What should I check before buying an HR consulting firm?

An HR consulting firm has few hard assets. What you are buying is a set of client relationships, a body of working documents and the people who know how to use them. That changes the checklist. Instead of walking a warehouse, you are asking who the clients really trust, what they have signed, and whether the work continues once the founder steps back.

Retainer clients versus project clients

Ask the seller to sort every client by how they buy. Retainer clients pay on a standing arrangement and tend to stay. Project clients call when something goes wrong, then disappear. Neither is bad, but they behave differently after a sale. Ask how long each client has been with the firm, how work arrived, and whether the owner or an associate usually led it.

Dependence on the owner

In many small consulting practices, the owner is the product. Find out who actually answers the client’s calls, who writes the advice and who clients ask for by name. If the answer is always the owner, plan for a handover period and ask the seller what they are willing to commit to. Ask whether associates are employees or contractors, and whether they will stay.

Templates, handbooks and client files

Policy libraries and handbook templates are often the firm’s working capital. Ask who wrote them, whether any came from a former employer or a licensed source, and whether clients have rights to their customized versions. Client files also hold sensitive employee information, so ask how it is stored and how it would move to you. Your lawyer can tell you what the purchase agreement should say about it.

• Client list with start date, type of engagement and who leads each file.
• Signed engagement letters and any change-of-control wording in them.
• Share of work from the largest clients, and what happens if one leaves.
• Insurance in place for professional advice, and any past claims.