Revenue quality
Recurring, fee-based revenue is worth significantly more than commission-based income. [1] SRG puts the typical multiple for RIAs and advisors with recurring revenue at 1.6x to 4.4x of that revenue. [1]
The revenue a buyer pays for is its own version of yours: buyers calculate revenue or EBITDA through a quality of earnings analysis, typically strip out revenue they consider one-time or unlikely to last (such as a single large planning fee), and impose a market-rate salary for the selling owner whatever the owner has actually been paid. [3]
Growth
SRG's valuation model treats growth as the most important factor after the predictability of revenue. [4] DeVoe & Company estimates that each 1% of annual organic growth corresponds to a 7% increase in valuation. [2]
Clients
- Age. The older the client base, the lower the value, because of the expected long-term decline in revenue. [4]
- Concentration. If your top five clients are 40% or more of revenue, a buyer treats it as a risk discount. [1] The more assets a small group of clients holds, the higher the risk and the lower the value. [4]
- Revenue per client. Higher revenue per client points to higher expected value. [4]
Team and founder dependence
Buyers pay for clean financials, sustainable organic growth, a team that runs the business without you, and signed agreements. [5] The same source lists what lowers value: client concentration, founder dependency, commingled financials, an aging client base, long-term obligations like leases, and unsigned team agreements. [5] SRG names three expenses that typically have a material effect on value, because a buyer may have to keep them: referral fees paid in perpetuity, employee costs, and leases or other long-term contracts. [4]
Records a buyer will ask for
Expect requests for three years of financial history with a close look at the trailing 12 months, a breakdown of the client base (demographics, asset distribution, concentration), staffing and compensation commitments, any equity or profit-sharing promises, and major contract terms. [6]
Your public record matters too. FINRA BrokerCheck shows customer disputes, disciplinary events and certain criminal and financial matters, and its investment adviser information comes from the SEC's Investment Adviser Registration Depository. [7]
See how these factors apply to your numbers in the valuation estimator.