In many cases, Small Firms value themselves based on the amount of revenue that they bring in on a yearly basis. Revenue, however, is not the only determining factor in the valuation of a small firm. Here are three factors to value your firm upon beyond the numbers:
The largest qualitative valuation factor for a Small Law Firm is its location. The location, and more specifically the population surrounding your location can significantly affect the value of your firm. Chances are your firm operates out of a single office. The success of your firm, in this situation, is dependent on how many people and what types of people inhabit your surrounding area. For instance, a firm in the heart of New York City is likely more valuable than a firm in the surrounding suburbs.
Developing a Niche
Developing a niche is huge for a small firm. The only problem is that many firms compete with each other directly by having the same niche. The key to developing a niche, then, is simple: differentiation. David Wolfskehl, author of “The Micro-Niche Method”, advises small firms to develop a micro-niche that places the firm “outside direct competition” and “justifies premium pricing”. This is a qualitative factor that, even though it doesn’t show up in any financial statement, can directly increase the value of your firm. If your firm employs experts in a certain field of Law, the value of your firm will skyrocket. The key is to be aware of the importance of having a niche.
In today’s market, it is extremely important for CPA firms to keep up with the latest in technology. Many firms now use a variety of technologies such as Cloud servers and mobile devices. Innovative firms that have a reputation of employing the latest technologies consistently can see enhanced value. For a small firm, keeping up with technology can be tough to budget and justify. However, just as improving your technology can enhance value, refusing to update technologies and equipment can lower the value of your firm.
Though these factors influence the value of your firm, traditional metrics such as revenue and number of employees are still heavily relied upon by clients, prospective employees, and others.
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