Learn what factors like asset concentration and technology drive long-term worth

Do you know your firm’s worth – today or in five years? What are your ultimate business goals?

You may be looking to grow organically or through acquisition. Or you want to diversify your revenue streams or offer equity ownership. Whatever your goals, it's critical to understand the value of your business today and what activities drive long-term value.

Knowing your business means knowing your numbers, from short- and long-term cash flow and profitability to ultimate valuation. But placing an objective value on your business can be a bit tricky. How do you put a price on the long-standing relationships with clients who look to you for help in pursuing their goals?

Seeing the whole picture

A valuation estimates the potential value of your business to determine a sale price. Many analysts start by reviewing revenue, expenses, and profit. Still, those are only a few factors that go into determining total value. The challenge for analysts is calculating a firm's potential. A comprehensive valuation takes a holistic look into your business and what gains you might achieve in five years or more.


Business value drivers

So what factors contribute to potential? What factors play into the transferability of your practice and your successor's ability to keep clients after a sale? Here are a few factors—and specific activities—that can affect valuation.

Asset concentration: Having just a few clients hold more of your firm's assets under management could affect a sale price. There is a higher risk associated with losing any of those individuals. Spreading assets across more clients eases that risk and can boost your value.

Sustainable revenue stream: Practices with mixed revenue streams have the potential for higher valuations. Introduce recurring revenue streams, such as advisory relationships, when appropriate for the client. Advisory offers the potential for a steady stream of revenue and scalability. It also reduces some of the risks that come with commissioned accounts. Plus, it provides the opportunity to develop a deeper relationship with your clients and cultivate their loyalty.

Valuations provide perspective

Technology: Practices with technology that makes transactions easier or provides consistent reporting to clients can streamline operations. Access to online dashboards and reports adds value that can make clients appreciate you.

One way to show operational stability is to use cloud computing to allow some employees to work remotely. Businesses that do report benefits, such as increased productivity, reduced overhead, access to a larger talent pool, and reduced employee turnover.*

Brand equity: The consumer perception of the name on your website can play into your firm's value. Ninety percent of consumers read online reviews before visiting a business. And 88% of consumers trust online reviews as much as personal recommendations.**

Referrals, client reviews, and your firm's online presence can show your firm's ability to attract new clients.

Business value optimizers

Outsourcing: Outsourcing lets practices work with the economies of scale and cost structure that lead to savings, while also providing a competitive advantage. It’s easy to outsource administrative tasks, brand content marketing, and IT-related matters. Using outside experts can help manage overhead expenses related to in-house employees, such as payroll, insurance, healthcare benefits, office space, and equipment.

Succession planning: The value of your business depends on the firm's ability to keep clients. Even if you don't have immediate plans to sell, what if something happens? Having a plan for when you leave the business counts toward stability and contributes to the firm's value. To ease the impact of your departure, have a plan and ensure your clients have multiple and consistent relationships in the office. 

Valuations provide perspective and understanding of what drives the value of your firm. They can also prevent surprises about your business’ worth. Regular valuations help identify gaps in your firm's performance to put strategic business plans in place for continued success well into the future.

LPL Business Solutions offers valuation reports to advisors in a couple of ways. CFO Solutions provides clients with access to real-time valuations for their firms. It also helps identify ways to increase and protect the value of your practice. Sale valuation reports are provided annually as an added benefit to advisors who subscribe to The Assurance Plan. This plan offers a guaranteed payout for your business in the event of your unplanned exit from the industry.

Click here to view a sample sales valuation report.

Have questions about this report?  Schedule a consultation to review it together


*Forbes Finance Council, S. (2017). Seven Business Benefits of Having Remote Employees. Forbes Media LLC

**Heather Ripley, J. (2017). Who's Managing Your Online Reviews?  Entrepreneur Media Inc.