Valuing an advisory business: myth and reality

IFA businesses are not the easiest to value for sale, but a recent report from The Beaufort Group, Asgard and Taylorcocks assessed some of the key metrics that are often used and uncovered some surprising findings. When looking to have your business valued either for financing purposes or perhaps with a view to sell your business you should always consult with your Cheltenham accountants.

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The measurements they looked at were:

  •      Recurring Income
    •       Earnings before Interest, Depreciation and Amortisation (EBITDA)
    •       Assets Under Management (AUM)
    •       Total Turnover

    Recurring Income

    This is usually worked out as an average of the income over the deferred payment period. However, the report points out some problems with this method. Clients can leave if the company acquiring the business does things in a way they don’t like. Recurring income may therefore be dependent on successfully moving existing clients to the acquiring party’s investment process. Limiting this and other risks may be a key concern for acquirers.

    Profit is a better guide to how much the business is worth, and a strong brand is always worth more than a business that consists of a number of individual advisers.
    High recurring revenue multiples are possible, but they tend to be when there is a strong likelihood of increasing client fees, moving funds in-house, or making substantial cost reductions. Randall and payne are accountants in cheltenham and they can help with calculating your key figures if you are looking for a business valuation.


    The usual way to value a business is to examine its actual profits. However, the report states that where profits appear to be low, the acquirer may want to see profits increase over a period before paying a higher value of the business.
    Offers that include shares are more complex because it is not always clear how and when the shares can be sold.


    IFAs don’t usually have assets that they manage. However, if they do have an investment process that is centralised, there may be an AUM element and this can be separately valued.

    Total turnover

    This is a simpler measure that is less likely to be misinterpreted.

    Final word on valuations

    These metrics tend to be mixed and matched to produce a better-quality valuation that contains risk.

    The terms of an offer and any conditions attached to it are as important as the price.
    Whether or not the report has made IFAs simpler to value, it has helped dispel some of the myths around fair valuations for these businesses.

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