TRANSITION TALK

Tips for Increasing Firm Value

Posted by FP Transitions on Apr 11, 2023 10:00:00 AM

 

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.

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Topics: Selling Your Practice, Business Growth, M&A, Revenue Strength, Business Value, Revenue Sharing, Multiples, Benchmarking, Valuation & Appraisal, KPI

Top 6 Ways to Grow Your Business

Posted by FP Transitions on Apr 11, 2022 2:30:00 PM

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Business growth is a never-ending, and ever-changing objective of all business owners; financial planners included. While the lingering social effects of the pandemic and the challenges of upscaling during the Great Resignation/ Reshuffle can make the task-at-hand seem insurmountable, there are still tangible ways that you can steer the course of your enterprise. Here are a few tips to help grow your financial planning business.

1. Invest in Human Capital
Most advisors have built their business from nothing into their single most valuable asset. Finding talent can be a challenge these days, especially with unemployment settling into lows not seen in over 50 years. Data from FP Transition's Valuation Database has indicated that businesses with multiple professionals accumulate assets at a higher rate than sole practitioners. As your business matures, it is imperative to invest in the next generation of talent, to keep the engine running while you begin to enjoy the reward for what you’ve built.

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Topics: Acquisition, Multi-Generational Ownership, Business Growth, Tip of the Week, Revenue Strength, Enterprise Strength, Business Value, Buying & Selling, Next Generation, Talent Recruitment, Building Your Team, Client Trust, Business Operations, Trends

Balancing Enterprise Strength and Revenue Strength

Posted by FP Transitions on Jul 30, 2021 3:29:19 PM

Balancing Enterprise Strength and Revenue Strength

Many financial services businesses focus on revenue strength while downplaying–or ignoring–enterprise strength. However, revenue strength and enterprise strength are both critical to the growth and sustainability of a business. When revenue is the sole driver of your value, you’re leaving money on the table and jeopardizing the long-term success of the business.

Since revenue and enterprise strength influence the value of your business in different ways, it's crucial to understand these differences and why balancing the two is so important. While clients, fees, and assets under management (AUM) pay the bills, the absence of a solid business infrastructure will put a company's longevity at risk. Whether you’re determined to create explosive business growth or have a sale–external or internal–on the horizon, knowing how to position your company now can result in a higher return on your efforts and investment for the years to come.

Revenue vs. Enterprise Strength

Revenue strength represents the source, quantity, and quality of your cash flow. This includes your active income generated based on advisory fees, commissions, and other financial planning services. Revenue strength accounts for your team’s compensation and other business expenses. Revenue strength represents the top-line accounting of the business.

It's the value of your book.

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Topics: Business Growth, Revenue Strength, Enterprise Strength, Cash Flow, Sustainability

Estimating Value Based on Recurring Revenue

Posted by FP Transitions on Jun 7, 2021 2:18:00 PM

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Recurring revenue is one of the most important single determinants of value. Revenue produced through management fees, trails, or renewals is ongoing and reasonably predictable. Transactional revenue is more elusive and difficult to predict. While this isn’t cutting edge news, it is important to understand that recurring revenue is more predictable and presents less risk of future earnings when compared to transactional revenue. As such, when a portion of revenue is generated from transactional revenue, buyers will require a higher rate of return (discount) when compared to other market alternatives that provide more certainty.

Rule of Thumb?

It is important to understand the difference between an adjusted pricing multiple based on the specific characteristics of the business being valued versus a “rule of thumb.” A rule of thumb for the financial services industry is that businesses sell for two-times gross recurring revenue and one-times non-recurring revenue, or that they are worth five-times Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). Often sellers approach us asking if the offer they have received based on a rule of thumb is sufficient or fair. This question cannot reasonably be answered without understanding the revenue characteristics of the practice.

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Topics: Business Growth, Revenue Strength, Business Value, Multiples

[FP WEBCAST] Enterprise Strength vs. Revenue Strength

Posted by FP Transitions on Nov 11, 2015 1:00:00 PM
Revenue Strength: the cash flow, expenses, and assets of your business.

Enterprise Strength: the infrastructure that supports revenue growth.

Can a business really thrive with just one? In short, no. Each supports the other and together they drive your business to maximum value. In our new webcast, Christine Sjolin takes a look at how enterprise strength and revenue strength differ, and how they work together to open up your choices for future business growth and exit planning.
 

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Topics: Webcasts, Equity, Revenue Strength, Enterprise Strength

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