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To Plan for Succession or To Determine Enterprise Value?

By ClientWise | July 8, 2014

As advisors you are tasked with the job of measuring value: The value of assets, the value of a trade, the value you bring to  your relationships with your clients. But the ultimate value, that all of these things constantly build to, is the total value of your business. A financial advisory firm’s business is measured in several ways, and a recently prevailing one is what’s known as enterprise value. Enterprise value is the theoretical takeover price for your firm in the event that you are selling it to someone else. It varies significantly from standard market capitalization because it takes into account more measurements of your business, including its debt and, what might be considered by some, the less tangible measurements of your firm’s success.


For advisors this means calculating a very different kind of value, and understanding that value needs to be consistently and conscientiously contributed from the moment they start building their business, not when they’re actually ready to sell it. This forward-thinking mindset is similar to how we encourage advisors to think about succession planning. Succession planning is crucial for advisors who, rather than selling outright, want to maintain the structure of their business long after they are around to do so themselves, by passing it onto trusted successors.


While it’s important to give serious consideration to whether you want to pass your business onto successors or determine its enterprise value in order to sell it, the decision doesn’t need to be made immediately. In fact, the preparation and thinking a wealth manager undertakes to position their business for determining enterprise value, requires many of the same actions and ideas as positioning a business for sustainability through succession planning. And while there are many aspects they don’t share in common, the following are steps you should take to increase your potential in either situation: 


  • Understand that the business is bigger than yourself: As a solopreneur or even as a leader of a team in which you are the top producer, it’s convenient to see the success of your business as directly proportionate to your personal success. However, this hinders your ability to adequately plan for succession or to be attractive to a potential buyer. You must understand that your business is bigger than yourself. Your clients must understand that the relationship they have with your business overall is much more important than any relationships they have with any one individual employee.
  • Hire and develop a next generation of professionals: Whether you are planning for succession or hoping to sell your business, you need to have significant human capital in place. Bring on a next generation of advisors who are willing to learn and apply the knowledge they have from their own experience to continually better the business and carry on the value you’ve created. These advisors must be as invested in the success of your business as you are as the founder, because they will either be leading it into a sale or into another generation of production. 

  • Create a brand that can evolve through generations of employees: You need to take into account that in order for the value of your business to be attractive to potential buyers, or to a next generation of successors, it needs to appeal to a younger generation of employees who are as invested in the businesses’ value being upheld as you are. At ClientWise, one way we create this for succession planning is through Total Team Leadership™. This is where leaders engage in the exchange of leadership among team members to evoke meaningful contribution, showcase the strengths of all, and advance effective group decision making efforts. In this way, the value of the brand becomes a contribution of all involved, and is carried forward with that vision in mind. This also makes a business much more appealing to potential buyers in the case of a sale, because it evokes a sense of deep rooted consistency and strength in its mission and vision. 
  • Create a service model that evolves through generations of clients: Similarly, you need to develop a brand that is sustainable and will appeal to each successive generation of clientele. This is heavily linked to creating a team of professionals within the next generation. This will ensure that your business maintains the mindset necessary to transition with the generational and economic shifts that occur in financial services, which impact the mindset of your clients and centers of influence. 
  • Remember that your business is business: Too many wealth management firms focus on the talent of their employees in terms of their investment and financial planning capabilities. They fail to pay attention to the strict business perspective that’s necessary to create a business that is sustainable or ready for sale. Often this takes the objective perspective of an outside participant, who has the best interest of the founder or seller of the company in mind. A business consultant or an executive coach are critical partners in this process.

Whether striving to prove the value of your business to potential buyers or potential successors, these are aspects of planning that need to be taken into consideration early on. To learn more about enterprise value or succession planning, and how these impact decision-making with your business specifically, call ClientWise at, (800) 732-0876.


Coaching Questions from this Article

  1. What is your objective for your business once you retire or are no longer able to run it?
  2. Do you have the human capital in place to carry on the vision and mission of your business, with the needs of future generations and economic changes in mind?
  3. Have you fully considered the business decisions that need to be made separate from the day-to-day operation of your business in order to prepare it for its next phase?
  4. Are your clients aware of your eventual plan to sell or continue your business through successors and have you adequately prepared them for what this means for their relationship with your business?
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Topics: Leadership Planning Change

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