How An Aging Client Base Hurts Your Practice Value (And What to Do About It)

As you near the point of finally exiting your practice, either through internal succession or outside sale, one of your main goals becomes maximizing the equity value and return on your years of hard work. If you have been in business for a while, chances are you have clients that have been with you for a while too. Like any asset, there is a tipping point where a client’s value begins to decline, at least from a practice sale and valuation position. That point happens generally in the latter years of a client’s life, around age 70 as they near the point where they begin drawing down on their assets in retirement or when their assets may transfer to an heir – an heir who is not your client.

If you are planning to leave your practice, this fact may not matter to you. But it matters very much to the person looking to acquire your business. They want to acquire a book of business that has longevity and that will continue to provide revenue and opportunity long after the sale. A book of business is only as valuable as the assets it manages. If those assets are on the verge of leaving – through the transfer of an inheritance to a surviving spouse or children—then the value drops. Because of this, client age and generational planning have become factors of consideration in determining practice value.

To maximize your practice value and create a stable book of business with a long future ahead, generational planning is key. We recommend that our owners create a spreadsheet that shows all of their clients and a list of their client’s spouses and heirs. Then indicate in a separate column which relatives are clients and which are not. From there, the owner can then create strategies to connect with those heirs and to secure them as clients of the firm. That way, when the high-value client passes, the management of those assets remains with the practice.

As you look to your planned exit date, the more you can do to maximize value and prepare yourself for the sale, the better. In our free white paper, we’ve outlined 10 key steps to take to prepare your practice for sale. It includes steps on generational planning and handling client attrition, along with other key steps many owners overlook.