My name is David Selig and I'm the Founder and CEO of Advice Dynamics Partners. We help firms crack the code when it comes to mergers, acquisitions, and succession.
You're a business owner and you're driving the value of an independent company and there are a lot of levers that you can pull to increase the value. You're doing things like looking at the profit and loss statement and figuring out what can I do to tweak things to make this company more profitable.
As you’re going independent you might want to think about the four key value drivers, the things that drive value in an independent firm, in an independent company. The first is scale—scaleability. The ability to create scale, drive good margins and create a platform for growth in your business. The second is growth. AUM growth, revenue growth and net new client growth is a key value driver. And the third is cash flow quality, revenue quality. For example when we're doing evaluation work on an independent RIA and that RIA has 80-90% of their revenue derived from fees they're going get a premium over a firm that drives most of the revenue from commissions or transactions and that premium is going be 2-3 times over the value that that other firm is going to get. And the fourth area we look at is risk. Make sure that you have a good compliance person that's on top of the latest regulations and can keep you ahead of the curve when it comes to the ever-changing regulatory environment.
On the independent side when you're an RIA you control things like your growth rate. You control things like where you spend money to invest in your business and when you do things to improve the value of the business you see the direct results in terms of a higher enterprise value.
When you run your own company you want to know the health of that company. And as the CEO or manager of that company you need information to help you understand how your company's doing, how healthy is it, how is it relative to your peers. An evaluation report should be able to tell you some good information about your company. It's a tool that you can use as a CEO to help drive value in your firm by making tweaks, changes and whatever is necessary to increase value.