking with my niche of tax purpose valuations for manufacturing/distribution companies – for now. But a good friend of mine, much younger than me, is switching from tax compliance and financial reporting work to exit planning consulting.
And as you know, I have started a coaching practice that is an alternative revenue source for me. Related to that, I am writing a book that I will sell. And online training. And some other things I will be rolling out later this year. All designed to create multiple revenue streams to (1) diversify my income, (2) make my cash flow less lumpy, and (3) replace my eroding fees.
Yes, it will take some effort to get started down either of these paths.
But look on the bright side. Re-inventing your practice area may re-create the physical energy and intellectual challenge that you’re missing now. Developing new revenue sources may do the same things as well as provide a smarter/stronger way to leverage your time.
And if you or other practitioners don’t change valuation service offerings or develop alternative revenue sources, it creates more opportunity for those who do.
PS – I’m a fan of actionable ideas that move you forward, so I hope you find this content useful. If something resonates and you want to reach out directly, you can email me or schedule a call with me!
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