By Jeff Thorsteinson
You just started in the business, so why should you think about that faraway day when you may sell your practice? I’ll tell you why: Building value in your practice won’t magically happen in a three-month presale facelift. It will take years. There are three steps to focus on when building value: systems, cash flow and growth management. Let’s take a look at each:
1. Build your systems.
Most successful businesses rely on standardized procedures and business processes. Such processes make it simpler to ensure customer satisfaction, keep a team focused on the right goals and monitor business progress. Of course, solving financial problems for real people isn’t like making widgets—every client is unique, so there will always be some part of your practice that needs to be customized. But there are several areas of your practice that can be systemized:
- Wealth management: A disciplined approach to building client wealth not only enhances profitability, it makes it easier to “scale” your practice—you can take on more clients with little marginal cost. It also frees up your time to take on larger accounts, further increasing business value. Everyday advisors can’t achieve this because they are trying to please everyone. By doing so, they please no one. Here’s where to start:
- Segment your clients and assign each to a given service “tier.”
- Develop different wealth-management packages for the various tiers.
- Standardize the review, reporting and information-management systems with respect to wealth management.
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There are three steps to focus on when building value: systems, cash flow and growth management. |
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- Client service: A standardized client service and contact system empowers your team—they know what to do, and why. With everyone doing what they do best, your practice becomes more efficient. That in turn enhances client satisfaction and loyalty. Here’s where to start:
- Set client service activities to the tiers as above.
- Plan out your service program a year in advance, and assign responsibilities to yourself and your team.
- Create an annual “task list” of critical duties for each team member.
- Set measurable performance targets and monitor progress.
- You: It’s a sad reality of all service businesses: The more dependent the business is on its owner, the lower its value will be. After all, when you eventually sell, the new owners won’t be able to count on your help. So if you perform mission-critical tasks that no one else on your team can do, or if your clients are loyal to you rather than your practice, there is very little value in your business once you are taken out of the picture. Here’s where to start:
- Learn to delegate tasks you don’t like to do.
- Empower team members to operate independently—invest in additional training if necessary.
- Hire external consultants to help you identify core strengths and weaknesses.
- Help clients understand that you follow a team approach, and encourage them to discuss issues with other members of the team as well as yourself.
2. Enhance your cash flow.
Cash flow is simply defined as the excess of monies after variable and overhead expenses are subtracted from your annual revenue. Free cash flow is a critical measure of your practice’s financial health, and is likely the easiest way to boost the value of your practice.
When it comes to cash flow, potential buyers will look at a number of things. The consistency of profits is a key concern; the more consistent the cash flow, the higher the business value. Cash flow is influenced by a number of factors you should monitor, such as: income mix, client base, business structure, cost structure, market conditions, good will, potential of your clients and prospects. Tackling any one of these can result in a dramatic improvement in the value of your practice. Here’s where to start:
- Increase high-margin, recurring revenue and minimize one-time transaction-based income.
- Monitor business profitability and identify areas to cut expenses. Monitor team performance and hourly profitability.
- Charge for your advice and your wisdom, not for your ability to sell. Compete on business process and solutions, not product and price.
3. Manage your growth.
Not all growth is created equal. If your growth is random, your practice will eventually end up with a number of unsuitable, unprofitable clients. These people don’t appreciate the tremendous service they’re receiving. They are not loyal, nor do they refer quality clients to you.
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Define a vision for your practice: Where do you want to be three to five years from now? |
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You need to manage the growth of your practice. Be selective in your growth, and only take on those clients who fit your ideal client profile. Here’s where to start:
- Identify a target market—define it as narrowly as you can.
- Build a client screening system that ensures only qualified prospects can become clients.
- Define a vision for your practice: Where do you want to be three to five years from now? Sticking to your vision will keep you on track.
Used with permission. All rights reserved.
Jeff Thorsteinson is president of the YouFoundation, an organization that helps advisors build world-class practices. As a speaker and consultant, he has delivered his practice-building programs to thousands of advisors. For more information, send an email to strategicadvisor@youfoundation.com, call 800-223-9332, ext. 1, or visit the company’s website at www.youfoundation.com.
August 2006
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