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Asked Questions

What's the value of my practice?

There are several factors that go into a practice valuation and the dollar amount another advisor would be willing to pay to take over your book of business, including:

1. Total Recurring GDC

If a higher percentage of your revenue comes from recurring sources, a successor will place a higher value on your book of business.

2. Use of a Client Relationship Management System

If you use a CRM to manage your client base, it will make the transition easier for your successor and their team, therefore increasing the price they are willing to pay for your book of business.

3. User of Digital vs. Paper Files

Similarly, if you keep electronic client files, the transition will be easier for your successor than if they had to organize and make sense of a paper filing system. Digital files will make your book of business worth more to potential successors.

4. Anticipated Date of Succession

Providing a good amount of time to prepare your clients for the transition will increase the likelihood of your clients staying with your successor when you exit. It will also give your team and your successor’s team adequate time to prepare for the transition, ultimately increasing the value of the practice.

5. Your Annual Growth Rate

If your practice is still experiencing consistent annual growth when you exit, the purchaser will have more confidence in their decision to purchase the practice. A practice on the decline is worth less to potential successors.

How do I increase the value of my practice?

There are several areas you can adjust in the years leading up to your exit to increase the value of your practice to potential buyers:

1. Client Relationship Management System (CRM):

Effectively utilizing a CRM in your practice will make your practice more efficient and, eventually, will make the transition to your successor much smoother. Using paper-based files or a spreadsheet will create substantial work for your successor and their team and can cause valuable data to get lost. Using a CRM and having it up-to-date will also be a benefit for purposes of a practice valuation.

2. Recurring Revenue

Having revenue that’s generated on a recurring basis will increase the value of your practice. When a potential successor is conducting a cost/benefit analysis of purchasing your book of business, they will appreciate sources of income that are more “automatic” than others.

3. External succession

Generally, a succession to an advisor within your firm will be the simplest option for both you and the successor. However, there are instances when an external succession can be in your favor and can increase the value you can get out of your book of business. There may be transition dollars offered by the new Broker/Dealer to help fund the purchase of your practice. With the right marketing support, clients may find the new firm to be a better fit for their needs as well.

4. Annual Growth Rate

When your annual rate of revenue growth is consistent and at or above “normal” growth rate, your value will be enhanced. You should consider the support being provided by the purchaser and their firm. If they will be receiving a lot of support, you can expect to have higher growth.

How do I find a successor?

When you begin the process of finding a successor, it’s important to select an advisor who will provide your clients with great service and can offer the same experience to your clients as you do. You’ll want to consider the pros and cons of choosing a successor at the same Broker/Dealer or an external successor. In addition to the price the potential successor is willing to pay for the practice, keep in mind how you want the sale structured and if the potential successor agrees to those terms.

We have access to a network of buyers and sellers who we can introduce you to based on how you work with your clients. We recommend interviewing at least three potential successors.

What if I'm not ready to exit?

You may not be ready to exit or to sell, and many advisors are not sure of when they will be ready. Our advice if you are not yet ready to exit or begin planning the transition is to:

  • Know the value of your practice
  • Know the key value drivers
  • Protect yourself with a contingency agreement
  • Consider a partnership to grow and to protect your value

How do I protect the value of my practice?

Until it’s time to sign on the dotted line with your successor, there are steps you want to take with your practice to protect it’s value.

1. Roll out a communication/marketing plan with your clients:

They know you won’t work forever, so be sure to address their concerns early and lay out your plan and timeline for them. Once you do identify you successor, start introducing them to your clients, even if your transition is still years away.

2. Include your successor in your marketing strategy:

Begin including their name and picture alongside yours so you look like a cohesive team. Make sure your successor can continue with your established marketing strategy once they purchase your practice so your clients don’t feel a big change.

3. Build a contingency plan:

Even if you have a fully established transition plan, unexpected events can occur to throw it off its axis. Be sure to build a contingency plan for the unexpected.

How do I structure a sale?

There are many variations in designing a structure that is fair to you, the seller, and also to your successor. We highlight some of the most common below and have provided examples.

1. Fixed Payment:

In a fixed payment sale, once a value is determined for the practice, that value is divided by the number of years of a fixed payment. (There may be a discount factor for payment in fewer than 3-4 years.)

2. Earn-Out:

In an earn out structure, there is typically an upfront payment equal to 20-50% of the value of the practice. There are then subsequent annual payments based on a percentage of the revenue generated by the book in that year.

3. Partnership Terms:

In this structure, you choose to sell portions of your practice over time. As an example, you may choose to sell 25% now and receive a lump sum for that value and maintain and grow 75% of your practice. Then in 5 years you may choose to sell another 25% up to 75%. The advantage is that you realize liquidity now and you protect your value for a future date.

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