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Old 08-04-2014, 08:40 AM
 
Location: Lawrenceville, Pittsburgh
2,102 posts, read 1,750,022 times
Reputation: 1832

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Looking for a bit of advice or potential direction on where to go for more info here.

I have been approached by a friend of a friend who is looking to retire or partially retire at some point in the semi-near future (3-5 years). He is an independent consultant that does mostly expert witness type of work. He is a solo operation, with, from what I can tell, good revenue and strong ties to his repeat clients (medium sized litigation firms) as well as little/no competition in the local market. This is definitely a niche type of business. He is about 60. I am under 30.

He and I have been meeting regularly to discuss me doing some part time/hourly work for him to see if I like the work. Assuming I do, this may be a good opportunity for me to get out of the corporate world, and potentially take over his business. The plan would be for me to gradually ramp up hours with him, gaining exposure and trust with his clients while winding down my own corporate job. I would keep my current job full time and then possibly part time until I can replace at least some of my income.

My professional expertise is actually in a different though somewhat related field, and I could see growth as an independent consultant in my own field of work, using his field as the "cash cow" to fund the growth. He currently bills about 1000 hours per year, and makes a very good living doing so. His actual workload is approximately 1500 hours per year.

My questions are as follows:

1. Besides the obvious benefit of not being beholden to a corporate overlord and drawback of depending on not having major competition move in on me, what are the hidden risks or downsides to this arrangement?

2. How would one "buy" a business like this where the person's work is really the value? We haven't discussed a buyout fee or purchase or anything of the sort, but if that were to come up, how do you value the business and what do you pay? 10% of profit for X number of years (like a pension to him?) 1 year's net income? Nothing at all?

3. What are some good resources out there about going into business on your own, especially as an independent consultant? I can see the business expanding if I also expand the consulting work back into my own field.
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Old 08-04-2014, 10:23 AM
 
Location: Simmering in DFW
6,954 posts, read 20,522,799 times
Reputation: 7227
I was an independent consultant and I retired. Over the years I would engage professionals to assist with projects. When I retired, I referred one of them to my "cash cow" client and this has worked out beautifully.

Thinking back, I might have charged this individual a referral fee but since I had no contracts in the business name that I was turning over to be fulfilled by another person or team, I don't see how I could possibly value a business and market it to a buyer because my clients used me for my expertise.

In your case, I think the same applies, and it may be better for you to strike a referral deal that gives this person a piece of the action for some specific period of time (2-3 years maybe, 5% maybe) for work you get from his referrals.
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Old 08-04-2014, 12:23 PM
 
Location: Lawrenceville, Pittsburgh
2,102 posts, read 1,750,022 times
Reputation: 1832
Quote:
Originally Posted by Squirl View Post
I was an independent consultant and I retired. Over the years I would engage professionals to assist with projects. When I retired, I referred one of them to my "cash cow" client and this has worked out beautifully.

Thinking back, I might have charged this individual a referral fee but since I had no contracts in the business name that I was turning over to be fulfilled by another person or team, I don't see how I could possibly value a business and market it to a buyer because my clients used me for my expertise.

In your case, I think the same applies, and it may be better for you to strike a referral deal that gives this person a piece of the action for some specific period of time (2-3 years maybe, 5% maybe) for work you get from his referrals.
That's not a bad idea. I was thinking a percentage for a set number of years, with the possible open-ended offer of hourly work to help promote a "soft" retirement, if he was into that. I agree that it's hard to value something when you're really only selling your own expertise. That said, the current proprietor has agreed to essentially train me and give me more than just a referral. He intends to work alongside me until I am able to run on my own.

Before I get too far into this venture of working for him part time on the side, I will need to get some additional details about what his intentions are. I don't want to waste too much time and energy only to find out that I will be taking a big pay cut while also being in debt to him.
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Old 08-04-2014, 01:11 PM
 
Location: All Over
4,004 posts, read 5,020,519 times
Reputation: 3104
I would never buy a business where the business is someomes identity essentially. Yes you sort of have an endorsement from this guy but you have no history or lyalty from these people. If nothing else they may look elsewhere before deciding to stay on with you. that is the problem with these types of businessesyes there is a lot of valuehowever it hinges on the previous owner running the company for this reason when it comes to selling this type of business it doesn't hold very much value for the seller or buyer because so much is up in the air. for that reason in order for a buyer to feel comfortable with their investment it will have to be a low offer
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Old 08-17-2014, 10:35 AM
 
Location: Holland
824 posts, read 1,114,744 times
Reputation: 1342
So basically you are buying a Rolodex if you buy this company?

Don't get me wrong, it might turn out great, but for now, he is just selling himself to his clients and nothing else. His clients do not know you and might not want to hire you. The advice Squirl gave is the best one I can think of.
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Old 08-19-2014, 01:09 PM
 
Location: Lawrenceville, Pittsburgh
2,102 posts, read 1,750,022 times
Reputation: 1832
A bit more info...according to what he and I discussed most recently, the plan is to have me work for him as an hourly employee alongside him, introduce me to his clients as time goes on and eventually take it over. There isn't a buyout, per se. He does want me to sign a non-compete in order to be a contractor for him. The idea would be that as he phases out I would gradually take over, and no lump sums would be exchanged. There may be a "royalty" or some % of fees exchanged for a short period of time after he fully retires on sales to existing clients. I think this seems like something worth exploring more for me.
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Old 08-19-2014, 05:07 PM
 
795 posts, read 1,101,194 times
Reputation: 550
Quote:
Originally Posted by WhoIsStanwix? View Post
A bit more info...according to what he and I discussed most recently, the plan is to have me work for him as an hourly employee alongside him, introduce me to his clients as time goes on and eventually take it over. There isn't a buyout, per se. He does want me to sign a non-compete in order to be a contractor for him. The idea would be that as he phases out I would gradually take over, and no lump sums would be exchanged. There may be a "royalty" or some % of fees exchanged for a short period of time after he fully retires on sales to existing clients. I think this seems like something worth exploring more for me.
Sounds almost like he wants to provide his clients with someplace to go after he leaves.

This sounds like one of those "gut feel" things... not sure anyone here can provide you with ANY advice worth 3 cents. I just gave you 2 cents of advice... not sure if worth anything.

As a caution, I think you have to "vision out" if this can support you for 30 years (considering you are 30). Can you see it doing that?

Can you make enough to retire. If he is going to ask you for a %, then you have to ask if the business IS enough.... or if you should keep corporate. These are things you have to step out of yourself and the situation and ask yourself.

I'm doing both... and love it... did one at a time... but doing both is working for me.

Loved your post... been on city-data for a while... have a "real issue"... life at its finest. I'm sure you will do well. This guy sees something in you! (If you see this working for you is another deal)
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