Transcript Slide 1

PRACTICE VALUATION:
HOW TO VALUE YOUR BUSINESS AND TAKE IT
TO THE NEXT LEVEL OF GROWTH?
WHAT MOTIVATES YOU?
Monetary
Reward
Leave a
Legacy
Client
Security
Mentorship
PRACTICE TRENDS 2008 - 2013
Succession planning (business planning,
legal review and financing)
Recruitment
New skills requirement
REVENUE TRENDS
Growing AUA/AUM
•
•
•
•
Process oriented
Growth goals
Thin product shelf
Team dynamics
vs.
Static AUA/AUM
•
•
•
•
Limited processes
Service focus
Limited pipeline
Lack of incentives
Why find out what a
business is worth?
Valuation
analysis
Identifying a baseline.
Roadmap to increase your value.
Implementation.
Optimize
value
Life
events
Capacity
Why ?
Business
events
Tax
efficiency
FAIR MARKET VALUE
Definition – The highest price available, in an open and
unrestricted market, between informed and prudent parties,
acting at arms length, under no compulsion to act, expressed in
terms of money or money’s worth.
THE BENEFITS OF EXECUTING A VALUATION?
1. Maximize the value of your business.
2. Growth in transitions within firms.
3. Avoid pitfalls of rules of thumbs.
4. Build a solid foundation.
SERVICE INDUSTRY VALUATION METRICS
1. Discounted cash flow - preferred method.
2. A word on methodology.
3. Goodwill.
4. Buyer beware.
Why find out what your
business is worth?
Valuation
analysis
Identify a baseline.
Roadmap to increase your
value.
Implementation.
FIVE FACTORS FOR AN OPTIMAL VALUATION
1. Lead time: 5 to 10 years.
2. Think of your business as “a business” vs. “a book.”
3. Understand critical thresholds: $300,000, $1 million, $2 million.
4. Implement process / structure and document.
5. Move to recurring revenue.
By understanding what your valuation is and having it documented,
you can limit negotiation with potential buyers when discussing
what your practice is worth.
THREE CRITICAL THRESHOLDS
Typical AUA/revenue
thresholds
Business decision turning points.
$30-50 mil AUA
$3-500,000 revenue
-Have an assistant.
-Reach a capacity plateau depending on whether you are
managed money or à la carte.
$75-100 mil AUA
$750-1 mil revenue
-Add additional assistant/junior/associate.
-Set long-term business objectives (envision exit strategy).
-Leading and building a team; determine clear roles &
responsibilities; add capabilities and expertise.
-Work on the business, not in it.
$150-200 mil AUA
$1.5-2 mil revenue
-Multi-advisor, broader ownership/partnership trend.
-Run multiple processes with departmentalized expertise.
Your long-term goals are now short term.
TYING IT ALL TOGETHER
• Structuring a deal
– Vendor take-back, earn out, asset vs. share deal.
• Weighting (current environment)
– Discounted cash flow – 90%
– Market comparative – 10%
• Debt retirement analysis.
• Ideally have buffer cash flow position.
Why find out what your
business is worth?
Valuation
analysis
Identify a baseline.
Roadmap to increase your
value.
Implementation.
OUR PRACTICE SNAPSHOT 2009 TO 2013
• 130 households >>> 146 households
• $100M AUA >>> $137M AUA
• 99% managed money
• Team transformation over this time to:
– One senior service associate
– One COI specialist
– One marketing & communications associate
OUR OBJECTIVES 2009 TO 2013
• Why build out a team?
– More services, more capacity
• What did I intend to get out of the process?
• Where might someone begin?
