If there’s one question we get asked most often, it’s this: ‘what’s my financial advice business worth?’. Valuing a financial advice business can be tricky and involves evaluating all aspects of the business in order to get a better understanding of it what it’s worth.

There’s an array of business valuation methods to calculate this crucial figure and we’ll get to those below. But first we should talk about some basic and overarching truths that anyone selling a financial advice business will have to accept.

Limitations of Business Valuation Methods

The most your business is worth is what someone is willing to pay for it. Conversely, the least it is notionally worth is what you are willing to sell it for. Nothing is going to alter this broad but important parameter.

Within that parameter there are an infinite number of ways to calculate what a business is worth, not all of them as black and white as you might imagine.

At Gunner & Co. we are matchmakers between sellers and buyers, and we are looking to get you the best deal when you sell your business. Because we have experience selling hundreds of financial advice firms, we can also tell you that no two deals are alike.

There is no such thing as a ‘typical’ deal – but there are some common factors that make a good baseline from which to suggest business valuation methods With that in mind, here are some pointers to work out what your financial advice business might be worth.

Different Types of Sale for a Financial Advice Business

We’ve talked before about whether you should stay on or walk away after selling your financial advice business. And this will make a critical difference to the method of valuing your business. If you are walking away, particularly from a smaller business, the buyer is much more likely to want an asset purchase where they can take on the client book without the associated cost base of running the company.

If you plan to stay on and run the business after the sale goes through, the valuation is likely to be more complex and will be influenced by how the deal is structured and what happens to you and your team after the sale. Above all, you will continue to have influence over the post-sale performance of the business – and therefore the amount of upside you will eventually receive.

We’ll address the effect of staying or going on valuation in more detail later when we talk about different kinds of buyer.

What are the Trends in Business Valuation?

To maximise the value of your financial advice business, it’s critical to understand what buyers want.

It’s unlikely that a buyer will see much upside in acquiring a business that simply augments their existing operation. Buyers want to find businesses that have a rich synergy with their own, where growth will outstrip the combined potential of each business. The best way to increase the valuation of your business is to be able to demonstrate how the buyer will get maximum return on investment. The bigger the size of the prize – in the buyer’s eyes – the greater the valuation.

It may be that the buyer is looking to increase its geographic reach by acquiring a business in a different region, or there is an opportunity to cross-sell between different product offerings. Or, for example, a new entrant in the market may have direct authorisation but lack discretionary fund management permissions.

Buying a business with those permissions would feed through to the buyer’s existing roster of clients so it elevates the value of the target company to the buyer. It may be that the buyer simply sees efficiencies in scaling up the size of its books or broadening its distribution opportunities without significantly altering the cost base.

Two things underpin almost all these buyer trends.

One is timing – if you happen to have some dimension of your business that is desirable to a buyer in the market at that time, it will help you to sell your business.

The other is ongoing profit – any perceived benefit to a buyer must be backed with the promise of future returns.

Much of the time, a boost to your business valuation will be a question of being in the right place at the right time. The uncertainty of this can be mitigated by working with a partner like Gunner & Co., which has a broad understanding of the strategic needs of each buyer.

Types of Buyer Approach for Financial Advice Businesses

Buyers tend to take one of two approaches to buying a financial advice company.

The most common is the consolidation approach, where the buyer is looking to buy the client assets but transfer the centralised functions (HR, finance etc.) to their existing business. It’s rare to retain business premises and this type of deal tends to suit a seller who is looking to retire. The transaction is almost always a full business purchase.

Investment partner approaches have become more common in the past four or five years. In this scenario the business owner and leadership typically stay in place for three to five years or more, operating from their existing premises.

While this decentralised approach typically results in less profit for the buyer in the short term, future business growth is more bankable and it spreads the risk over a longer period of time, allows for better continuity and can help to assimilate the new business. In this scenario partial equity deals may be available, giving the founder continued skin in the game and an opportunity to share in the future growth.

Common Business Valuation Methods

The process of valuing a business is never straightforward as it involves a variety of considerations and a holistic approach to evaluating how much a business is worth. There are three common methods to business valuation.

Multiple of recurring income

Using a multiple of recurring income is the gold standard of valuation metrics. It indicates a highly reliable and uncontestable revenue source, and the cost base doesn’t impact the price. Nearly seven out of ten offers in the market use recurring income as their business valuation method.

It’s faultless and written in black and white – so it’s a very secure metric for an investor. Currently average valuations based on recurring income are in the region of 3.5X.

Multiple of (normalised) profit

Profit multiples are another popular method of valuing businesses, but EBITDA (earnings before interest, tax, depreciation and amortisation) profit is a far less solid indicator than revenue and you are likely to have your claimed profit called into question during negotiations.

Crucially, the cost base may not reflect the reality an acquirer will face, particularly where the director is drawing tax-efficient dividend payments as an alternative to a ‘normal’ salary. Profit multiples are currently around 6X to 8.5X, but the defined level of profit will need to be discussed and agreed during the sale process.

Percentage of funds under advice/management

Valuing a business based on a percentage of funds under management is used more as a benchmark or sense check alongside one of the above approaches. It’s a decent finger-in-the-wind metric but there are too many moving parts behind the figure for it to be useful as a method for trustworthy business valuation.

These core metrics should give you a method to reach a ballpark figure for the worth of your business. As we’ve said, there are many other factors that will affect your business valuation, some of them more tangible than others. A few other things to consider follow.

Other Business Valuation Methods

A number of other factors can influence the value of a financial advice business, including:

  • The depth and age of historical performance records
  • The length of time you are willing to work on in the business post sale
  • Client ages, particularly the percentage of clients aged 75+
  • Client family succession where you can retain fund management/advice across generations
  • Business growth trends
  • Fee structure and consistency
  • Brand value
  • DBT exposure

A factor which is often overlooked is the human element. People buy people, so your own personality and interaction with the buyer can play a key role in how much the buyer wants to get involved in your business. While intangible as an asset, it can certainly influence the offer value your business commands in the market.

How We Can Help you Value Your Financial Advice Business

As you can see, valuing a financial advice business is a minefield of complexity. There are metrics which will give you a rough indication of the value of your company, but there are many small things that can add significant value to your business as you lead up to the sale. Ideally, you should start thinking about these at least two years out from your planned sale date.

That’s where we can help.

You can call us for a confidential benchmarking which will give you a fair idea of what your business is worth based on our industry-specific expertise, as well as things you can start doing now to optimise value at the time of sale.


Interested to find out what your business is really worth? Book a free consultation today