Planning to eventually sell the firm?

Then conduct routine valuations, in part to spot and polish up the weak spots.

A regular valuation -- be it annually, every 18 months or every two years -- can be one of the most effective ways to increase the valuation of a firm, primarily because it becomes a dashboard for running and improving the company, says Vic Esclamado, a managing director at DeVoe & Co., a San Francisco-based registered investment adviser consulting firm.

A robust and reasonably current discounted cash flow valuation helps the management team understand what is working well for their company and what needs to be enhanced or revamped. And, as with any management issue, success is driven by monitoring the path forward.

“A comprehensive valuation will help an adviser understand if they have a leaky client bucket, how to plan their human capital growth and when is the best time to add new people, how to optimize their growth strategy, and effectively manage their costs,” Esclamado says.

“As importantly, it will provide you with clarity regarding the true value of your firm and better understand what buyers may be the best fit,” he says. “And, ultimately, it also demonstrates strong management discipline to a prospective buyer, further enhancing the value.”

Routine valuations are not only useful for potential sale reasons.

They also help illustrate a positive or negative trajectory before it is too late, says Catherine Seeber, a CFP and a vice president and financial adviser at CAPTRUST in Doylestown, Pennsylvania.

“Once the metrics are set, this is not that difficult to repeat,” she says. “You also learn and re-evaluate as time goes on what is important to the potential buyer beyond the numbers, intangible exposure/reputation, employee tenure, culture …”

Advisers should have a fair and accurate valuation completed on their business, as it is an important component to understanding the financial health of the firm, says Mark Schoenbeck, a CFP and senior vice president of business consulting at Kestra Financial in Austin, Texas.

From there, advisers should keep consistent financial statements and review their financial ratios on a quarterly basis.

“Your financial ratios are the best barometer to the ongoing performance of your firm,” Schoenbeck says. “They are a far better gauge to knowing if you are continuously improving your business.”

This story is part of a 30-30 series on smarter succession planning.

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