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Maximize the Value of Your Business (Part 1)

Maximize the Value of Your Business (Part 1)6 Steps Financial Advisors can take to Maximize the Value of their Business

In the first of a two-part series, we will explore how to maximize the value of your business. In the next installment, we will highlight strategies allowing you to monetize that value through succession planning.


What type of business do you want to have? What is your ideal outcome when you decide to retire?  As an independent financial advisor, you have the benefit of making decisions about your future. You can decide to be satisfied if your practice is simply an everyday job that provides a paycheck. Or, you can decide to build a business with significant value that can be monetized when you move on to the next phase of your life.


But you must decide what the ideal outcome is and take action if it is to materialize. Look at what is realistically possible considering your current situation, and determine the steps necessary to make that image a reality. To maximize the value of your business and extract its worth, follow these six simple steps:


1. Define your ideal business

Once you know what you want for your practice, decide what type of business model will get you there and the path you need to take to create that model. Only you can define the optimal business model that fits your needs and desires. Planning for that objective should start right now.


2. Create a continuity plan

Before you do anything else, you need a continuity plan in place that provides for your clients and family in the wake of an unexpected event such as your death or disability. Specifically, the plan should be a written contract between you and another advisor who agrees to take care of your clients until you return, or a permanent successor is in place. A continuity plan does not eliminate the trauma and uncertainties associated with unforeseen events, but it may provide a framework to address the needs of your clients and salvage business value for you and your family.

If you take nothing else from this article, make it your mission to build a continuity plan that provides a foundation for the longer-term succession plan you envision for your business.

If the unexpected should happen, the lack of a written continuity plan may mean you and your family are left with little value for your practice.  If you have a continuity plan in place, revisit it on a regular basis to ensure it addresses changes occurring in your business and within the financial services industry over time.


3. Define goals for your business and what you want it to do for you

Decide what you want your business to be and how much value you want to gain from it. Do you want to have a small practice or an enterprise? Do you want your business to continue as it is after you retire? Think about what you want your lifestyle to be when you retire, and decide how much you might need from your business to support it. Define your goals—make them specific—and write them down.


Consider the following example: You are a sole owner and rainmaker for your practice and are at a midpoint in your career. You prefer to work alone and enjoy the personalized service you provide to your clients. You feel you have the ability and capacity to double your revenue in the coming decade. As a result, you will likely never bring in additional advisors as a growth strategy. Your goal could be to improve your business’ value in other ways and package it for sale on the open market at retirement so that you can retire when you are ready.


Another example might be that you are the only advisor in your practice and realize that, while you are very successful, you do not have the capacity to grow much beyond your current revenue on your own. Your goal might be to create a plan allowing you to identify and bring on junior advisors, who can then be developed and later added to your business’ capacity and growth potential. These advisors could also be considered as possible successor candidates as you transition ownership over time. Such a goal would allow you to ease into retirement over a multiyear time frame.


There are as many scenarios as there are advisors to define them. In order to maximize the value of your business, begin by focusing on what you would like to accomplish as an ideal outcome.


4. Evaluate your business

Once you have identified the ideal outcome for your business, take inventory of your resources and determine the missing components necessary to reach your goals. Understanding these elements will allow you to continue leveraging your strengths and creating a plan to fill gaps.


Performing a SWOT analysis (strengths, weaknesses, opportunities and threats) may be helpful to identify gaps between what you want your firm to be and what it is today. There are a number of industry-specific consulting firms able to assist you in this process. Evaluating your business with these tools is critical to understanding what will be required to reach your future objectives.


5. Determine what your business is worth today

To help you build a plan to create value, you need to know what your business is currently worth. There are three main valuation models in the independent advisory space that advisors commonly use to begin the valuation process:


Cash flow model – This approach is increasingly utilized in the financial services industry. It essentially takes the revenue and subtracts both compensation and non-compensation expenses, which equals operating margin (typically 25 % or more of total production). The operating margin is then multiplied by the valuation multiple (which commonly ranges from 4 to 8).


Discounted cash flow model – This model applies a discount rate or hurdle rate to estimated future cash flows of the business, resulting in a value supported by those cash flows. This method is also gaining in prominence in the industry, as it determines a value based on cash flows that will meet the desired return on investment.


Revenue multiples model – This model has been the rule of thumb in the industry for some time, but is losing ground to other methodologies. It is essentially your non-recurring revenue multiplied by a multiple (ranging from .5 to 1.25), plus your recurring revenue multiplied by a multiple (ranging from 2 to 2.5).


