Most financing requests stall because the valuation report doesn't answer the questions lenders actually ask. A practice might be worth $2 million, but without normalized cash flow, transparent valuation methodologies, or a forecast showing the business can cover loan payments, the financing won't move forward.
Lenders need proof that the advisory practice generates enough cash flow to handle the loan while maintaining operations. That proof comes from clean financial statements, market data, risk analysis, and documentation that meets professional standards.
Advisors preparing for acquisition financing, succession funding, or internal buyouts need a valuation report built specifically for lender review.
This guide covers:
Documentation standards lenders require to approve financing for an advisory practice acquisition
How to normalize cash flow and select valuation methods that support loan requests
What risk factors and forecasts need to be included for lender confidence
How to package the valuation report so it answers lender questions upfront
P.S. Financing conversations often require more than a rough estimate of practice value. Advisor Legacy provides Business Valuations designed to help financial advisors understand firm value, prepare for lender review, and support acquisition, succession, or ownership planning conversations. If your next step involves financing, Advisor Legacy’s Lending Support services can help you evaluate the funding process with a clearer view of practice value and deal structure.
Get a lender-ready business valuation that connects the value of your business to the loan request.
Lenders don't just check the final value—they evaluate whether the practice can realistically support the financing being requested. Their review focuses on cash flow stability, client retention patterns, revenue concentration, and whether the forecast assumptions hold up against the practice's historical performance.
The valuation report needs to address each of these areas with documentation that proves the practice can handle loan payments while maintaining profitability. Understanding what lenders prioritize helps advisors build valuation reports that answer the right questions upfront.
| Lender Focus Area | What Lenders Are Assessing | Example Of What This Looks Like |
|---|---|---|
| Cash Flow Reliability | Lenders review whether revenue is recurring, stable, and supported by historical performance, or whether it fluctuates because of market performance, client activity, or transactional commissions. | A practice with 80% recurring advisory fee revenue may be easier to underwrite than one with 45% recurring revenue and a larger share of one-time commission income. |
| Repayment Capacity | Lenders evaluate whether normalized earnings can support the proposed loan payments while leaving enough room for owner compensation, taxes, reinvestment, and operating needs. | If normalized EBITDA is $500,000 and annual loan payments are $375,000, the practice has more repayment cushion than one with $500,000 in EBITDA and $475,000 in annual loan payments. |
| Client Retention Risk | Lenders review client retention history, client tenure, and the reasons clients stay with the firm. Strong retention helps show that revenue may continue after the transaction. | A practice with 94% annual client retention and average client tenure of 9 years may look more stable than one with 84% retention and recent client turnover. |
| Revenue Concentration | Lenders assess whether revenue is spread across enough clients, households, referral sources, and service lines. High concentration increases risk because one lost relationship can materially affect cash flow. | If the top 10 client households produce 38% of revenue, the lender may ask how those relationships will be retained after closing. |
| Advisor Dependency | Lenders look at whether revenue depends heavily on the selling advisor, especially if that advisor is exiting after the sale. Heavy advisor dependency can increase transition risk. | If the selling advisor personally manages 70% of client relationships, the lender may want a longer transition period or continued seller involvement after closing. |
| Forecast Reasonableness | Lenders compare projected revenue and cash flow against historical performance, expected attrition, market conditions, and the buyer’s transition plan. | A practice that grew 3% annually over the last three years may need a clear explanation before projecting 10% annual growth after acquisition. |
| Documentation Quality | Lenders review whether the valuation report is supported by clean financial statements, tax returns, normalized cash flow schedules, valuation exhibits, market data, and clear assumptions. | If normalized EBITDA increases from $420,000 to $510,000 after add-backs, the report should explain each adjustment and show why those add-backs are reasonable. |
| Value Alignment With Loan Request | Lenders evaluate whether the valuation, cash flow, down payment, deal structure, and loan terms support the financing amount being requested. | A practice valued at $2 million usually cannot support a $2.5 million loan request without additional collateral, buyer equity, seller financing, or revised deal terms. |
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Building a lender-ready valuation report requires clean financials, normalized cash flow, transparent valuation methodologies, and documentation that answers the lender's questions before they're asked. The valuation process starts with gathering complete financial statements and ends with a packaged report that connects the value to the loan request. Each step addresses a specific part of the lender's review process, from verifying cash flow to documenting risk factors that could affect repayment capacity.
