Building a Thriving Financial Advisory Practice: Why Enterprise Value Matters

Understanding Enterprise Value vs. Equity

Just take a look at the trade papers and you’ll see there’s a lot of transactions happening in the market, some at higher multiples – but there’s also a lot of misinformation.  There is buzz about EBITDA and maximizing equity, but there is a tremendous amount of opaqueness around this concept. Many financial advisors think they need to focus solely on equity as a measure of their practice’s worth. Equity represents the ownership stake you have in your business. However, when considering a move to a supported independent platform, we think a more important metric for you to consider is enterprise value.

Enterprise value takes into account not just your equity, but also your practice’s future profitability. It considers factors such as your recurring revenue streams, your client base and your overall business model.  All the time and effort you have put into your practice may make it your largest asset.  You want to decide how to manage and eventually monetize when you decide to move on to your next chapter. We know every advisor is at a different stage in their career and have different long term career aspirations.  What is right for one advisor and their clients may not be right for another. You should be able to own your own practice and decide its path on your terms.  Some advisors are dazzled by up front payouts or selling a portion of their business for a lump sum now, only too late to realize the substantial affect it can have on the long term. We think the best path is for optionality without obligation. The ability to participate in a transaction without the obligation to do so.

Enterprise Value Matters More

Focusing on enterprise value offers several advantages over a pure focus on equity. Here’s why:

• A More Accurate Picture of Your Practice’s Worth: Enterprise value reflects the true earning potential of your practice. It goes beyond your current ownership stake to consider your future growth prospects.

 

• Smarter Decision-Making: When evaluating a move to a new platform, focusing on enterprise value helps you make decisions that will maximize the long-term value of your practice. You’ll be considering factors that contribute to your practice’s sustainability and scalability.

Considering Your Individual Situation

The decision of whether to move your practice to a new platform depends on your individual circumstances. Here are some factors to consider:

• The Size of Your Practice: If you have a small or new practice, focusing on enterprise value can help you lay the foundation for future growth. These practices can benefit from partnering with a firm that gives you access to an ecosystem that has the resources and support you need to scale your practice efficiently.

 

• Your Career Stage: If you are nearing retirement, you may be more concerned about maximizing your current equity. However, even in this stage, focusing on enterprise value can help you ensure a smooth transition for your clients and potentially secure a higher valuation for your practice.

 

• Your Clients: While profitability is crucial, some acquirers prioritize it over your clients’ well-being. Throughout your career, you’ve tirelessly served their needs, deeply understanding their goals and aspirations. Your decision to move to a supported independent platform must reflect that commitment, ensuring a beneficial outcome for both you and your clients.

At 1792 Wealth Advisors, our “NorthStar” is helping advisors build their best enterprise value while prioritizing client service and experience.  It is one of the reasons we moved from the wire house to our own independent practice on the Raymond James platform.  There is no ivory tower management team here … we are also advisors.  We sit in the same seat you do every day.  We made the leap to independence and can successfully help you get there too. Independent … but not alone.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered Raymond James Financial Services Advisors, Inc. 1792 Wealth Advisors is not a registered broker/dealer and is independent of Raymond James Financial Services.

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