PRACTICE VALUATION: HOW TO VALUE YOUR BUSINESS AND TAKE IT

TO THE NEXT LEVEL OF GROWTH?

Leave a Legacy

Client Security

Mentorship

Monetary Reward

WHAT MOTIVATES YOU?

PRACTICE TRENDS 2008 - 2013

Succession planning (business planning, legal review and financing)

Recruitment

New skills requirement

REVENUE TRENDS

Growing AUA/AUM• Process oriented• Growth goals• Thin product shelf• Team dynamics

Static AUA/AUM• Limited processes • Service focus• Limited pipeline• Lack of incentives

vs.

Valuation analysis

Why find out what a business is worth?

Identifying a baseline.

Roadmap to increase your value.

Implementation.

Life events

Business events

Tax efficiency

Capacity

Optimizevalue

Why ?

FAIR MARKET VALUE

Definition – The highest price available, in an open and

unrestricted market, between informed and prudent parties,

acting at arms length, under no compulsion to act, expressed in

terms of money or money’s worth.

THE BENEFITS OF EXECUTING A VALUATION?

1. Maximize the value of your business.

2. Growth in transitions within firms.

3. Avoid pitfalls of rules of thumbs.

4. Build a solid foundation.

SERVICE INDUSTRY VALUATION METRICS

1. Discounted cash flow - preferred method.

2. A word on methodology.

3. Goodwill.

4. Buyer beware.

Valuation analysis

Why find out what your business is worth?

Identify a baseline.

Roadmap to increase your value.

Implementation.

FIVE FACTORS FOR AN OPTIMAL VALUATION

1. Lead time: 5 to 10 years.

2. Think of your business as “a business” vs. “a book.”

3. Understand critical thresholds: $300,000, $1 million, $2 million.

4. Implement process / structure and document.

5. Move to recurring revenue.

By understanding what your valuation is and having it documented,you can limit negotiation with potential buyers when discussing

what your practice is worth.

THREE CRITICAL THRESHOLDS

Typical AUA/revenue thresholds

Business decision turning points.

$30-50 mil AUA$3-500,000 revenue

-Have an assistant.-Reach a capacity plateau depending on whether you are managed money or à la carte.

$75-100 mil AUA$750-1 mil revenue

-Add additional assistant/junior/associate.-Set long-term business objectives (envision exit strategy).-Leading and building a team; determine clear roles & responsibilities; add capabilities and expertise.-Work on the business, not in it.

$150-200 mil AUA$1.5-2 mil revenue

-Multi-advisor, broader ownership/partnership trend. -Run multiple processes with departmentalized expertise.Your long-term goals are now short term.

TYING IT ALL TOGETHER

• Structuring a deal– Vendor take-back, earn out, asset vs. share deal.

• Weighting (current environment)– Discounted cash flow – 90%– Market comparative – 10%

• Debt retirement analysis.

• Ideally have buffer cash flow position.

Valuation analysis

Why find out what your business is worth?

Identify a baseline.

Roadmap to increase your value.

Implementation.

OUR PRACTICE SNAPSHOT 2009 TO 2013

• 130 households >>> 146 households

• $100M AUA >>> $137M AUA

• 99% managed money

• Team transformation over this time to:– One senior service associate– One COI specialist– One marketing & communications associate

OUR OBJECTIVES 2009 TO 2013

• Why build out a team? – More services, more capacity

• What did I intend to get out of the process?

• Where might someone begin?

OUR PRACTICE: BEFORE AND AFTER CASE STUDY

Valuation criteria Before (2010 valuation) After (year 3 of 5)

Sales and marketing process

Keep number of clients but grow AUA Adhoc new client referrals No real pipeline strategy or process

Overall business and operations

Advisor did meetings, Assistant did file prep, Advisor did financial plans, we both did follow up

Manageable to a certain # of families

Compliance Satisfactory compliance regimen since all IPS driven, all client name, all tied to wealth plans

Agility and ability to grow No capacity for growth or “marketing” Little time for high level client, COI or

even my own business strategy

☺12% more HH = 25% more new $$☺Referral strategies: client, COI, nextgen☺Profile, communications & education

