5 Steps to Building a Valuable Advisory Firm
Dear Advisors,
When we think about growing our financial advisory firms, it’s critical that we focus on building value instead of building income. If we focus on growing value, the income will follow. Most advisors run “lifestyle” businesses which generate nice income but don’t have transferable market value. Investing in transferable value increases your income, grows your firm’s value, and gives you more, better exit options down the road. As part of our business consulting, we guide our clients through these 5 steps to grow the transferable value of their advisory firms.
Identify - Identify the value of your firm, and how it benchmarks against others in your industry. It will take a little work and expense to get your business professionally valued. But understanding where your business benchmarks in the range of value sets the baseline for everything going forward. Knowing the difference between what your firm is worth, and what it could be worth, is a huge motivation!
Protect - Once you have your baseline value, you need to protect that value by reducing risk. Protecting value is the first step in building value. Actions to reduce risk are also the easiest to implement. If you were to do nothing else, mitigating risk alone improves your business value. That’s because valuations are based partly on the real and perceived risks from a buyer’s point of view.
Build - The difference between protecting and building value is that building value takes a longer-term view. The goal here is to improve your Intangible Assets. There are 4 main areas: (1) Human Capital - the value of your team’s talent, (2) Structural Capital - the value of your processes and intellectual property, (3) Customer Capital - the value of your customer relationships, and (4) Social Capital - the value of your brand and culture. During the Build phase, we prioritize quarterly strategic projects to grow in each of these knowledge capitals.
Harvest - Once you’ve started strategic value-enhancement projects, it’s important to pause every 90 days and ask yourself if you’re ready to exit, or if you’re still passionate about your business? As you start to see your firm reach your growth goals, your firm will change, and you will change. If you decide that it’s time for something new, then you should start educating yourself on your options. Put together your transition team and make a timeline for the exit of your choice.
Manage - The most difficult part of building a business is discovering who you are outside of your business. No matter when you decide to exit, it’s important to have a life-after plan. Studies have shown that 75% of business owners who exit “profoundly regret” the decision within 12 months of exiting (Price Waterhouse). If you haven’t already, you and your life partner should start working with a financial planner to make sure you’re part of the 25% who find fulfillment in their third act. This is exactly what our firm does, so give us a call today!
This shift in thinking needs to permeate your entire organization. Teaching your employees about the importance of value versus income will bring a different perspective to the business decisions they make every day. Most of them are thinking in terms of placing trades and preparing for client meetings. They don’t understand the concept of value creation. These 5 steps are a great way to introduce the concept! Culture is one of the most valuable aspects of any company, and it’s also the most difficult to create. As your team develops the quarterly rhythm of working on value-creation projects, you will start to see a culture shift, and increased engagement. That’s a huge value-add!
These 5 steps are part of the Value Acceleration Methodology, taught by the Exit Planning Institute. They administer the CEPA certification program for Certified Exit Planning Advisors. You can find a CEPA near you on their find-an-advisor page, here. We will also be offering this consulting service for financial advisory firm owners starting in June! Give us a call to get on our waiting list today!
Warm regards,
Brooklyn
P.S.
At Ellevate Advisors, we believe that advisors deserve to retire too. What does that look like for you, your family, and your business? Let’s figure it out together! Click here to schedule an initial phone call with our team today.