At this year’s ClientWise Ensemble Leaders’ Summit, John Furey delivered a pointed message about the future of advisory firms and what truly drives enterprise value. His argument was straightforward: the firms that will matter in the next decade are those that eliminate leadership dependency, build capable teams, and operate like institutions rather than owner-centric practices. His remarks challenged several long-held assumptions and provided a clear framework for leaders who want their firms to endure.
The conventional pillars that have supported advisory practices over the years are gradually showing signs of strain, making the quest for more enduring value increasingly critical.
Furey identified a predictable inflection point around 5 million in revenue. At that stage, leaders must decide whether to invest in people and structure or accept stalled growth.
When an owner transitions from the initial, exciting, yet terrifying ‘do whatever it takes’ phase, they often adopt a textbook owner mentality: hire contributors, pay them well, and pocket the rest. While profitable, this model typically lacks long-term career opportunities for the team, eventually leading to stagnation. To break through and build a truly enduring firm, you must:
The pathway to an enduring firm is fundamentally tied to proactively managing business equity and executing an effective transition. To achieve this, most advisors prefer to transition their practice internally rather than pursue a potentially more disruptive external sale.
Regardless of the transition path, continued growth is a non-negotiable. A next-generation advisor will understandably be hesitant to purchase equity in a firm whose revenue has been stagnant for several consecutive years. Furthermore, the focus of due diligence has shifted dramatically. What used to be a valuation process driven almost exclusively by pro formas, revenue, and profit data is now far more complex – with potential buyers focusing on factors like the strength of the non-owner team and, crucially, how many team members can grow the top-line revenue of the business. A strong, growth-capable team is fundamental to managing and maximizing your business equity.
While it's easy to get sidetracked by industry multiples (e.g., 4x revenue), real-world valuations are worked out by the parties based on fundamentals. Owners must stop worrying about simple multiples and start focusing on the drivers of a premium multiple. Premium valuation drivers include:
Contrary to popular belief, internal transactions generally occur at fair market value—without any significant discount compared to an external sale. The idea that an internal deal must involve a discount or that the entire team will eagerly buy out the owner five years before exit is simply incorrect. An enduring firm requires bringing on partners much earlier than most founders expect.
Internal succession plans often fall apart because of a significant expectation gap between current owners and the next-generation advisors. That's why it’s crucial to have a continuity framework where both sides consider each other's needs, ensuring a smooth and successful transition.
In many cases, an internal transfer of a highly valued practice is financially unfeasible for the next generation (for example, a 20% stake in a $10 million firm requires a $2 million after-tax payment). This calls for a flexible approach to equity and compensation. Owners need to be understanding of their successors' financial situations and goals.
More firms are adopting instruments that provide economic participation without requiring a large capital investment for full voting rights. Phantom stock, for example, grants a right to a cash payout based on the company's future value growth. It functions as an unfunded liability on the balance sheet that doesn’t disrupt the ownership structure if the individual leaves the company—offering a low-cost way to motivate growth among dedicated team members.
Alternatively, a profits interest gradually transfers real value from the current owner(s) cap table by granting participation in future firm value growth above a certain threshold. Although it requires a financial buy-in from the next generation, flexible structures and vesting schedules can be created that, with enough time, make it a practical long-term solution.
You should also keep in mind that, while phantom equity is regarded as a long-term incentive plan (LTIP) and taxed as ordinary income, a profits interest generally benefits from a much more favorable capital gains tax treatment. However, synthetic equity tools can be especially valuable as a catch-up mechanism for owners who have waited too long to offer a profits interest or who want to keep key next-generation leaders engaged with the business amid the possibility of an external sale.
To make an internal sale more feasible, you’ll likely need more buyers than you think. A good rule of thumb for effectively cycling equity is:
For every partner, you should have three next-generation buyers.
Owners should aim to develop a long-term equity waterfall—a clear plan showing when equity becomes available for purchase and identifying potential buyers. Alongside this, you should establish a dedicated, repeatable long-term owner's compensation plan to accurately forecast profits and replacement costs. Together, these form the foundation of your forward-looking strategy that sets a high-value, lasting firm apart from just a lifestyle practice.
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Four key pressures are reshaping the industry: many firms are experiencing slow organic growth, the advisor population is aging while younger talent chooses other industries, growth remains heavily referral-driven despite technology advancements, and larger firms are accelerating their scale advantages—making it harder for smaller practices to compete.
Firms that reach around 5 million in revenue hit a predictable inflection point. If leaders continue operating with an owner-centric model—hiring contributors, paying them well, and pocketing the rest—growth typically stalls. Building an enduring firm requires investing in team development, creating growth opportunities, institutionalizing processes, and focusing on key drivers like organic growth, human capital development, and strong P&L management.
Buyer due diligence now focuses heavily on the strength of the non-owner team and how many team members can grow top-line revenue. Growth is essential; next-generation advisors are hesitant to purchase equity in a firm with several years of stagnant revenue. Valuation is no longer driven solely by pro formas and profit data—it incorporates people, capabilities, and growth potential.
No. Internal transactions generally occur at fair market value and do not inherently require discounts compared to external sales. The belief that internal deals must include a discount—or that the entire team will eagerly buy out the owner on a short timeline—is incorrect. Enduring firms bring partners in earlier than most founders expect.
Premium multiples come from three primary drivers: growth that is uncorrelated to market performance, the strength and long-term potential of the team, and effective P&L management.
A significant expectation gap between current owners and next-generation advisors is the most common issue. High valuations often make internal purchases financially unrealistic, requiring flexible approaches to equity and compensation that address both sides’ needs.
Phantom stock provides economic participation through future value growth without requiring voting rights or major capital investment. Profits interest grants participation in value growth above a threshold and can be structured with flexible buy-ins and vesting schedules, making long-term ownership more feasible.
A helpful rule of thumb is to have three next-generation buyers for every partner to effectively cycle equity and make internal transactions more viable.
A long-term equity waterfall that outlines when equity becomes available and who the potential buyers are, paired with a repeatable owner’s compensation plan that accurately forecasts profits and replacement costs, forms the foundation of a continuity roadmap that supports a high-value, enduring firm.