An owner of a design firm should consider a variety of strategic alliance and business combination possibilities to develop and grow their business.
Through such arrangements, a firm may be able to gain a competitive advantage by accessing new pools of talent, acquiring leading edge technologies and entering new markets.
It’s also a good way to increase a firm’s value, strengthen succession and growth plans, and bolster personal opportunities upon retirement.
Adding new services
Many design firms look to grow by expanding beyond their core services into areas such as project management, space planning, and furniture design and distribution.
Developing new services internally is a cost-effective way to build on existing resources and infrastructure. However, it’s important to consider any liability risks of the new service areas, as well as to optimize tax planning opportunities.
A useful strategy is to create a separate corporation for the new service areas. This will limit any potential risk to the existing firm.
Collaboration with other professional firms provides access to new markets and otherwise unattainable projects.
In such arrangements, the involved parties retain their separate and legal identities, with each recording their specific share of revenues and expenses on a project. As such, there should always be written agreements in place to specify everyone’s roles and responsibilities.
Some points of consideration include:
- Who will handle the accounting and administration?
- How will the project be financed?
- How will revenues and expenses be shared?
Mergers and acquisitions
Mergers and acquisitions are increasingly common in the design industry, especially as the trend toward firms of different disciplines coming together continues.
If contemplating such a merger, it’s important to know that each business must be valued separately as the valuations will impact the new ownership structure and the financing of the business going forward.
While the intricacies of negotiating and structuring a business merger or acquisition are complex, and require the expert input of lawyers and accountants, they are often the best course to follow if a firm is looking to expand and solidify its market presence.
If planning to transfer the management and ownership of the firm to the next generation, it’s important to have an internal succession plan. This will help ensure some level of business continuity.
Such plans are also critical in securing the future of employees beyond the current owner’s career timeline and in creating “legacy” value for the firm, which can be an essential component of its strategic growth.
When contemplating a change in ownership structure, it’s important to have a realistic understanding of the value of the firm. As well, to ensure the firm’s long-term success, consider the optimal financial and tax strategies to provide employees access to funds to finance the deal and keep the business going.
Maj-Lis Vettoretti is the managing partner at Toronto-based Shimmerman Penn LLP, an accounting and business consulting firm that has been helping clients define and achieve success since 1979. The firm has an industry specialist group for architecture, engineering and design firms. Maj-Lis can be reached at 416.323.7769 or [email protected].