Defining Your Enterprise: Taking Stock & Moving Forward

Posted by David Grau Sr., JD on Jun 26, 2018 10:30:00 AM

Taking Stock and Moving Forward

In the work that we do, our clients want to build something bigger and stronger, for one reason or another. The goal may be to grow and then sell it to a third party or a consolidator for maximum value. Sometimes the goal is to create a sustainable enterprise capable of supporting a gradual transfer of ownership, leadership, and responsibility to an internal successor. 

Many advisors arrive on our doorstep using terms like “silo” and “ensemble” to describe to us what they believe they have built. However, these terms merely describe the organizational structure, which is just one facet of the strength of an independent advisory enterprise. They are not sufficient for diagnosing ALL structural elements needed to support a sustainable, profitable, valuable enterprise in this highly-regulated and sometimes complex industry. When we start a growth path with limited terminology, we inevitably have to ask a lot more questions of our clients to figure out exactly what they mean, what they really want to accomplish, and how to help them get there. 

Instead, over the years, we have found it helpful to implement a simple and intuitive shift in terminology so that we can converse effectively and efficiently with independent advisors. This targeted nomenclature enables us to offer tailored advice for each and every client. It allows us to be as precise as possible in addressing different areas of growth and sustainability, as well as available options for an advisor’s exit from the industry.

The industry-specific descriptions that follow are guides for determining where you are today, where you’d like to be five or ten years from now, and what will be required in the meantime: 

  • Job/Book
  • Practice
  • Enterprise

A job, often and appropriately called a book, exists as long as the advisor or financial professional does the work and attends to his or her clients. Whether W-2 or 1099; registered rep or investment advisor; planning or insurance professional, it makes no difference–they can all fit equally well under this category. Owning a book is all about production; in fact, it is about nothing else. Books are transferable and portable which means a book owner can walk out the door and take his or her group of clients with them. Book builders usually work under someone else’s roof, own none of the infrastructure, and have no real obligations to the business other than to produce and be compensated for the products sold or the advice or planning delivered. There is no need for a succession plan, and any continuity plan is tied to a sale to a third party.  Earnings or profitability is irrelevant at this level.  A book, or a group of books, is what most people think of when using the term “silo.”

A practice isn’t just larger and more valuable than a book, it is stronger. It often involves support staff and an infrastructure, including a CRM system, computers, a phone system, an office lease, desks, chairs, etc. All of these are typically housed within an S-Corporation or an LLC. Practices have just one owner or shareholder, but are often accompanied by one or more other producers or advisors (often categorized as books) with whom they share time, expenses, and support.  

Books and practices are both one-generational models. Our experiences working with 2000 advisory enterprises annually (and 10,000+ over the last two decades) leads to our observation that 25% of the industry only own practices, and 70% of the industry only own books. Think about that for a minute. 95% of independent advisors are one-generational models. It is also why it is so important that advisors either sell what they’ve built at career end or start building a stronger, multi-generational business early in their careers. 

If a practice is to grow and evolve into a business, it will need to further improve its organization, compensation, and profit structures along the way to facilitate a new generation of owners/advisors.

An enterprise must have certain foundational elements in place: an entity structure, a proper equity-centric organizational structure, and a scalable compensation system that gives it the ability to attract and retain talent while generating a sufficient profit margin (i.e., 30% or more). The revenue stream may be diversified, but usually about 75% or more is recurring. A business operates with a bottom-line approach and profits are used to reward ownership and investment in the business. The ownership-level compensation system shifts to a base salary plus profit distributions. A business gains it momentum and cash flow from revenue strength, its durability and staying power from its enterprise strength. Enterprises have established multi-owner, multi-generational ownership structures securing sustainability. Continuity agreements aren’t just a safety measure; they are a means of internal growth and strength–anticipating the loss of one generation means planning for the success of the next generation. Collaboration among owners and staff is the rule. 


Our experience and observations show that only 5% of independent advisors own a true enterprise. As I mentioned before, this means that 95% of the industry are single-owner books and practices. 95% of industry businesses are built to end along with the career of the advisor owner. Where does that leave their clients? Where does that leave the stability of the industry? There are many paths for book and practice owners to take that will help strengthen their enterprises and protect their clients.

These definitions of “job,” “practice,” and “enterprise” aren’t static. As the industry changes and evolves, so too will our working definitions. It is important to understand that these terms don’t turn on size, gross revenue, AUM, or level of production. It is about structure, not size, not value. If you build your business correctly, its size and value will grow naturally and properly from one generation to the next. If you don’t have the foundations in place to support your goals, you’ll struggle, and likely fail to reach the next level.

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Topics: Business Growth, Sustainability, Enterprise