☺ Team aligned with a workflow☺ Money loves a vacuum of capacity☺ Positive annual growth of cash flow☺ Expenses after payroll jump stable

☺ Same as before but more specialized eyes on tax and estate (COI associate), so more flexibility for “new issues’

☺ Engineered for growth & capacity☺ Increasingly “organically orchestrated” time with COIs, multigens, team work

QUESTIONS

Assante Wealth Management’s advisory services are offered through Assante Financial Management Ltd., Assante Capital Management Ltd. and Assante Estate and Insurance Services Inc. Assante Estate and Insurance Services Inc. is owned by Assante Financial Management Ltd. and Assante Wealth Management (Canada) Ltd. ®The Assante symbol and Assante Wealth Management are registered trademarks of CI Investments Inc., used under licence.

Thank You

FOR ADVISOR USE ONLY

THREE CRITICAL THRESHOLDS

Typical AUA/revenue thresholds

Business decision turning points.

$30-50 mil AUA$3-500,000 revenue

-Have an assistant.-Reach a capacity plateau depending on whether you are managed money or à la carte.

$75-100 mil AUA$750-1 mil revenue

-Add additional assistant/junior/associate.-Set long term business objectives (envision exit strategy).-Leading and building a team; determine clear roles and responsibilities; add capabilities and expertise.-Work on the business, not in it.

$150-200 mil AUA$1.5-2 mil revenue

-Multi-advisor, broader ownership/partnership trend. -Run multiple processes with departmentalized expertise.-Your long-term goals are now short term.

HIGH IMPACT VALUATION AREAS -BEFORE AND AFTER CASE STUDY

Valuation criteria Before After

Sales and marketing process

Too many clients No process Low assets/revenue per client

Systematic client service model

Estate planning High assets/revenue per

client

Overall business and operations

Transactional revenue results in volatile cash flow

Lack of control over service time

Marginal annual cash flow increase

Team aligned Recurring revenue Positive annual growth of

cash flow Firm grip on expenses

Compliance Poor compliance regimen with risk of future law suit.

Centralized and communicated; everything documented

Documents and files No time to document properly/efficiently

Diligent records

BEFORE AND AFTER HYPOTHETICAL CASE STUDY

Valuation criteriaValuation criteria BeforeBefore AfterAfter

Financial evaluationFinancial evaluation $880,000 (non-recurring revenue)$880,000 (non-recurring revenue) NIBT $220,000 (assumes 25% of NIBT $220,000 (assumes 25% of

revenue based on lack of revenue based on lack of efficiencies)efficiencies)

$185,900 after tax cash flow $185,900 after tax cash flow (ACM)(ACM)

$1,000,000 (mostly recurring $1,000,000 (mostly recurring revenue)revenue)

NIBT $300,000 (assumes 30% of NIBT $300,000 (assumes 30% of revenue based on improved revenue based on improved efficiencies)efficiencies)

$253,500 after tax cash flow $253,500 after tax cash flow (ACM)(ACM)

Risk factorRisk factor Higher risk, higher cap rate Higher risk, higher cap rate (assume 30%)(assume 30%)

Low risk, low cap rate (assume Low risk, low cap rate (assume 25%)25%)

Enterprise valueEnterprise value $619,667$619,667 $1,014,000$1,014,000

A move to higher, recurring revenues coupled with a 5% reduction in risk levels can translate into more than $400,000

CHECKLIST HANDOUT

Valuation criteria Requirement Impact on cap rate

Sales and marketing process

Up-to-date marketing material; sales targets in place; target market leveraged, process and team cohesion

Overall business and operations

Clearly defined roles and responsibilities; client process; strategic plan for managing growth; annual operation reviews, employee’s engaged.

Compliance Registration/licensing up-to-date; compliancy and privacy requirements enforced and communicated to employees

Documents and files KYC documents retained; accessible client files for employees to service appropriately

In depth financial analysis

Move to recurring revenue, efficiencies increase net margin, organized financial information.

““Institutionalizing” Institutionalizing” or improving these or improving these areas can positively areas can positively impact the discountimpact the discount

rate which is used to rate which is used to determine your determine your

business’ franchise business’ franchise valuevalue