TRANSITION TALK

Estimating Value Based on Recurring Revenue

Posted by FP Transitions on Nov 22, 2019 11:35:24 AM

The following is a short excerpt from Estimating Value Based on Recurring Revenue by our VP of Business Valuation Services, Ryan Grau, CVA, CBA.

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 Value, Valuation & Appraisal

10 Reasons to Professionally Value Your Business

Posted by FP Transitions on Nov 28, 2018 2:08:05 PM

10 Reasons to Professional Value Your Practice

Experienced business owners recognize the importance of tracking and monitoring the value of their practice over time. They know their practice is their most valuable asset, and by valuing it, they are empowered to grow, protect, and realize the value they have built.

Following are ten situations where it’s essential to have a current value and accurate understanding of your business.   

1. Increase Value

To cultivate growth and increase the value of your business, you need to have a starting point—a place to grow from. An accurate and comprehensive valuation will identify value drivers and growth opportunities, allowing you to create an informed growth strategy and make changes that will improve performance. The ability to track those changes and the value of the practice year after year enables you to see your progress and ensure your growth is on target

2. Benchmark Your Business

Tracking your value year after year allows for accurate benchmarking of the business. A thorough benchmarking report will look at your business and compare it to similar-sized businesses in the market, evaluating your company’s standing against the competition. Benchmarking reports reveal how your business stacks up against your peers as well as against leaders in the industry.

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Topics: Succession Planning, Acquisition, Business Growth, Business Value, Benchmarking, Valuation & Appraisal

Top 10 Drivers of Business Value

Posted by FP Transitions on Jan 24, 2018 9:23:30 AM

valuedrivers_banner.jpg

The value of your practice is determined by many factors, some obvious, and some not so obvious. Even if the idea of exiting the business is far down the road, as an owner you need to consider the ten factors below as part of managing and growing the practice. Focusing on these areas can make a major difference in your book’s sustainability and its eventual purchase price (when transition time arrives).

The purpose of this article is not to review the theoretical aspects valuation or create an exhaustive list of factors that influence your value. That would be a much longer, technical article–which can be viewed here. The point here is to highlight the drivers that can help give your value an extra boost in the right direction. These factors include:

  1. Predictable revenue and recurring revenue streams
  2. Client demographics
  3. Average client tenure
  4. Size of potential market
  5. Transition timing
  6. Client affluence and average client revenue
  7. Asset or revenue concentration
  8. Use and structure of referral fees
  9. Length of surrender period
  10. Profitability

As you look at your practice with an outsider’s eye, you will see avenues that help grow the business and make it more robust. 

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Topics: Business Growth, Business Value, Buying & Selling, Sustainability, Benchmarking, Valuation & Appraisal

Brad Says...

Posted by FP Transitions on Jul 24, 2015 10:43:55 AM
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Topics: Business Growth, Business Value, Benchmarking, Valuation & Appraisal

The Art of Valuation

Posted by FP Transitions on Apr 14, 2015 10:00:00 AM

orangechairs

Success in any endeavor comes from a combination of luck, timing, and strategy. If your goal is to grow your practice, acquire another firm, or build a legacy with your financial advisory business, developing the right strategy is crucial to your success. In Sun Tzu’s The Art of War – often cited as the canon of business and military tactics – understanding your unique strengths and weaknesses compared to your competitors’ is the foundation of a successful strategy.

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Topics: Business Value, Benchmarking, Valuation & Appraisal

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