The 4 Cornerstones Of Practice Value
Strategic Issues

The 4 Cornerstones Of Practice Value

June 26, 2023

by Tony Vidler  CFP logo   CLU logo  ChFC logo
Every self-employed financial adviser hopes to retire one day and cash in on their practice value.  It’s usually a big factor in their own retirement planning.  And so it should be, after what is usually decades of building a great business.

Years of grind, rejection, self-investment and self-improvement and more than the customary business liability risks that other types of business owners face…they should all add up to a pot of gold, right?

The reality is that many do little more than create a transferrable income stream.  No matter whether it is a fee-based business with renewable client monitoring agreements, or a contractual right to an income stream from a supplier for in-force policies, most advisers contemplating their exit indulge in the equivalent of a business garage sale. They don’t sell a business; they just sell off the main business asset and then let the rest of the business die or go for next to nothing.

For the buyer that is frequently not even about buying a business.  It is just a pure asset strip.   More often than not the buyer places little to no value upon a brand or turn-key business operation for the buyer, or staff or business relationships and so forth. They simply wish to strip out the certain cash-flows and walk away from the rest.

To realise the full value from a practice sale it needs to be positioned as a business sale rather than an asset sale, and for the business to be considered as a viable ongoing trading concern there are 4 general areas that a practice must have pinned down.  For the practice to ever be worth more than just the discounted future cash-flow of the contractual rights to an income stream it must have:

keys to succession and sale for financial advisors1. Efficient Operations & Delivery Systems

2. Best-of-breed Advice Processes

3. Strong Prospecting System

4. Corporate Brand & Market Position

You need to create reliable and replicable processes in each of these areas as they are the cornerstones of a great professional services business.  An entity that stands for something in the market over and above an individual owners brand and a business that functions efficiently and profitably with or without the founders presence IS valuable.  It is has a strong probability of continual new clients and new business opportunities regardless of whether the founder remains in the business or not, and it is one where robust advice and product recommendations have been developed that minimise statutory risks and maximise the probability of happy clients.

It is a business.

The brand is valuable as the brand together with proven prospecting systems create ongoing work opportunities.  The intellectual property is valuable, as consistent service and efficient & best practice advice delivery lead to safe and profitable income streams which are not dependent upon a rainmaker or the pricipal’s personal efforts.  To build a business which can be sold for highest possible value requires these 4 components….otherwise an exiting owner is really short-changing themselves.

You might also be interested in this related article:

 The 6 Steps Of Succession Planning

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