However, other metrics can be used when doing a valuation, which may be more representative of value than recurring income, such as funds under management, which is sometimes used for larger firms and where the average sale price tends to be around 1.8 per cent of FUM, or an EBITDA- based valuation. We do not see a move to focus on this profitability-based valuation, as of yet anyway. Perhaps this is because profit margins will be different between firms with each firm managed differently. However, if you believe recurring income to be underestimating the value of your business, there is nothing stopping you showing an alternative method of valuation.
You must remember that your business is worth what a buyer will pay for it and so it is your prerogative to show the acquiring firm clean and accurate records that can help them make that evaluation. Getting a premium price may not be easy, but half of the battle is in preparation for the sale itself, to make sure that when you do sell, it is for the best price possible.
Steve Hagues is founder of Retiring IFA
Key Points
Initial preparation for a sale of one’s business should not be underestimated in its importance
The focus here is on the quality of the client pool and insight into the value of your fee base
The structure of a deal will also affect the price a business is sold for
