What Is Your Advisory Practice Really Worth?

The perils of the valuation gap.

Feb. 25, 2013John Furey and Matt Cooper

Recently an advisor was interested in selling his practice that he had built over the past several years. He was 69 years of age and wanted to be completely done working in the business within a year of closing the deal with his “ideal” buyer. The practice was a 100 percent fee-only business on about $125 million in assets, an attractive attribute. The practice was generating approximately $1 million in gross revenues and the advisor/owner was taking home about $550,000 each year in income. This certainly seems like a well-run business and a desirable acquisition candidate on the surface. When asked what he thought the practice was worth, the advisor responded, “about $2.2 million.” When asked how he came up with that number, he said, “It was fairly simple—2.2 times revenue and/or four times earnings.”

More: What Is Your Advisory Practice Really Worth? | Practice Management content from WealthManagement.com.