- On May 8, 2017
It has been widely reported that the vast majority, 60% to 70% of Financial Advisors, do not have a succession plan. Advisors with a well thought out succession plan can increase the value of their firm and make the transfer process much smoother.
While Advisorbox encourages advisors to plan for succession for both their benefit and their clients, we understand why a lot of advisors procrastinate.
Fee based business and technology has made it easier for advisors to maintain their client base and “life style” practices longer. A lot of advisors we speak with love what they do and want to have a foot in the business for as long as their health holds up.
The good news for advisors that do not have a succession plan and a set successor in place, is that selling your practice to another external practice typically results in a great financial deal for you. It is a sellers market. There are enough quality buyers looking to expand, that with proper screening, you’ll also find a great fit for your clients for a win-win-win scenario.
Last year the average multiple for practices using market based valuations was 2.6 times recurring revenue. Larger practices can push or exceed a 3 times multiple while smaller practices can be closer to a 2 times multiple.
It isn’t as simple as multiplying your revenue by 260% to determine your practice value. The size of your practice and makeup of your clients significantly impacts your value but it provides a starting point for estimating.
With current financing options you don’t have to seller finance 70% of your business anymore. The deals we see are being externally financed by lenders. We typically see sellers receiving 70% to 75% of their sale price as a down payment and only seller financing 25% to 30% of the deal. And yes, about 90% of what you receive will be taxed as capital gains.
Have you procrastinated in developing a succession plan but are now ready for a successor and a big payoff? Call us for a free consultation about the M&A landscape, the key aspects of selling, what you’ll need to get in order, and what you’re looking for in a buyer regarding personality, client servicing model, and investment strategy.
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