Latest / The Perfect RIA / Maximizing Valuations and Smart Business Planning

Transcript

Maximizing Valuations and Smart Business Planning · The Perfect RIA

• 0:28
  Amber: Hello TPR Nation. This is Amber Kuhn. Thank you for
• 0:32
  joining me on today's Follow up Friday, where I'll be recapping
• 0:35
  this week's episode highlights and action items. On Monday,
• 0:39
  Matt was joined by Ted Jenkin from Oxygen Financial Exit Stage
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  Left Advisors and JPTD partners to talk about the reality of
• 0:47
  valuations in the RIA space. Ted shared that most advisors are
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  operating under this assumption that practices are valued at
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  around 3x using those traditional methods, but he said
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  the number is a way off from what some buyers and private
• 1:01
  equity firms are actually paying on the open market. He said the
• 1:05
  way to maximize your valuation is through the marketplace, and
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  that you could get a much higher multiple than you would by
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  selling it to just someone down the hall. For those larger RIAs
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  over 500 million Ted said those multiples can reach 14 to 17x
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  cash flow, and that the driver is arbitrage. These buyers can
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  acquire the firm at a lower multiple and then realize higher
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  valuations by tapping into capital markets. Ted shared that
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  as an advisor, you need to evaluate the velocity of money
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  to maximize your own net worth and consider what's going to
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  build your net worth the fastest. Matt and Ted also
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  talked about Gen 2 advisors and how they don't necessarily have
• 1:46
  to buy a practice. Ted said some buyers will offer Gen 2 advisors
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  the chance to receive equity in the practice after a period of
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  time as an employee and potentially resell it. So
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  selling to those external buyers could end up being better for
• 2:00
  Gen 2 advisors than an internal succession. Now for advisors
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  still in a heavy growth mode, Ted recommends considering
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  acquiring undervalued practices to create your own arbitrage
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  play, or, he said, better yet, if you can prove you have
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  organic growth, you then have the opportunity to get more for
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  your practice relative to just the numbers. Matt and Ted
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  wrapped up by pointing out how cultural fit and alignment on
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  things like investment velocity are critical to ensuring that a
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  sale doesn't end up becoming a nightmare scenario. Let's get
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  into action items. Listen to Ted's Kitzes episode, which we
• 2:37
  have linked in Monday show notes, visit
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  JPTDpartners.com/theperfectria, and this will include a T minus
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  two year checklist to prepare yourself if you want to go to
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  market and test it out and then a list of the top 10 client
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  acquisition techniques from Ted. On Thursday, Jamie was ready to
• 2:54
  talk about S corps, but she said what s really stands for is
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  shenanigans. Because she said that's what she sees a lot of
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  business owners do, over and over again. She then went into
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  the conversations that she has about how to design and
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  structure different entities. One of the key points that she
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  made was that importance of having a clear long term vision
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  and strategy when you're starting that business. She
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  said, Look beyond that initial setup and consider factors like
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  exit strategies and succession planning from the very
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  beginning. So the first thing that she does is take a legal
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  assessment, so how many people are coming into the
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  organization? She then wants to get what the goal is in the next
• 3:37
  five to 10 years, and what's that ultimate outcome. The
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  reason is because many people start an organization, but they
• 3:44
  don't get themselves an exit strategy. She likes to do a lot
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  of vision mapping, as opposed to creating a business plan. And
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  this will focus on what things look like long term. From there,
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  Jamie will do a SWOT analysis, and she pointed out that she'll
• 4:00
  put the business owner's name and her strengths and
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  weaknesses, because she said the success hinges on that person.
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  She wants to identify that and get the owner thinking about how
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  their business is bigger than them. After that, Jamie wants to
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  choose a legal structure. She said this is where you want to
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  bring in a business attorney. Also during this time, she said
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  that you'll hear the reasons why an LLC protects people, but also
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  about piercing the corporate veil. She said, if you set up
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  LLC, you then have to abide by those laws and regulations and
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  how it should be operated, and if you fail to do the work to
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  create and maintain it, then you've pierced the corporate
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  veil, and then you lose that liability protection. She talked
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  about how things can get sloppy for you and your clients when it
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  comes to commingling assets, and when those personal and
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  corporate assets are mixed and money is being transferred, or
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  when deposits are made in a personal accounts, because then
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  it just makes it hard to distinguish the two. Jamie
• 5:02
  mentioned a couple of other ways that advisors get sloppy with S
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  corps. She said, What are you doing on the profit and loss
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  sheet, where you're writing things off just because you're
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  getting a business deduction? Said, it's great to get this
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  legitimate tax write offs, but you need to document things. The
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  other way that people get slobby is the failure to have a
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  succession plan in place. She said, You need to look at what
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  you're doing with how are you transitioning your clients, you
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  also need to have disability insurance on yourself now. With
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  succession, she said consider what agreements you have in
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  place right now, and what do your clients know about it. She
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  reminded everyone that you're required to disclose your
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  disaster recovery, so make sure that you not only have this map
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  out, but that you've communicated this with the
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  people involved. She said that regardless of your long term
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  plan you want to build a business that you could sell
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  tomorrow. So keep your financials clean. Everything
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  needs to be evidence and verifiable. Let's get into
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  action items. Review your financials. Look at whether you
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  could potentially have your own corporate vail pierced. So if
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  you're not operating efficiently, what do you need to
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  do today to make sure that you are, what write offs are you
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  taking that you need to document and show justification for? And
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  lastly, what is your succession plan? Make sure that you have it
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  documented, communicated, and that it's part of your long term
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  cleaning strategy. Before we go TPR Nation, we just wrapped up a
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  Nation Power Session this week, and enrollment is open through
• 6:40
  Monday, June 17. If you're looking for how you can double
• 6:44
  your practice in 12 to 36 months, reach out to us at
• 6:47
  lifestyle@theperfectria.com. Thank you for joining me today,
• 6:51
  and be sure to give us five stars wherever you're listening
• 6:54
  and share this or any of our episodes with another advisor or
• 6:58
  team member who you think might benefit. Until next time, happy planning!