How to Value a Business: A Buyer’s & Seller’s Perspective

Darren Miles, CBVApril Reilly, Assante Wealth Management

Fair market value definition

The highest price available, in an open and

unrestricted market, between informed and

prudent parties, acting at arm’s length, under no

compulsion to act, expressed in terms of money or

money’s worth.

Why find out what your business is worth?

Life events * Shareholder dispute Tax efficiency * Benchmarking * Capacity

Optimize value * Business events Shareholder agreements * Estate freezes

Disability * Team building * Divorce Death * Corporate reorganizations

Buy and sell a practice

Key factors in valuation of goodwill

Ensure the value of the goodwill is Trustworthy – Transferability

– Replicability– economic Utility

– Sustainability

– Transparency

Three critical thresholds

Typical AUA/revenue thresholds Business decision turning points

$30 million $50 million AUA$300,000 $500,000 revenue

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

$75 million $100 million AUA$750,000 $1 million 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 million $200 million AUA$1.5 million $2 million revenue

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

Business considerations – regulatory landscape

Business considerations – leveraging technology

1) Artificial Intelligence, robo-advice 2) Security and the cloud 3) Outsourcing

Blackhawks sign Jonathan Toews, Patrick Kane to eight-year extensions

Business considerations – team dynamics

''It's about the process, but in the end, it's about scoring.''

Business considerations – changing demographics

What are the benefits of executing a valuation?

1. Maximize the value of your business.

2. Build a solid foundation.

3. Prepare you for the eventuality of a transition.

Service industry valuation metrics

1. Discounted cash flow preferred method

2. Identify a baseline

3. Goodwill

4. Buyer beware

Tying it all together

• Triggering events

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

• Debt retirement analysis

• Ideally have buffer cash flow position

Structuring a deal

• Sequential buy-in versus 100% equity event

• Vendor take-back versus earn out, i.e. financing

• Asset versus share deal

• Post-transaction consulting agreements

TOP 5

1. Lead time: 5 to 10 years.

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

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

4. Implement and document a process and structure.

5. Sustainability and replicability of the revenue stream.

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

what your practice is worth.

factors for an optimal valuation

Key points

• Valuation methodologies • Tax treatment• Payment structures• Agreements and documentation• Value drivers and value detractors

This communication is published by CI as a general source of information and is not intended to provide personal legal, accounting, investment or tax advice. Facts and data provided by CI and other sources are believed to be reliable when posted; however, CI cannot guarantee that they are accurate or complete or that they will be current at all times. CI and its affiliates will not be responsible in any manner for direct, indirect, special or consequential damages howsoever caused, arising out of the use of this presentation.

Thank youFOR ADVISOR USE ONLY NOT FOR DISTRIBUTION TO CLIENTS

Checklist handout

Valuation criteria Requirement Impact on cap rateSales 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; compliance 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” or improving these areas can positively impact the discount

rate which is used to determine the

franchise value of your business

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 lawsuit

Centralized and communicated; everything documented

Documents and files No time to document properly/efficiently Diligent records

High impact valuation areas – Before and after case study