OUR PRACTICE: BEFORE AND AFTER
CASE STUDY
Valuation criteria
Before (2010 valuation)
After (year 3 of 5)
Sales and marketing
process
 Keep number of clients but grow AUA
 Adhoc new client referrals
 No real pipeline strategy or process
☺12% more HH = 25% more new $$
☺Referral strategies: client, COI, nextgen
☺Profile, communications & education
Overall business and
operations
 Advisor did meetings, Assistant did file
prep, Advisor did financial plans, we
both did follow up
 Manageable to a certain # of families
☺ Team aligned with a workflow
☺ Money loves a vacuum of capacity
☺ Positive annual growth of cash flow
☺ Expenses after payroll jump stable
Compliance
☺ Same as before but more specialized
 Satisfactory compliance regimen
since all IPS driven, all client name, all eyes on tax and estate (COI associate), so
more flexibility for “new issues’
tied to wealth plans
Agility and ability to grow
 No capacity for growth or “marketing”
 Little time for high level client, COI or
even my own business strategy
☺ Engineered for growth & capacity
☺ Increasingly “organically orchestrated”
time with COIs, multigens, team work
QUESTIONS
Thank You
FOR ADVISOR USE ONLY
Assante Wealth Management’s advisory services are offered through Assante Financial Management Ltd., Assante
Capital Management Ltd. and Assante Estate and Insurance Services Inc. Assante Estate and Insurance Services Inc.
is owned by Assante Financial Management Ltd. and Assante Wealth Management (Canada) Ltd. ®The Assante
symbol and Assante Wealth Management are registered trademarks of CI Investments Inc., used under licence.
THREE CRITICAL THRESHOLDS
Typical AUA/revenue
thresholds
Business decision turning points.
$30-50 mil AUA
$3-500,000 revenue
-Have an assistant.
-Reach a capacity plateau depending on whether you are
managed money or à la carte.
$75-100 mil AUA
$750-1 mil revenue
-Add additional assistant/junior/associate.
-Set long term business objectives (envision exit strategy).
-Leading and building a team; determine clear roles and
responsibilities; add capabilities and expertise.
-Work on the business, not in it.
$150-200 mil AUA
$1.5-2 mil revenue
-Multi-advisor, broader ownership/partnership trend.
-Run multiple processes with departmentalized expertise.
-Your long-term goals are now short term.
HIGH IMPACT VALUATION AREAS BEFORE AND AFTER CASE STUDY
Valuation criteria
Before
After
Sales and marketing
process
 Too many clients
 No process
 Low assets/revenue per client
 Systematic client service
model
 Estate planning
 High assets/revenue per client
Overall business and
operations
 Transactional revenue results
in volatile cash flow
 Lack of control over service
time
 Marginal annual cash flow
increase
 Team aligned
 Recurring revenue
 Positive annual growth of
cash flow
 Firm grip on expenses
Compliance
 Poor compliance regimen
with risk of future law suit.
 Centralized and
communicated; everything
documented
Documents and files
 No time to document
properly/efficiently
 Diligent records
BEFORE AND AFTER HYPOTHETICAL
CASE STUDY
A move to higher, recurring revenues coupled with a 5% reduction
in risk levels can translate into more than $400,000
Valuation criteria
Before
After
Financial evaluation
 $880,000 (non-recurring revenue)
 NIBT $220,000 (assumes 25% of
revenue based on lack of
efficiencies)
 $185,900 after tax cash flow
(ACM)
 $1,000,000 (mostly recurring
revenue)
 NIBT $300,000 (assumes 30% of
revenue based on improved
efficiencies)
 $253,500 after tax cash flow
(ACM)
Risk factor
 Higher risk, higher cap rate
(assume 30%)
 Low risk, low cap rate (assume
25%)
Enterprise value
 $619,667
 $1,014,000
CHECKLIST HANDOUT
Valuation criteria
Requirement
Sales and marketing
process
Up-to-date marketing material; sales targets in place;
target market leveraged, process and team cohesion
Overall business and
operations
Clearly defined roles and responsibilities; client process;
strategic plan for managing growth; annual operation
reviews, employee’s engaged.
Compliance
Registration/licensing up-to-date; compliancy and
privacy requirements enforced and communicated to
employees
Documents and files
KYC documents retained; accessible client files for
employees to service appropriately
In depth financial
analysis
Move to recurring revenue, efficiencies increase net
margin, organized financial information.
Impact on cap rate
“Institutionalizing”
or improving these
areas can positively
impact the discount
rate which is used to
determine your
business’ franchise
value