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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 with over 20 years of experience advising business owners. His background as a CPA in public practice has provided invaluable experience in the key issues of concern to business owners.

In March 2014, Craig was appointed Executive Chairman of the SME Association of Australia, Australia’s largest small business organisation representing over 300,000 business owners.

In October 2014, he was awarded the Exit Planner of the Year at the Exit Planning Institute Annual Conference in Texas, USA, due to his innovative development of an exit planning process to help business owners maximise business value and achieve a successful exit.

Craig’s proprietary structure - a Peak Performance Trust - has won the Australia-wide award for the Employee Share Ownership Plan of the year twice in four years.

In November 2018, Craig launched SME Experts in partnership with Mark Bouris’ Mentored on Podcast One and quickly grew the monthly podcast audience to over 26,500 downloads; in October 2019, he released a new podcast focused on medium-sized businesses - Mid-Market Matters.

In July 2021, Craig joined the NSW Committee for STEP (Society of Trust & Estate Practitioners) – focusing on advising families across generations.

Craig has also launched a SaaS platform, Capitaliz (which captures the 21-step process), to assist other advisers internationally deliver advisory services at scale.

In November 2021, Craig was appointed Executive Chairman of NSW Leaders, a business mentoring group for leading NSW businesses.

In July 2022, Craig West received the award of Doctor of Business Administration for his research thesis titled “Examination of the key factors driving business exit options in Australian Small and Medium Enterprises.”

Craig is passionate about encouraging business owners to think strategically, maximise the value of their business and achieve a successful exit.