10 Ways to Increase Your Firms' Value by Steve Moeller When you first got into financial services, your primary goal was probably just to stay in the business. As your business matured, your goals changed. You realized you could actually make this business work for you. Once your income was greater than your current needs, you probably focused on increasing your net worth. As you mature in your career, your business takes on different roles in your life. Initially your business purpose is to support you and your family. Next it provides meaning, purpose and joy in your life. Ultimately it should provide financial independence and total freedom so you can do what you want, when you want, with whomever you want. Total freedom comes afteryou've sold your business for a small fortune. Selling out for a huge profit is the ultimate goal of almost every business owner. Even if your business is not currently for sale, it always has a value--to you and to the marketplace. Financial advisors don't often think about selling their business. But because of the demographics and the trend towards fee-based money management, many advisors now have assets that are salable. Here are ten ways to increase your firm's value. 1.Serve Niche Markets Remember back in the '60s, people would ask you "What's your sign?"This millennium the question is "What's your niche?"Serving niche markets increases your firm's value in five key ways. First, it targets your marketing resources so you can generate more qualified new clients with substantially less effort. It allows you to penetrate lucrative communities of people with common associations, newsletters, magazines, meetings, and clubs. You are able to streamline your business operations by serving people with common concerns, problems, opportunities and personality styles. Targeting niches enables you to become an expert on the problems, opportunities and solutions of the people in your niches. When you are a known expert, people will contact you. 2.Develop Specialized Products and Services By trying to be all things to all people, you diminish your effectiveness. Each niche market has special wants, needs and unique situations. Specializing in specific niches, developing targeted products and services that closely match the wants and needs of people in your niches adds tremendous value. The investment business is rapidly becoming a commodity business. To compete in this marketplace, you must offer value beyond the core products. Understand what your ideal clients truly value. Give them exactly what they want. When clients get exactly what they want they are willing to pay more. You will maintain high margins in a commoditized industry by specializing financial products and services. Higher margins dramatically increase the value of your business. 3. Generate Recurring Revenue Transaction-based income has little or no value unless it is recurring. Selling mutual funds, annuities and insurance for commissions you have a transaction-based business with little opportunity for recurring revenue. By converting your existing clients to fee-based money management you can convert liabilities into assets. 4.Build an Organization A business that depends solely on one or two people is much riskier than one that has depth of management. Most financial planning organizations resemble a job much more than a business. This means that the more successful you become the harder you work. However, by creating a solid business organization, the more successful you become the higher your quality of life, income and net worth. By documenting systems and procedures and hiring competent managers, your business will practically run itself. This is a very attractive business from a buyer's point of view. 5.Optimize Your Size and Structure In businesses, size does matter. There is typically a premium for larger companies. Smaller companies have fewer employees, smaller client bases, shallower management depth, and less diversification. Many buyers set minimum criteria for companies they will purchase. But being too large can also be a problem. If your only goal is size or dollars under management, profits are often sacrificed. Profits are, after all, what buyers buy. Highly efficient asset management businesses can generate over $200,000 per year per employee. Inefficient businesses often generate less than $100,000 per year per employee. If you have targeted niche markets and streamline your operations, you can create a tremendous amount of value with few employees. 6.Develop Effective Information Systems Financial statements provide a record of the results of your company's operations and a statement of assets and liabilities. Buyers are turned off by foggy or incomplete financial records. A potential buyer will lose confidence in your company's credibility if they can't understand your financial reports. To increase the value of your business, work with a CPA to develop accurate and effective financial statements. Then work with consultants to develop effective business information systems. If you empower your buyers with credible information systems, they will pay more for your business. 7.Serve A Broad Client Base Degree of risk is a major factor in your buyers purchase price. A business with three or four large accounts totaling $100 million is not as valuable as a business with several dozen accounts totaling $100 million. A business with a broad multitude of independent clients is more predictable and lower risk than a business with a small handful of major clients. If your client base is too broad and diffused, it will lower the value of your business. Ideally, your average account will be about $500,000. You'll have enough clients for stability and diversification, but not so many clients that you require additional people to service them. 8.Steadily Improve Your Business If you're not growing you're declining. In the current marketplace there is no such thing as business stability. Buyers look for a documented stream of revenue over a period of time. It gives them confidence that they will experience the same growth in the future. If your business is growing extremely quickly, you may be able to ask a premium for your firm. 9. Have A Specific Type of Buyer in Mind Different buyers value different things. To maximize the value of your business, know whom you want to sell it to. Then you can build your business to have most value for your ideal buyer. If you plan to sell your business to an institutional buyer, don't attract retirees to work with your firm. Customizing your business structure and client base to perfectly fit the needs of your ideal buyer will make their decisions simple and maximize your payoffs. Your investment management clients, potential buyers value different things. By knowing what your ideal buyer values most you can charge a premium for your company. 10. Hire A Professional to Advise You Most people only sell a business once. But many buyers buy businesses all the time. When an amateur is pitted against a professional it's easy to predict who will negotiate the best deal. But hiring a professional investment banker or consultant to advise you, you can level the playing field. Hire a competent attorney and accountant to help you. When you find the ideal buyer, they can help with the due diligence process and take care of the important details of closing the sale. Typically, they will charge you between three and 10 percent of the value of your business for finding a buyer and helping you negotiate the sale. If you've never sold a business before, selling it on your own may be the most expensive mistake you make in you're career. A competent investment banker will more than pay his or her own fee by getting you a higher sales price. Copyright © 2000 by Steve Moeller, Tustin, CA. All rights reserved. Steve Moeller is one of North America's foremost experts on marketing financial services to the wealthy. Over the last decade, Steve has studied and researched the best strategies for building a super profitable financial services business. He is a highly sought-after financial services industry speaker and management consultant. He is the author of "Effort-Less Marketing"and other learning tools and coaching programs. To find out more about his coaching programs, learning tools or to find out how to hire Steve to speak at your meetings, call 800-678-1701 or e-mail bizviz@businessvisions.com. For a free subscription to Steve Moeller's Client-Centered Advisor e-mail editor@businessvisions.com.