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Valuation for Financial Planners – not all revenue is created equal


Valuation for Financial Planners – not all revenue is created equal

By , February 10, 2021
financial advisers – business valuations

I have seen multiple examples of business owners electing to walk away from their businesses and close the doors. This is the worst possible way to extract value from the business. If you have enlisted the help of a financial planner, ensure they are factoring risk and business performance into their business valuations.

Many financial planners are still living back in the days when a multiple of revenue was the industry standard and businesses were valued, financed and sold on this basis. This is no longer the case and hasn’t been the case in most businesses for a long time, if ever. Multiples of revenue do not reflect risk or underlying performance. Two businesses can both turnover $1mil; one can make money (profit), be well managed, mitigate risk and build a sustainable business. While the other can lose $100k per year, be very inefficient, poorly run and covered in risk – they cannot possibly be valued at the same amount!

In many financial planning firms, there are specific risks which are not being covered and are not included in valuations. For example, the new rules cover client reviews – how often are they performed? If a planner has clients who haven’t been reviewed for greater than 24 months this is very risky revenue and this cannot be included in the valuation. If you take this revenue out (or at least discount it substantially) is this business still profitable? If you look to raise pricing/fees to cover the cost of delivering reviews – will the clients stay?

Planners cannot afford to ignore the valuation issues arising, but they should also be seen as an opportunity. Changing business process, systems, client engagement and financial models should make for a more profitable, resilient and valuable business.

For a business valuation that factors in risk and business performance (the true value of your business), get in touch with one of our Accredited Advisers today.



Craig West

Craig West

Executive Chairman | Succession Plus

Craig West is a strategic accountant who has over 20 years’ experience advising business owners. His background as a CPA in public practice, provided invaluable experience in the key issues of concern to business owners. Following 6 years of study to gain two masters degrees, Craig focused on Capital Gains Tax (CGT) for business sales advising on strategic management of tax issues. This experience formed a very strong view that business owners (and often their advisers) were unprepared and unaware of the steps required to prepare a business for exit.

Craig now acts as a strategic mentor for mid-market business owners and has written four critically acclaimed books on employee incentives, succession planning, asset protection and exit strategies. Craig has conducted numerous seminars and keynote presentations throughout Australia & internationally, including adviser education programs for the Institute of Chartered Accountants and CPA Australia.