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Value Creation Blog

4 Ways To Create Enterprise Value In A Wealth Management Firm

Posted by Josh Patrick

business exit planningSome wealth management firms have incredible valuations and get most of their money in cash when they sell their firms.  Others might get a reasonable valuation, but about 80% of the purchase price is paid over time.

If you’re in the second group and you sell your business, you might just as well run your firm for five years and close down.  If 80% of your business is paid over time you only have really gotten 20% of the purchase price as the real price for your business.

Those that get paid the majority of their money upfront have created significant enterprise value.  If you look under the hood of these companies you’ll find a lot of things in common.  Some of them are:

The firm tends to have a niche practice that is well defined. 

If you have a niche practice you will be efficiently serve your Clients.  You will have learned how to not only efficiently serve your Clients, but your marketing will be very focused, cost effective and have great results with little effort.

The firm is run as an ensemble firm. 

One of the concerns that all buyers have is how easy will it be to transfer the Clients to the buyers and have those Clients stay loyal.  An ensemble firm will often have several internal people working with Clients and transferring loyalty is much easier than when there is one person who does everything with their Clients.

The firms have a financial planning backbone. 

Most firms in our business who have great asset management businesses have a recurring revenue model.  The firms that also combine strong financial planning will hold Clients during the years they might underperform from the asset management side of the business.  A financial planning backbone allows firms to develop deep relationships with their Clients and have a loyal following.

The firms have created significant recurring revenue and assets under management. 

The larger the business is, the better the multiple that is achieved when its time to sell the practice.  Larger firms have a stronger bench and often have four to ten senior advisors that can step in when a senior person leaves.  The founders will often have made themselves operationally irrelevant in the practice, which allows buyers to feel better about Client retention.

Have you thought about what it’ll take to sell your practice and receive top dollar?  If so, I would love to hear what you think is important.

Josh Patrick

Get your complementary Exit Planning Assessment to assess the 18 key areas a buyer would look at in your business.  You will have a call with no charge as well as a report that outlines a projected value of your business, the gap you could fill and strong and weak parts of your business. This assessment and report just might help you stay out of the need to do an earnout when you sell your business.  Click on the button below to start the Exit Planning Assessment process.

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Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC. Stage 2 Planning Partners and NFPSI are not affiliated.

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Topics: enterprise value, business exit planning, niche planning, valuation for wealth management firms, niche management

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