Those of us in solo or small practices cannot be all things to all people: we have to find our valuation niches. Everyone will have a different game plan for which niches they want to serve.
I have found it very helpful, at least once a year, to segment the market for business valuation services into niches so that I can decide which ones to go after. I do this with a number of different “cuts”:
1. Use of appraisal: taxation, transactional, litigation, and compliance, in conjunction with the demand for the given use. Transactional is real deals – purchase and sales of whole businesses or interests in them, and includes fairness opinions (if you want to do them). Litigation includes dissenting shareholder matters, divorce, and damages. Compliance includes ESOPs, financial reporting, and SBA lending. You might choose to categorize these uses in a different way, this one works for me. I may have left some out: if so, I apologize, let me know what I missed!
2. Size of company: startups, buy-a-job businesses, small, medium, and large (you decide how to quantify the last three! I do not do very much public company work; the big national valuation and accounting firms are set up much better for those usually huge projects. I like to have a large number of small engagements going or in the pipeline, on the theory that singles and doubles add up to a lot of runs over time.
3. By what you are good / bad at and / or like or don’t. (I dislike litigation and do little of it. I eat FLPs for breakfast.)
4. By geographic area: what radius or communities can you effectively service? I generally target the northeastern quadrant of my home state, Ohio: anything within easy driving distance. I will not turn down an engagement outside my market area unless it is going to involve extensive travel, this because there is so much business in Northeastern Ohio. With Skype I can do virtual plant tours and management interviews.
5. By what types of industry are prevalent and doing well in your market. If you live in my area, you need to know about machine shops, steel service centers, and injection molders!
6. Ruling out industries that require special expertise that you do not have (in my case, mainly medical practice valuations.)
7. Ruling out work you are not qualified or permitted to do by other professional standards: business appraisers are not qualified to value fixed assets, and CPA’s are prohibited from doing certain kinds of work for tax / audit clients.
Everyone will come up with different niches, and these will change over time. This is a worthwhile exercise to do every year. I take myself on a one-day personal retreat to do it.
My practice started out heavy on transactional and tax work and has remained so. I let litigation come to me, and am very selective about it. A big growth area for me has been valuations for financial reporting; I took courses, talked to colleagues, and read the literature on this to get up to speed. This has worked out well for me.
On the other hand, about 15 years ago, there were 26 hospitals and an untold number of independent medical practices in Cleveland alone. A huge wave of consolidation was about to occur. I started getting many requests for medical practice valuations from hospitals that were buying them. After a period of reflection, I concluded that although the short-term benefit of getting this expertise was high, in the long term there would be little demand for it in my geographic area. So I passed it up. As things turned out, the consolidation went really fast; within three years there were two major hospital groups and almost no attractive independent medical practices left. I would have worked like crazy (and done well) for a short time, but would have neglected my other niches to my long-term detriment.
Again, your assessment of your niches will be different than mine: the important thing is to think it through both short- and long-term!