Each of these models have their strengths and weaknesses, but will provide a point of reference as you evaluate the various elements of your practice that drive value higher or lower from this baseline. You may also want to hire a third-party firm to provide a valuation.


Ultimately, your practice is only worth what someone is willing to pay for it. For example, let’s say you want to buy a 1967 Ford Mustang and would like to find out how much it is going to cost you. If you look online today, you can find 1967 Ford Mustangs on sale for as little as a few hundred dollars to more than $100,000. Averaging those two numbers equals approximately $50,000.


But how useful is that average? Is that what a 1967 Ford Mustang is worth and therefore, what you will offer to buy one? No. You will pay what you think the specific car is worth based on its features and attributes. The same is true of your practice. Someone will pay what they think your practice is worth based on its features and attributes. This is why you want to identify the aspects of your business that are considered valuable, and work on creating a plan to build and maximize value in line with your overall business objectives.


The list below includes many features and attributes that may impact a practice’s value either positively or negatively. Even if you use average statistics as a baseline to estimate value, you should also apply premiums and discounts to that number based upon the impact each of these and other variables have on the value of your business.


  • Revenue
    • Recurring/Non-recurring
    • Growth
  • Asset/Product Mix
  • Cash Flow & Expense Management
  • Written Business Continuity Plan in Place
  •  Business Transferability
  • Client Profile
    • Age & Location
    • Client & Asset Concentration
    • Revenue
    • Relationship Length
    • Next Generation Relationship
  • Assets Under Management
    • Growth from Existing Clients
    • Growth from New Clients
  • Specialization/Unique Capabilities
  • Business Longevity
  • Client Service Model Aligned with Clients
  • Technology
  • Business Location
  • Employee Contribution
  • Scalable/Transferable Processes
  • Compliance History
  • Transferability of Client Relationships to New Advisors


You also have to think about what the market will be like when you decide to retire. Today, there are more buyers than sellers in the market, but that may change. According to The Cerulli Report, U.S. Advisor Metrics 2016, nearly one-third of advisors are planning to retire in the next 10 years. This may be another reason to focus on the elements of your business that are in your control to make it more attractive to succession partners over time.


6. Create a plan to build value and reach your goals

Start by looking at the list above and decide which items to focus on based on your specific business. For example, maybe you need to add more advisory business, improve your technology, build scalable processes, or increase your marketing to boost your assets under management (AUM). You might want to consider hiring staff members, training junior advisors or acquiring a practice. Purchasing a new book of business can be a quick way to gain staff you need, bring in new advisors as potential successors, grow your AUM, or diversify your product or client mix.


The idea is to create a specific plan tied directly to your goals. You can use a number of business plan tools and templates to lay out strategies and tactics, getting you closer to your objectives. But make sure to build flexibility and adaptability into the plan as your business grows and changes.



Your broker-dealer may have resources available to you and there are a number of organizations specializing in the financial services industry that can help you through this entire process. Advisors affiliated with Cetera® firms have access to resources beginning with an assessment of their business, setting goals, implementing an action plan and ultimately deciding upon and executing a succession plan. The foundation of those resources is the award-winning Pentameter® platform (WealthManagement.com industry award-winner for Practice Management in 2015 and finalist in 2017). This resource helps you assess your business across Business Development, Operational Efficiency, Human Capital, Business Management and Succession Planning measures. You can then build a plan to reach your goals, and implement tools and strategies to make your business more profitable and efficient.  These efforts are supported by in-house teams of relationship management, business consulting, practice management, marketing, wealth management, and retirement planning professionals dedicated to assisting advisors in these areas.


Start Today

Only you can define the optimal business model that fits your needs and desires and make the decision to shape your business into your ideal practice. So you must ask yourself: What do you want your business to look like? What do you want it to do for you? Then take action to make it happen.


Check back for the next installment of Maximize the Value of Your Business.


About Cetera® Advisors

Cetera Advisors LLC is an independent broker-dealer and registered investment adviser (RIA) firm offering efficient and convenient access to an extensive network of people, products and services to financial professionals. As part of Cetera Financial Group®, a leading network of independent retail broker-dealers, the firm is able to offer all the benefits of a large, well-capitalized broker-dealer, including innovative technology, leading wealth management and advisory platforms, and comprehensive broker-dealer and RIA services, with the personal relationships often found only at a boutique firm.

Cetera Advisors is a member of the Securities Investor Protection Corporation (SIPC) and a member of the Financial Industry Regulatory Authority, Inc. (FINRA). For more information, visit ceteraadvisors.com.

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