Increase the Value of Your Business
When it comes to increasing the overall value of a financial advisory business, most advisors will immediately focus on revenue, and that is important. Besides revenue, there are several factors that can simultaneously increase the value while making it healthier, sustainable, and ultimately more valuable to a potential buyer.
1) An up to date CRM:
While most financial advisors have a CRM, Redtail, Wealthbox, SmartOffice, or SalesForce, many will tell you that they could do a better job keeping it up to date. Having current contact information, including email, is a great start, and if you can document client interaction, and summary of accounts even better. An up to date CRM will not only help illustrate to a potential buyer the depth of the relationships you have with your clients, but also easily transfer this information and insights to the buyer, allowing them to better serve and ultimately retain the clients after a sale.
2) Client adoption of technology:
How do you currently conduct meetings, complete paperwork, and provide account updates to clients? If your clients are used to meeting via Zoom, signing client documents electronically, and logging into their client portal for account updates and statements, it significantly reduces the amount of in person meetings needed to serve your clients. This can have a number of positive impacts on your business. In addition to making it convenient to meet with clients, you can also schedule shorter and more frequent, and in many cases more productive meetings.
Next, if your clients have adopted technology, you are no longer limited to finding an advisor in your town to be your successor. This allows you to start looking nationally to find the right successor for your business vs. the local one. Increasing the number of potential buyers may increase the value when you decide to sell.
3) Reduce the average age of your clients:
The benefits to this are obvious. When a seller evaluates your business, they are evaluating the potential future revenue generated from the client relationships. If the clients are younger and in the accumulation phase of their lives, the future revenue potential is greater than clients who are older and in the decumulation phase. However, actually reducing the age of your clients can be the challenging part.
The obvious first step is to engage with your client’s beneficiaries and next generation. This could be by engaging them in the annual reviews with your current clients, something made much easier with virtual client meetings! However, to truly attract the next generation of clients you may need to look at your service offering and pricing structure. Are the services you offer valuable to a young couple recently married with young kids, student loan debt, and looking to purchase a house? And if they don’t have an investment account for you to manage because the majority of their assets are tied up in a 401k, do you have a way of charging them for your advice?
4) Increasing average revenue per client, while decreasing revenue concentration:
When a buyer evaluates a book of business that is generating 500k in annual GDC, there is a big difference in 500 clients with an average revenue of $1,000 vs. 100 client’s with an average revenue of $5,000. Increased revenue per client generally means higher account balances and more engaged clients that value the services provided by the firm. The other client revenue consideration that will increase the value of your business is decreasing your revenue concentration. We have all heard of the 80/20 rule , 20% of your clients generate 80% of your business. The less reliant on a small % of clients to generate the large % of revenue a business becomes, the more sustainable and attractive the business becomes to a buyer.
5) Reducing Key Person Dependency:
This can be a major issue with individual financial advisors who have been running their own practices, and acting as the firm owner, financial planner, and office manager all at once. How the business is run, current processes, client investment management, planning, and client relationships are all dependent on the individual advisor. This can work and be very efficient until that advisor is no longer there. To increase the value of your business to a seller you will need to decrease the dependency on you to run the business and serve the clients.
The first place to start is hiring or outsourcing certain business functions, allowing you to train others on how your business is run. However, for a solo entrepreneur who is approaching retirement you may not be interested in taking on that right now, so you can start by documenting your processes from how you market and communicate your value, to client onboarding, and ongoing service. Documenting these processes and getting the information out of your head, allows for an easier transfer of knowledge.
The next step is documenting your client relationships. We talked earlier about the importance of a CRM. By documenting your client’s information, from how they prefer to be contacted to their current financial situation, it will make the transition of that client relationship easier. Reducing key person dependency for your business can help ensure that it lasts beyond you and may increase the value to a potential buyer.
By focusing on these key areas, not only can you strive to create a healthy, sustainable business that is more valuable to a potential buyer, in many cases these changes will also make your business more efficient and in doing so increase your revenue prior to a sale.