When it comes to valuation, there are, unfortunately, many misperceptions in the industry. More often than not, Advisors have an unrealistic valuation expectation for their business, but do not have a clear understanding of how value is actually derived. The reality is that our industry is ever-changing and Advisors are facing a host of challenges that are impacting their businesses and how they’re being viewed for valuation purposes. This article is going to address some of the major points of confusion, as well as explain the reality behind each myth.

1. 1
Myths & Realities
of Valuation

2. TODAY’S REALITY
Tax
Environment
Concerned
Clients
Consolidation
Infrastructure
Costs
Succession
DOL &
Compliance
Competitive
Environment
Legacy
Current
Economy
Revenue &
Profit Erosion
Capital
Requirements
Business
Philosophy

3. STARTUP X 3
IS YOUR
BUSINESS A
BUSINESS?
The Most Important Question Regarding Valuation

4. Strength & Depth of
Management Team
Capability/Intention of
Next Generation
FACTORS AFFECTING VALUATION
Growth (Historical & Projected)
of Cash Flow & AUM

5. Industry Status
Reputation - Brand Equity
Size
Client Base Composition
Age, Tenure, Relationship

6. Transferability of
Revenue Stream
Continuity Plan
for the Firm
Capacity vs.
Scalability
Corporate Tax
Status

7. Organizational &
Operational Issues
Portfolio
Management
Client Service
Model

8. STARTUP X 8
1
MYTH
There are industry
accepted standard
multiples.
REALITY
There are no standard
multiples just “Rules of
Thumb” because
there are NO
comparables.

9. STARTUP X 9
2
MYTH
A Buyer will use the
same valuation
metrics as me.
REALITY
Sophisticated Buyers
will not use valuation
metrics but rather a
calculation on the
expected Return on
Investment (ROI).

10. STARTUP X 10
3
MYTH
My Firm’s value is based
upon its
financial attributes.
REALITY
A Firm’s value is based
upon not only its
financial attributes but
its non-financial
attributes, as well.

11. 11
4
MYTH
Valuation is based
upon a specific
point in time.
REALITY
Past > Present > Future

12. 12
5
MYTH
Using a multiple of
revenue approach is
the most commonly
accepted method
of valuation.
REALITY
The multiple of revenue
approach is the least
accurate and least
accepted method.

13. 13
Every Dollar of Revenue has an Associated Expense = Profit
Buyers buy the viability, stability, and predictability of
future profit.

14. 14
6
MYTH
The valuation is the
value my Firm is worth
in the market.
REALITY
A valuation, whether
formal or informal, is
only a baseline and
not true indicator of
sale price.

15. 15
Value + Structure = Purchase Price
Ultimate Value = What a Buyer is willing to pay and the
Seller is willing to receive (a valuation is a starting point)

16. 16
7
MYTH
Having good
revenue and low
expenses equals strong
cash-flow (profit) and
greater value.
REALITY
Low expenses can
sometimes mean I have
not reinvested in
my business.

17. 17
8
MYTH
Is something happens
to me the Firm will be
sold at fair value.
REALITY
Upon an unforeseen
event, i.e., death or
permanent disability,
many Firms will
experience immediate
value erosion.

18. Keys To Remember
Perception is not reality
Be financially ready
Understand financial and intangible drivers
Real value vs. “EGO” value
Transferable value is the ultimate value

19. Strengthen Your Business, Benchmark Your Business, Value Your Business.

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34. 34

35. Truelytics, Inc.
396 Washington St. Suite 290 Wellesley, MA 02481
www.truelytics.com • 610.585.6780 • terry@truelytics.com