How to Increase Business Valuation through Operations and Technology

3 min read
  • Financial Services
  • Operations
  • Document & Records Management

To assess an advisory firm’s total worth, there are numerous factors beyond AUM to consider. Putting an efficient infrastructure of technology, operations and workplace culture in place can be as important as your portfolio when creating a transferrable business.

We asked three financial advisory experts for their input on what types of administrative factors impact business valuation at all stages of the business lifecycle:

If you’re updating your operations:

Tim Welsh
President, Nexus Strategy

Because RIA firms are valued by cash flow, not revenues, operations that reduce the bottom line and expedite client service can directly impact valuation. Here are a few things that can make your firm’s administrative procedures more competitive:

1. Digitize your books and records so that they can be easily transferred.

When you’re transitioning clients, having an organized archive ensures that those relationships will continue smoothly.

2. Keep electronic files of trade history and client communication.

This allows potential buyers to easily perform due diligence and ensure they are obtaining a practice that has been compliant with regulations.

3. Consider a document management system.

Document management systems can generate a 9% revenue savings for advisors. When applied to a business value multiple, these systems bring a direct impact to the bottom line.

If you’re merging your business:

Greg Friedman
CEO of Junxure and CEO of Private Ocean

When Richard Stone and I merged our two firms, we grew from seven to 25 employees overnight. Aligning cultural fit was just as important as aligning our portfolios. If you are merging your business, consider the following:

1. How rooted are you in your philosophical beliefs?

Assess how well your approach to client service, growth vs. scale, technology systems and staffing aligns with the merging business.

2. How do you run your business?

Adapting cultures is an ongoing process, but paying special attention to how each firm works effectively with technology will help when making critical decisions, including how to best use a CRM to centralize the new firm’s data and communications.

3. What’s the impact on your clients?

How will you communicate this change to clients, and how will you maintain or adapt your client service levels to meet expectations? Begin incorporating new advisors into client meetings as early as possible, and don’t overlook the importance of a robust client portal to deliver a smoother transition.

If you’re considering buying:

Dan Seivert
Managing Partner and CEO, ECHELON Partners

There is no one-size-fits-all deal structure, valuation method or financing option. Most successful dealmakers I’ve met understand that a good buyer needs to offer more than just money.

Leaders in deal making usually:

  • Realize that acquirers should offer quality management and service offerings in addition to price.
  • Prepare detailed transition plans.
  • Focus on ensuring (and communicating to the seller the importance of ) a continuity of client experience.
  • Understand that all commercial activity with wealth managers is predated by relationships.
  • Go beyond due diligence lists and collect data to confirm their strategic vision.

Get all of the key takeaways from the Business Valuation Summit by downloading your copy of the “Expert Guide: A 360 View of Building & Assessing Valuation.”

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