Higher recurring revenue = higher enterprise value!
But that's just one of the factors.
What else affects the value of your business? How can you earn a higher multiple when it's time to sell?
Duncan MacPherson and Ted Jenkin address these crucial questions in the latest episode of Always On.
Tune in now: paretosys.co/AODM_ep54
Are you looking toward succession in your practice? Are you dependent on a protégé or partner to make all the gears mesh? Who's deciding where the ship is heading? Most importantly, will it work, both for you and your clients?
Too many mentors leave the protégé to their own devices to figure these things out. You can't play to maverick talent when looking toward franchise-readiness or a partial exit; you have to play to process and to your proprietary assets.
The most successful advisors to partner with a second-generation or junior created, essentially, a franchise-ready environment. This not only freed the mentor to focus on the top 20 percent of clients, knowing that the 80 percent were well taken care of by the protégé, it created the sense of an upgrade for clients, rather than feeling like they'd been handed-off, resulting in uncovering untapped new business opportunities along the way .
There are countless examples of successes, anticlimactic outcomes and outright failures in the acquisition world. The old model came down to the buyer focusing on what the business would cost, while the seller was fixated on what the business was worth with little emphasis placed on the key intrinsic and proprietary assets. There was also little thought applied to deploying a turnkey and proven process to communicate with the clients involved prior to, during, and after the transition.
Many knowledge-for-profit professionals who buy or sell a practice are only buying a book of business, not an actual business. There are several key performance indicators that go beyond the trailing 12. So what is the difference between a 1X transaction and a 2X or better multiplied transaction?
One of the most important issues is the quality of the client relationships. That is just as important as the quantity of total assets. How loyal are the clients based on how they have been served up to this point in the relationship? Have they bought investments, or are they bought-into a professional process? Metrics on empowerment, referrals, demographics and commonalities, commissions vs. fees and several other issues are key as well. Most importantly, build a playbook that details and defines your processes so that your protégé - or anyone else - can bring the service your top clients deserve and expect, and which clearly communicates to clients what they can expect from the practice.
The bottom line is this: Whether you plan to buy or sell a business in the future, it is essential that you get out front and be well-prepared to multiply the value of the asset and make the outcome as smooth and predictable as possible.
Understanding the process and communicating it clearly removes much of the friction that can occur. Deploying a process demystifies the experience and ensures there is minimal opportunity leakage - and that you don't squander your time.
Learn more about succession on Duncan's "Always On' Podcast: paretosys.co/AODM_ep54
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This is an excerpt from episode 54 of the "Always On with Duncan MacPherson' podcast featuring Ted Jenkin, CEO of oXYGen Financial and President of Exit Stage Left Advisors.
Stream the entire new episode of Always On by clicking here: paretosys.co/AODM_ep54
Exploring the non-proprietary nature of technical skills in the financial industry, this discussion shifts focus to the true value proposition of a financial professional: the ability to develop a lead generation engine. Highlighting marketing as the most challenging and rewarding aspect of client acquisition, it underscores the importance of creating systems and processes that ensure predictable, sustainable, and duplicable growth.
This is an excerpt from episode 54 of the "Always On with Duncan MacPherson' podcast featuring Ted Jenkin, CEO of oXYGen Financial and President of Exit Stage Left Advisors.
Stream the new episode of "Always On' by clicking here: paretosys.co/AODM_ep54
As a financial advisor, preparing for the sale of your practice is a meticulous process that demands consideration of many factors. Whether you're planning for retirement, exploring new opportunities, or seeking a lifestyle change, getting your house in order is key to a successful transition. The following is a comprehensive guide to help you navigate through the essential steps to prepare for the sale of your practice:
One of the foundations for preparing for the sale is crystal-clear financial records. Your potential buyers will scrutinize your financials to assess the health and viability of your business. Utilize QuickBooks to maintain a clean set of records, including a detailed Profit and Loss (P&L) statement. Break down your revenue sources, such as asset-based fees, financial planning fees, commissions, and insurance.
Make sure to distinguish between business-related expenses and personal expenditures. Clearly demonstrate any add-backs that may not be considered ongoing expenses for the business. Ensure that your gross income accurately reflects the true revenue your practice generates, providing potential buyers with a transparent understanding of your financial position.
