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Who Will Buy Your Design Practice?

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When you're thinking about moving to the next stage of life, you should keep in mind that there are four types of possible buyers for your interior design practice. They fall into these categories:

  1. A Financial Buyer
  2. A Strategic Buyer
  3. An Ego Buyer
  4. You!

That's right, in a manner of speaking you can "buy" your own business, but let's look at all four of these in turn. 

  1. A Financial Buyer - If I have money to invest, and I believe that I can get a return on that money of 2% in Treasury Bills, 10% in the stock market, and 20% by owning your firm, I'll obviously choose to buy your practice. With one big caveat: Risk. I'll have to assess the risk of actually getting those returns and let's face it, running any small business is far more risky than owning Treasury bills (zero risk), investing in the stock market (deeply studied risk) and owning your firm (risk unknown). The basis of virtually all negotiations surrounding value will be about this risk.
  2. A Strategic Buyer - In this case, I am a buyer who perceives some leverage or synergy if I either operate your firm independently, or wrap it into my own. In fact, because of this perceived synergy, I may be willing to pay far more than a financial buyer. Perhaps you have a geographic location that it would take me years to duplicate, or you specialize in a niche I've been dying to get into, or you have employees and a brand name that I crave. Then, I will pay you "more," but how much more will still involve the overall risk, but in this case I am much more comfortable with the risk than others might be.
  3. An Ego Buyer - In certain professions, like interior design, there are people (often wealthy) who just love the idea of doing what you do. They may not be "certified," and may never have worked as a designer. But they love the thought of it and are highly confident that they are amazingly talented! They may pay more than anyone else, but they'll need your help for longer and will probably burn out when the reality of running a business becomes all too real. In other words, be sure and get most or all of your money up front with an Ego Buyer. 
  4. You - Some professional service firms are relatively easy to value and sell, such as accounting or dental practices. In fact, they change hands so often that there are commonly accepted formulas used to assign value. After all, if your accountant or dentist is retiring, wouldn't you find it easier to just stick with their chosen successor?But, alas, an interior design firm is different. Customers are not drawn to a generic service, like tax preparation, they are drawn to a look, a method, a portfolio... They are drawn to you! The risks associated with the various buyer types are mostly about this; what happens to the value when you ride off into the sunset? The buyer of "You," then, refers to not selling to a third party at all, but rather to setting an exit date a few years in the future, and "milking that cash cow" between now and then to earn your "pot of gold" gradually, instead of in one lump sum. 

This just scratches the surface of the decisions you'll have to face when you decide to take on your next challenge in life. In fact, these types of buyers fall into what I call the "mechanical" half of this major life transition. The other half is psychological, and dealing with the very real issues of how to leave behind the identity you spent most of your life creating.

And if you were wondering how I could have left "employees" off my list of potential buyers, I didn't. They, too, must fall into one of the four categories above. Think about it...

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