Practice Management

Old-School Practices May Drag Down Valuation

If you are thinking about practice valuation, consider some steps to get it into the best shape possible for the highest valuation.

By Jill Cornfield | January 21, 2015
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First, says Paul Saganey, founder and president of Integrated Financial Partners, bring your database into the 21st century. “You want to organize that back office and get the database in the best possible shape,” Saganey tells PLANADVISER.

The first step is dumping those file cabinets full of paper. “Get away from paper as much as possible,” he says. "Nobody wants file cabinets full of paper.”

Jay Wells, an adviser at Foresight Wealth Management, agrees, noting that most advisers who are thinking about transition are old school. “They love their filing cabinets,” he tells PLANADVISER.

But when Wells bought a practice that had all client records on paper, he immediately thought, “We have to hire some part-timer to scan this stuff and put it into the system, and throw the paper away.”

Wells points out that the cabinets hold a great deal of vital information, but says his practice is almost completely paperless, which he maintains increases the value of a practice.

Cutting down on paper and last-century equipment is part of the general spruce-up that advisers who are selling need to pay attention to. “They need to do a better job or presenting their data to their prospective buyers,” says Danny Sarch, president of Leitner Sarch Consultants.

One possibility Sarch suggests: An up-to-date list of clients, without names, shown in a presentable and organized way, that shows household size, number of years as a client, frequency of conversations and meetings, and the age of members of the household can distill all the key facts about the client base.

The database should be ready to go, Saganey says, an example of how the practice operates efficiently and effectively. “The more organized you are, the more revenue can increase from a more efficient back office,” he says.

Wells says that not being completely familiar with the practice’s clientele can hurt valuation. “Clean up the books,” he suggests. Some advisers don’t know all their clients, and they don’t know the numbers. “Some books are full of old clients that are more maintenance than profitability,” he says, which is a definite negative. Someone may have 300 clients, but only 50 are actually generating profit. And one client with $3 million in assets will take the same amount of time as one with $200,000.