Having 1099 contractors in your organization can be a red flag for potential buyers. To enhance the appeal of your practice, consider transitioning to W-2 employment contracts with your staff. Establish solid employment contracts with non-compete and non-solicitation clauses to protect the continuity and integrity of your client relationships.
By streamlining your team under W-2 contracts, you create a more cohesive and stable structure, presenting a positive image to potential buyers. This move can alleviate concerns about the potential departure of key team members after the sale.
Consider divesting from the money management aspect of your practice, especially if it's not a significant value driver. Transitioning to a Pure Registered Investment Advisor (RIA) model with negative consent can simplify the sale process. This strategic move not only makes your practice more attractive to buyers but also facilitates a smoother transition of client assets.
Demonstrate the value of your practice by showcasing strong Compound Annual Growth Rates (CAGR) and a robust lead generation funnel. Net flows - the difference between new assets gained and assets lost - can significantly enhance the perceived value of your business. Showcase your ability to attract and retain clients, emphasizing a sustainable growth trajectory.
Invest in a lead generation machine that consistently brings in new assets under management (AUM). A solid lead generation strategy can be a key differentiator and a major selling point for potential buyers.
Develop a comprehensive succession plan, often referred to as a G2 plan. This plan outlines how your practice will continue to operate seamlessly after your departure. Include details on key personnel, client transition strategies, and any ongoing support you may provide post-sale.
Having a well-thought-out G2 plan demonstrates your commitment to the long-term success of the practice and reassures potential buyers about the stability and continuity of client relationships.
In conclusion, preparing for the sale of your practice requires meticulous planning and execution. By getting your financials in order, transitioning to W-2 contracts, exiting the money management business, emphasizing net flows and lead generation, and having a robust G2 plan, you can enhance the appeal and value of your practice in the eyes of potential buyers. This strategic approach facilitates a smoother sale process and ensures the ongoing success of your practice beyond the transition.
If you're ready to explore the opportunity of maximizing some or all of your practice, contact JPTD for a consultation.
- Article contributed by JPTD
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For more on this, and other actionable best practices, download Chapter 1 of my book "The Blue Square Method" today at thebluesquaremethod.com
Discover the pivotal strategies financial professionals must embrace to significantly enhance their enterprise value. Learn why recurring revenue is the cornerstone of a valuable practice.
This is an excerpt from episode 54 of the "Always On with Duncan MacPherson Podcast" featuring Ted Jenkin, CEO of oXYGen Financial and President of Exit Stage Left Advisors.
Stream the new episode of Always On by clicking here: paretosys.co/AODM_ep54
Always On With Duncan MacPherson - Leaving No Stone Unturned: How to Maximize Your Exit Strategy with Ted Jenkin (Ep. 54)
Want to receive maximum value for the business you've worked so hard to build?
The key lies in being proactive with your exit strategy.
Dive into a thought-provoking conversation between Duncan MacPherson and returning guest Ted Jenkin, CEO of oXYGen Financial and president of Exit Stage Left Advisors. Together, they uncover practical insights to streamline your operations, improve client acquisition, and scale your credibility " ultimately garnering a higher multiple for your business.
They discuss:
Stream the new episode of Always On by clicking here: paretosys.co/AODM_ep54
We'd love to hear your thoughts on this episode or answer any follow-up questions. Please feel free to reach out!
Did you miss Duncan MacPherson's webinar on how to achieve a work-optional lifestyle in five years?
If you did, you missed a lot of valuable insights and strategies on how to transform your business into a self-sustaining entity that gives you the freedom to choose when and how you work. But don't worry, you still have a chance to watch the replay of the webinar.
Click here to watch: paretosys.co/work-optional-replay
Explore the pivotal questions that can transform your client advisory council meetings, from uncovering your firm's strongest assets to identifying unseen opportunities for growth in this short excerpt from episode 53 of the "Always On with Duncan MacPherson' podcast featuring Mike "Cy" Cajthaml Jr., Pareto Systems Business Advisor.
Stream the full episode of Always On here: paretosys.co/AODM_ep53
