The multiple is the easy half. What moves it is a set of things most founders have optimised in exactly the wrong direction.
Advisory firms are typically valued on a multiple of recurring revenue or of adjusted earnings. Multiples move with the market for firms, with interest rates, and with the pool of buyers.
Whatever the headline range is when you read this, it is a starting point rather than a valuation.
Recurring revenue rather than transactional. Growth, especially organic. A client base that is not concentrated in a handful of relationships. Documented process. A team that can operate without the founder.
Client age concentration, because a book that is mostly in drawdown has a declining asset base regardless of how well it is served.
Revenue concentration. Undocumented process. And the big one below.
If every relationship runs through you, the buyer is not acquiring a firm. They are acquiring a list, and betting that the list survives your departure.
They will price that bet, and it is the single largest adjustment in most valuations of small firms.
The personal service that built the practice is the same thing that discounts it. That is uncomfortable and it is arithmetic.
Introduce a second adviser into the relationships. Document the investment process so it exists outside your head. Move client communication onto firm systems rather than your personal channels. Show growth that came from the firm rather than from you personally.
Each takes years, which is why succession planning starts earlier than feels necessary.
A real one, from someone who values advisory firms for a living, well before you intend to transact. Not to sell — to find out which of the above is costing you, while there is still time to change it.
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