Most advisors have a number in their head. What they rarely have is an honest look at the gap between that number and what a buyer would actually put on the table.
At some point, almost every advisor I have worked with has told me what they think their practice is worth.
Sometimes it is a number they heard from a colleague who sold a few years back. Sometimes it is a multiple they read in a trade publication. Lately, many advisors throw out a multiple based on a massive RIA’s enterprise value.
And sometimes they are close. But as my fourth grade teacher used to say, close only counts in horseshoes and hand grenades.
More often, that back-of-the-napkin number is disconnected from how buyers actually evaluate a practice today. Not because advisors are unrealistic people. But because the framework most of them are using is water cooler intelligence, a giant game of telephone where a number gets passed from advisor to advisor, conference table to conference table, until it becomes its own fact. Playground chatter dressed up as market data. Not from a buyer. Not from experience at the table.
Too few of us have taken the time to sit down and go through the numbers to figure out what our actual business valuation number really is. And even fewer have taken the extra step to determine what can actually be done to move that number in the right direction. It is absolutely worth the time. And that is where we start.
A Quick Word Before We Dive In
I am pretty sure 99.9% of advisors did not start out owning their own business or their own clients. We all cut our teeth somewhere. A larger firm. A bank. Some advisors go all the way back to chop shops and boiler rooms. That is the industry’s history and there is no shame in it.
Today, this conversation is for those who have made the move and own their practice. For those who do not own their book yet, or who are still running someone else’s revenue, we can have an entirely different conversation. That path exists too. But this one starts with ownership.
The Real Estate Parallel Nobody Is Making
Here is something I think is very odd, and very obvious at the same time.
Most of us own real estate. A primary home. Maybe a rental property or a vacation condo. Ask any advisor what their house is worth and the answers come quick and easy. They know it. They know if they renovated the kitchen, updated the main bath, or put on new garage doors exactly how much that would add to the value and how quickly it would help them sell their home.
Now look at the practice through that same lens.
For most of our clients, their house is the largest asset they own. For us as advisors, our practice is the biggest asset we own. But most of us think about it almost entirely in terms of its ability to generate revenue and income. We do not spend nearly enough time thinking about it as an investment.
The years. The time. The blood, sweat, tears, and late nights. That has real value. A value as an investment that can be sold at the right time, for the right price, and reallocated to continue funding life for your family and possibly the generations that come after.
Yet too few advisors know how to exit, how to sell, or how and when to prepare for it. And not twelve months before you make a move. Right now. How you run your business today can add value, increase revenue, and put you in the position to command and dictate terms.
Your business. Your terms. Your life.
The Rule of Thumb That Leads Advisors Astray
For years, the shorthand in this industry was simple. A practice is worth somewhere between 1 and 3 times revenue. Maybe a bit more if the book is clean and the clients are loyal.
That framework made sense in a less sophisticated market. It does not reflect how buyers think today.
But here is the conversation that needs to happen before anything else.
When someone tells you their multiple, the first question should be: multiple of what?
Revenue and EBITDA are not the same number. Not even close.
A revenue multiple is quick and familiar. You take your total annual revenue and multiply it. Simple to calculate, but it tells a buyer almost nothing about how efficiently your business runs or how much of that revenue actually becomes profit.
An EBITDA multiple, earnings before interest, taxes, depreciation, and amortization, measures operating profitability. Two practices with identical revenue can have dramatically different EBITDA depending on their expense structure. A buyer applying an EBITDA multiple is paying for a profitable, efficient business. That is a very different price than a revenue multiple on the same top line.
For a sole practitioner or small independent office, which describes most independent advisors in this industry, the average market range sits closer to 1.8 to 2.8 times EBITDA, or roughly 2.6 to 4.2 times recurring revenue depending on the quality and structure of the book. These are average market ranges. Where your practice falls within them, or beyond them, depends on the factors we are about to cover.
The large enterprise RIA deals you read about are real numbers. They are just not your numbers, and they should not be your benchmark.
How Buyers Actually Think, and What That Means for You
The buyers most likely to purchase a practice like yours are individual acquiring advisors looking to scale, small regional firms looking to expand, and platform buyers who want to bring on an established book with a clean transition.
But here is the part of the buyer conversation that most advisors have never heard directly.
Sophisticated buyers, and larger groups in particular, know exactly what an under-optimized practice looks like. They have seen hundreds of them. They know the difference between a business that runs on systems and a book of business that runs on one person.
When they see concentrated revenue, undocumented operations, and founder dependency, they do not see a problem. They see an opportunity. They know exactly what it will cost to implement the systems, hire the staff, and build the infrastructure after the acquisition. And they price that work into what they offer.
This is not a case of the big guys taking advantage. It is about seeking different things. Sophisticated buyers may be swimming in a different pond. But make no mistake, they are seeking to make changes after the sale that a well-prepared advisor could have implemented before it.
The only question is: who benefits from that work?
The advisor who has already done it commands higher bids from every type of buyer. A practice that is operationally turn-key, financially clean, and generating strong recurring revenue from a diversified client base is a different conversation entirely. Add a niche, a talented relationship manager, or a client service associate who clients already know and trust, and now you are selling something a buyer cannot easily replicate.
That is what drives competitive bids. That is what puts the negotiating leverage on your side of the table.
