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Tips for Increasing Firm Value


You invest a substantial amount of energy into running, growing, and evolving your business. Knowing when, where, and how to best direct your efforts could mean the difference in thousands, or even millions, of dollars long-term. Having spent two decades accruing and organizing essential datapoints on more than 15,000 businesses, we’ve got a tight grasp on what matters most at each step of the way.

Depending upon your goals, certain areas will move the needle faster than others. Rather than guess at the best use of your limited resources, our team has compiled a list of places where your ownership and C-Suite team can start assessing opportunities for increased firm value.

Tip #1: Know Your KPIs

Key Performance Indicators (KPIs) are critical measures of your firm’s current trajectory, but they also can be hard to pinpoint. With dozens of options, executives need to peel back the layers and assess what is most relevant. We do not operate in a one-size-fits-all environment. Owners should know their short and long-term goals, and which KPIs support them.

Over the last two decades, this industry has exploded with variations of firm structure and revenue sources. As more products and services enter the financial services sector, our methods for attributing value have also expanded. To gain a better grasp of which KPIs matter most for your particular firm goals, we recommend working with a consultant to identify the right areas of focus.

Tip #2: Leverage Data

In order to truly select and monitor your KPIs, firms need to have a strong grasp on business performance metrics. Figures such as revenue growth and gross profit margin tend to be the most popular and accessible datapoints for measuring firm value. Creating a regular cadence for reviewing your KPIs is essential. Many firms opt to create a dashboard via their existing technology platform.

The metrics that matter most will vary depending upon your firm structure, size of staff, and client services. It will also depend upon your owner/leadership goals, including whether you have implemented a multi-generational ownership structure, begun executing a succession plan, or are gearing up for some type of exit via Sell and Stay® or a complete sale. Our team has addressed a variety of metrics that are currently very important for many firms.

Tip #3: Understand Your Value

Before you can increase your firm’s value, you need to know what it’s worth right now. While assessing value is a very scientific process, there are lots of reasons in which a firm seeks a valuation, and this ‘why’ factor matters.

Consider an analogy: a home in Los Angeles, CA is going to procure a markedly higher value than a home of the same size in Des Moines, IA. Many contributing factors alter its value, including whether the seller is relocating for work and already moving, not to mention if they had a renter, a dozen kids and a plumbing problem. There’s simply no way to say that a firm of a certain AUM and number of clients would procure the same value to an internal successor versus an aggregator, an independent advisory firm, or a bank. You must factor in dozens of other datapoints and in the M&A world, your ultimate sale or purchase price is going to fluctuate along with motivation to sell, motivation to buy, financing, and deal terms.

If you have not obtained a firm valuation in the past three years, now is the time to do so. (For a variety of other business-sensitive reasons including your continuity plan, your business insurance, and your succession plan!) This webinar will help you assess your valuation options.

Tip #4: Increase Recurring Revenue

While not ideal for every firm, for those that operate or can expand into areas that produce recurring revenue streams, this is a no-brainer. Entice clients to spend consistently, whether that is through investment management services, even additional products or services that require an annual or quarterly fee.

Recurring revenue streams can come in many forms. Of the common sources for advisor revenue, the ‘degree of predictability’ will factor into how much a certain revenue stream may impact your business valuation. Some of the most common and highly predictable revenue sources include third-party managed assets, fees on managed assets, tax-related services, and consulting. While on the other end of the spectrum, the less predictable revenue streams include securities-based trails, insurance renewals, securities commissions, and insurance commissions.

Tip #5: Follow the Rule of Thirds

One of our favorite tips, the ‘rule of thirds’ provides an optimal way to allocate your revenue.

One-third of your revenue should be allocated to professional compensation. Another third should fulfill your overhead such as non-revenue producing compensation, occupancy, technology, and marketing. Finally, one-third should be recognized as profit, paid out in quarterly distributions (though this one could actually go as high as 40% for top-tier enterprises).

Tip #6: Optimize Revenue and Expenses

Evaluate where you are spending your money. For most, compensation is the largest line item. No, we aren’t recommending you reduce salaries! One angle owners might consider revolves around restructuring compensation. A restructured compensation package could include salary, bonuses and equity. Firms contemplating succession planning solutions, or ways to attract more talented advisors, may want to consider increasing payouts in areas other than a traditional salary.

Other considerations are your office space. Are you utilizing the square footage you currently own or rent, or are we finally nearing the end of that lease? Post-COVID, employers are embracing more remote work or partial remote opportunities, therefore creating shared workspaces and cutting down on traditional office expenses.

Operational tasks are also a place to cut back. Given the quiet-quitting trend widely discussed lately, the idea here is to take tasks off your over-saturated employees. In fact, allowing employees to focus on their current role and less on any expanded, divergent tasks, can increase morale and productivity. Additionally, are you leveraging all your technology to decrease demands on manpower? As back-office technology continues to expand, more options exist for reducing pain points and menial tasks. Purchasing a technology solution to take on burdensome tasks could be far less expensive than a full-time administrator role with benefits.

Consider expanding your budget for marketing this year. Driving consistent revenue growth is often a great way to increase firm value. By bringing on new clients that increase recurring revenue and/or overall AUM, your EBITDA will be positively affected. Additionally, focusing on attracting and retaining the right clients through proper messaging and client experiences will fortify your revenue streams for many years. Remember, the consistency of your revenue is also a factor in assessing value.

Tip #7: Improve Your Efficiencies

Create a culture that prioritizes learning and growth. Through regular performance reviews, teams will feel supported, have transparency into their personal growth goals, and understand how to flourish within the firm. A happy and motivated workforce produces optimal results for clients and the that turns up in annual revenue.

Deliver regular training on technology and document your processes. Where you can create consistency, you will reduce time spend performing these tasks. If everyone knows where to find documents, how to properly onboard clients, enter details into the CRM, suddenly everyone works together and distracting, repeat questions are reduced.

Leverage your tech to solve problems, not create new ones. Broken or slow technology is literally the opposite of its intent. With the many options available today, there’s no excuse to have poor technology. Additionally, too much technology can also become burdensome.

Get Going!

Ultimately the lens through which you view your firm value matters. Growing your firm’s value requires awareness of current value and a laser-like focus on the key performance metrics that are going to indicate growth in the right areas. Avoid focusing on ambiguous or generic goals that can’t be measured. Pinpointing the opportunities for heightened firm value rely on your ability to see your long-term vision.

Given the sheer number of hats that owners wear today, exerting energy should be done carefully and with clear purpose. Your time is your scarcest commodity, and when you apply it at the right time and in the right manner, your growth – and consequently your value – will explode. If you’re wondering how best to apply the right tips for your firm today, that’s why we’re here.

Our team of expert consultants is ready to discuss your questions and goals. After serving more than 15,000 firms over the past two decades, our proprietary benchmarking database has the power to directly view your firm metrics alongside a perfectly-matched comparison cohort. Regardless of your current firm structure, size or other variables, your uniqueness suddenly becomes quantifiable.

Learn how engaging with FP Transitions can optimize your firm’s value. And click below to view for our webinar, "A Valuation for Every Scenario."

A Valuation for Every Scenario On-Demand


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