Distinguish owner effort from business earnings
An owner may lead business development, deliver client work and supervise the team. Their current salary may not reflect the cost of replacing all those functions. Map the duties and time commitment before proposing an adjustment to remuneration.
Consider whether another professional can practically take over the work, how long the transition might take and whether extra support would be required. The same revenue may produce different earnings under an owner-operated model and a fully staffed management model. State which model is being assessed.
Client continuity matters more than list size
Separate ongoing engagements, repeat project work and uncommitted pipeline. Look at concentration by client, service and referral source, as well as the length and terms of engagements. Repeat work is useful evidence, but it is not automatically guaranteed future income.
Ask who holds each important relationship and whether the wider team is involved. If clients primarily engage the departing principal, a transfer can involve different risks from a practice with institutional relationships. Contractual and professional requirements should be clarified by the appropriate advisers.
Review realisation, utilisation and unbilled work
Time recorded is not always revenue collected. Compare billable work, invoicing, write-offs and collections. Work in progress needs a realistic assessment of what can be billed and recovered, rather than assuming every recorded hour has the same value.
Examine staffing, subcontractor costs and the capacity needed to deliver forecast work. A busy pipeline can require recruitment or owner time that is absent from current costs. Earnings adjustments should preserve the operating resources needed to produce the revenue being valued.
Prepare a picture of both clients and capacity
For a partner exit, provide the ownership agreement as well as the business records. A contractual valuation mechanism can change the required scope and the treatment of a particular ownership interest.
Before we begin
Your industry information checklist
- Accounts and monthly management reports
- Revenue by client and service line
- Owner duties, hours and remuneration
- Team structure and contractor arrangements
- Work in progress, debtors and ownership agreement
We confirm the documents needed once the purpose and scope are clear. For the common starting documents, see our valuation preparation guide.
General business valuation guidance. Service suitability, specialist input and fee are assessed for the individual matter.