The Drivers That Move Your Number, and Your Revenue
Valuation is not fixed. It reflects the current state of your business across several factors that buyers weigh consistently. Here is where most small and solo practices have the most room to move.
And here is what most people do not say directly enough. These are not just valuation drivers. They are revenue drivers. The same work that increases your practice’s value also increases what it earns while you are still running it. That connection is not a coincidence. It is the point.
Recurring revenue percentage. Recurring advisory fees are more predictable and more transferable than transactional or commission income. The higher your recurring revenue as a percentage of total revenue, the more a buyer is willing to pay. If a significant portion of your income is transactional, that is not just a business model question. It is a valuation question and a revenue stability question.
Founder dependency. If your clients are loyal to you personally rather than to your firm and its process, a buyer is acquiring a risk as much as an asset. Reducing that dependency through structural consistency does not just reassure buyers. It frees your time and creates capacity to serve more clients and generate more revenue today.
Client concentration. If your top five or ten clients represent the majority of your revenue, a buyer will price that risk. Diversifying your client base makes revenue more stable for the buyer and more predictable for you right now.
Operational documentation. Can someone step into your practice and understand how it runs without you explaining it? Documented workflows and service processes are valuation assets. They are also the foundation of a scalable business. You cannot grow beyond what you can systematize.
Growth trajectory. A practice showing consistent growth over three or more years is not just growing because of good fortune. Sustained growth requires systems, even if the advisor has not named them yet. Buyers look at three-year trends because short-term revenue bumps are easy to manufacture. Long-term growth is evidence of a real operating model. That is what they are paying for.
Turn-key premium. A practice with talented staff in place, a defined niche, and documented operations commands more than one that requires the buyer to build all of that after closing. Every investment in the people and systems around you is an investment in your eventual sale price and in your practice’s capacity to earn more before you ever get there.
Better systems. More efficiency. More capacity for revenue. Higher multiple. It is one connected cycle. Not a checklist you run through before a sale.
The Value Gap: Your Gears, Your Gap
As a mechanical thinker, I see inefficiencies the way a mechanic hears an engine that is not running right. When one joint is not fitting or when one gear is grinding, something is off. You can feel it even if you cannot always name it. That is why I continuously think about the Value Gap.
Ultimately, that gap is where efficiencies are missing. But more so, that gap is not just some standardized number for everyone. It is personal. It all matters. Every dollar lands on the seller or the buyer’s side of the ledger.
Those gears that grind, the missing efficiencies that are creating the gap, are most likely going to be different from the advisors down the hall. Your gap may be created by client concentration. His might be founder dependency. Hers may be the wrong revenue mix or maybe it is the wrong platform entirely. The gap is yours. The grinding gears may be unique. But the components are not. How you close the gap just needs a bit of customization.
Here is what matters most about the gap. It is not just a valuation problem. It is a revenue problem. Every inefficiency that suppresses your multiple is also suppressing what your practice earns right now. Fix the gear. The whole machine runs better. Today and at the closing table.
The Value Gap has three tiers. Understanding where you sit is the starting point.
Contingency Value is what a practice is worth in an unplanned transfer. An incapacitation. A death. A forced succession where a buyer steps in with no transition period, no prepared clients, no documentation. These arrangements typically command 1.5 to 2 times revenue. The buyer is absorbing maximum risk and being compensated for it. This is the floor. Nobody plans to be here, but it is a real number.
Current Estimated Value is where most advisors actually sit today. Some recurring revenue. Some concentration risk. Some founder dependency. A practice that runs because the advisor shows up. The average market range is 1.8 to 2.8 times EBITDA for most independent practice transactions.
Best in Class Value is the ceiling. Turn-key operations. Strong recurring revenue. Diversified client base. Capable team. A niche a buyer cannot quickly replicate. This practice attracts competitive bids, commands the high end of the multiple range, and gives the seller the leverage to dictate terms.
The distance between where you are and Best in Class is your Value Gap. Closing it is not just a preparation strategy. It is a revenue strategy. You are not choosing between running a better business and preparing for a better exit. They are the same work, producing the same result, at every stage.
Five Questions Worth Asking Right Now
What percentage of my revenue is truly recurring? Not just fee-based in name, but stable, predictable, and transferable to a successor.
How dependent is my revenue on my personal relationships? If I stepped back for six months, what would happen to the client base?
What does my growth rate look like over the past three years? Is that trajectory working for me or against me in a negotiation?
Could someone run this practice without me? How long would it take them to understand the operations, the client relationships, and the service model?
What does my client demographic look like? Are my clients growing their assets or drawing them down?
Those five questions will tell you more about your real valuation than any revenue multiple ever will.
Why the Timing of This Conversation Matters
The advisors who walk away with the strongest outcomes are not the ones who figured this out right before a sale. They are the ones who understood their number years earlier and used that understanding to build something worth more.
Time is the most powerful force in valuation work. Improvements that have been in place for three years are worth far more to a buyer than ones installed in the months before a deal.
The earlier you understand where your practice stands, the more time you have to do something about it.
That conversation starts with an honest look at what you have built and where the gaps are. We do that work every day.
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Built By Advisors | Brian S. Hoffman, CRPC®, CEPA® www.builtbyadvisors.com | [email protected] | 908.888.0007
Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Gladstone Institutional Advisory, a Registered Investment Advisor. Built By Advisors, Gladstone Institutional Advisory LLC and LPL Financial are separate entities.