5 Value Factors for Your Financial Services Firm

5 Value Factors for Your Financial Services Firm

When it comes to selling a business within the financial services sector, the evaluation and process of selling that business are treated differently than other industries. Depending on your firm's specialization, the value could be determined by gross revenue, EBITDA, accounts under management and/or many other factors.

Here we have compiled five important, factors that will concern savvy buyers during the transaction. Solidifying a plan for handling these factors will ease the buyer's concerns and ultimately make your firm more competitive in the market.

  1. Client Concentration: Many financial firms are built on strong client relationships. When a firm is transferred, a concern for the new owner is losing clients in the transition, due to the relationship change. If a large percentage of the firm's revenue relies on one or two clients, this can be even more concerning as it would greatly affect the business if one leaves.
  2. Recurring Revenue: Is your firm set up in a recurring revenue model? If so, it could be worth more. Recurring revenue businesses can be valued based on gross revenue or recurring monthly revenue, which increase the value of the business.
  3. Earn-Out / Seller Financing: Businesses in this industry tend to generate more transition concerns from buyers, due to the high touch and importance of client relationships. Setting up a deal that includes an earn-out structure and/or seller financing greatly increases the chance of a sale.
  4. Types of Clients Represented: Does your firm specialize in B2C or B2B services? Do you generally work with high-net-worth families or young couples just getting started? The many types of clients in your book of business can increase or decrease the ultimate valuation.
  5. Business Model Structure: A solid business model structure is especially important to buyers looking to purchase a financial services firm. Is your firm fee-based or commission-based? Are you a broker-dealer and who are you affiliated with? These aspects come into play when another firm is looking to acquire yours for growth. Your business model is something that will be looked at very closely.

It is predicted that the sales of financial services firms will increase over the next five years. As the industry ages and many prepare for retirement, the market will slowly transition from a seller's market to buyer's. If you are thinking about selling your financial services firm, now is the time to begin that conversation.

Ready to talk? Our team of experienced Denver business brokers can help when you are ready to buy a business or sell a business. If you would like to learn more about the process contact us or schedule a consultation today. If you would like to learn more about how to sell a business or how to buy a business, visit our Seminars page to sign up for one of our monthly events in Denver.

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