Taking Your Advisory Firm for an Annual Checkup

DEAR ADVISORS,

Completing an annual valuation on your business is the financial service industry equivalent of undergoing your annual physical. Young people, and young businesses, might get away with not doing this for a few years. But the older we get, the more important it becomes. The good news is that, unlike an annual physical, your valuation results should get better as your business matures. That’s one of the reasons I personally love valuations - I get a report filled with unbiased, objective metrics. Instead of leading my business based on past experience and intuition, I’d rather have data to help make business decisions.

• Why Annual Valuations?

  • Your annual valuation provides you with historical data to learn what's working in your business and what's not. Without this data, you're missing vital signs to change things in your business to perform at your best. Conducting an annual valuation will provide information that will become the bedrock from which your equity can be built. Your business is a living, breathing entity. Just like the investments you make on behalf of your clients, it needs to be nurtured, protected, and developed in order to realize its maximum value. Documenting years of solid, steady growth is not only a valuable business development tool for building your practice over the years, it is important information for any potential buyer.

  • Business value is only relevant if it has the proper context, methodology, and expertise standing behind it. Simply applying a multiple of revenue is not an accurate reflection of value. You must understand why you’re assessing value and pair that with an evaluation that not only pulls from a data set of like businesses but also accounts for a wide range of business factors.

• Valuation = Business Strategy

  • Building equity in your business is about more than just adding new clients, it requires planning, clear goals and right the information to succeed. The monetary value of your practice is just one of many pieces of information to be gleaned from a professional business valuation. A valuation is essential to building an advisory firm that you can sell down the road. Performing these assessments annually affords you the capability not only to create a roadmap for the success of your business, but also the ability to see if that roadmap is taking you in the right direction and to make course corrections if necessary.

  • Your valuation is key to building a business strategy because it provides many key performance indicators to track what’s working and what needs to be updated. The ability to track the value and growth of your company year over year will allow you to evaluate value drivers, set milestones, and make necessary adjustments to the plan as you move forward. There are so many things to manage in a business, that I find it all to easy to get distracted without doing the annual valuation to remind me of the kind of business I’m building, and how to make it most valuable.

• Valuation = Exit Strategy

  • It is extremely difficult to create an effective continuity plan without knowing the value of your business. Without a current valuation, your business is in jeopardy of being undervalued much to the detriment of yourself or your estate in the case of a triggering event. Using a current valuation to establish the price and terms by which your practice will be sold in a death or disability scenario ensures your continuity plan will effectively protect the value of your practice.

  • Annual valuations are an indispensable tool in the development of a long-term exit strategy. Regardless of if you would like to gradually transfer ownership through internal succession to the next generation or you choose to sell your practice outright, a historical timeline of your value will assist when choosing the best option for you. Assessing your business and identifying the value you would like to realize when you step away is crucial for determining what will need to be done to get there in the time available.

Getting an annual valuation is one of the cheapest kinds of business coaching available, which is incredibly important to me, as a solo advisory firm owner. Instead of second-guessing myself and missing my blind spots, the valuation gives me all the data I need to set the right business goals and, ultimately, to run a successful business. For more information on valuations, check out this article on The Myths are Realities of Valuation by one of my friends and mentors, Carla McCabe at Truelytics. She also wrote this helpful article on all the things you can do with your valuation. Your annual valuation is vital to elevating the future of your family and your financial advisory firm.

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 or get to know me on my bio here!