Here's How To Value Your Practice - And Get the Number You Want

How can you determine the value of your book?

As good as you may be at crunching valuation numbers for the companies or funds you invest in, determining how much your own advisor business may be worth often doesn’t come as easily. If you’re considering selling your practice, though, you’ll want to have some idea of its value – in part to know whether you’ll fetch enough to fund your own retirement, but also to see what steps you may need to take today to generate a higher price.

How can you determine your company's value? We explain.

While every buyer will value a prospective business somewhat differently, putting their own emphasis on various parts of the business, you can start by looking at recurring revenue to come up with an initial idea of a price.

According to John Novachis, Executive Vice President of Corporate Growth and Development at the Investment Planning Counsel, at a high level, advisory businesses often sell between 2 and 3.5 times that figure. Where you may fall in that range, however, depends on several factors, such as the draw rate of assets coming out of a portfolio and average account size. A potential buyer will also scrutinize fixed operational expenses, such as office space and what you’re paying staff.

 Saying that, Novachis points out that it’s hard to come up with a single figure on your own because of all the variables that can influence your selling price. "Determining the value of your financial advice business is a combination of art and science," he explains. “The science is the quantifiable variables, and the art is how well the business is run.”

One way to think about whether you could get what you want from a sale is to consider what would happen if you spent two weeks away on a vacation without access to your phone or computer. If everything would fall apart without you, that’s a red flag for potential buyers. 

An easily transferable practice – one that can run without the founder – is far more appealing, no matter how promising your revenue growth prospects might be. Buyers, says Novachis, value infrastructure like a professional office, consistent processes and experiences for your clients, and well-trained support staff. "This is a volatile, market-sensitive business, and that's why scale and efficient are very important," he explains.

Since no two businesses are alike, valuing your advisory practice requires an analysis of what makes your business uniquely attractive to a potential acquirer. Considerations like recurring revenue, operational efficiency, client demographics and your personal values all play a role in determining the final number. The good news is that there are tangible steps you can take today that will enhance your valuation when it’s time to sell. Streamlining processes, cultivating client loyalty and putting systems in place to ensure transferability can help improve your valuation in the future. 


If you're thinking about succession and want to learn more about maximizing the potential of your business, reach out to us for a no-obligation, confidential conversation with one of our industry-leading experts .