Begin by gathering three years of tax returns, profit and loss statements, balance sheets, and general ledger detail. These documents need to be reconciled. Revenue, expenses, and net income should align between the P&L, tax return, and balance sheet. When timing differences, one-time adjustments, or reclassifications exist, document them in a reconciliation schedule. Lenders compare these documents line by line, and any unexplained gaps trigger questions.
Tax Returns: Provide three years of business tax returns (Form 1120, 1120-S, or 1065) showing revenue, expenses, and net income as reported to the IRS so the lender can verify the practice's financial history.
Profit And Loss Statements: Include monthly or quarterly P&L statements for the trailing 12 months and prior two years so the lender can see revenue trends, expense patterns, and profitability over time.
Balance Sheets: Provide year-end balance sheets showing assets, liabilities, and equity so the lender can assess the practice's financial position and whether there are outstanding debts or obligations.
General Ledger Detail: Include account-level detail for major expense categories like payroll, rent, technology, and marketing so the lender can verify that expenses are ordinary and necessary for the business.
Bank Statements: Provide three to six months of business bank statements showing cash flow activity, deposits, and withdrawals so the lender can confirm that revenue is being deposited and expenses are being paid as reported.
For practices using custodian platforms like Schwab, Fidelity, or Pershing, include custodian statements showing assets under management, fee revenue, and client account activity. Lenders verify that the revenue reported on the P&L matches the fee revenue generated by the custodian platform. This cross-check confirms the practice's revenue is real and recurring, not inflated or inconsistent.
Begin with net income from the P&L or tax return. Add back interest, taxes, depreciation, and amortization to calculate EBITDA. Then adjust for owner compensation, personal expenses run through the business, and one-time costs like legal fees, moving expenses, or technology upgrades that won't recur. The goal is to show what the practice earns on a recurring, sustainable basis.
Every adjustment needs documentation. Create an add-back schedule that explains each one. If you're adding back $50,000 in owner compensation, the schedule should show what the owner was paid and what a market-rate salary would be for a replacement advisor.
If you're adding back $10,000 in personal expenses, list the specific expenses and explain why they're not ordinary business costs. Lenders scrutinize add-backs because they directly affect the cash flow calculation. Unsupported add-backs get removed, which lowers the EBITDA and reduces the practice's borrowing capacity.
The normalized cash flow needs to reflect the practice's actual financial health. A practice spending 60% of revenue on overhead has a profitability issue that lenders will notice. If the practice has been losing clients or revenue has been declining, the normalized cash flow should reflect that trend. Don't inflate the cash flow by removing legitimate business expenses or by assuming the buyer will operate more efficiently than the seller. Lenders see through aggressive adjustments and discount the valuation accordingly.
Once the cash flow is normalized, the valuation professional can select the primary valuation method. Most lenders prefer the income approach because it ties the value directly to the practice's ability to generate future cash flows. The market approach can validate the value using comparable transactions or industry multiples. The valuation method needs to fit the practice's characteristics and be supported by the normalized cash flow calculation.
The valuation report needs to explain how the value was calculated and why that valuation method fits the practice. When multiple methods are used, explain which one was given the most weight and why. Lenders want to see the reasoning behind the approach, not just the final number.
| Valuation Method | When Lenders Prefer It |
|---|---|
| Income Approach (DCF) | When the practice has stable, recurring revenue and the buyer is acquiring future cash flows. This method calculates the present value of expected future cash flows using a discount rate that reflects the risk associated with the practice. Lenders prefer this method because it ties the value directly to repayment capacity. |
| Market Approach | When strong market data exists from comparable transactions or industry benchmarks. This method uses valuation multiples based on revenue, EBITDA, or assets under management to estimate market value. Lenders use this method to validate the income approach and ensure the value aligns with what similar practices are selling for. |
| Asset Approach | When the practice holds significant tangible assets like real estate, equipment, or proprietary technology. This method calculates the value based on the fair value of the practice's assets minus liabilities. Lenders rarely rely on this method for advisory practices unless the practice is being liquidated or the assets represent a significant portion of the value. |
Explain the discount rate used in the DCF model, the growth assumptions applied to future cash flows, and the terminal value calculation. For valuations using a market-based multiple, show where the multiple came from—whether it's based on comparable transactions or industry surveys—and why that multiple is appropriate for the practice. Lenders question any valuation that uses a multiple outside the typical range for advisory practices without explaining the justification.
The valuation professional should also explain how the valuation method accounts for practice-specific risks. High client concentration should result in a higher discount rate to reflect that risk. Strong recurring revenue and low client turnover can support a lower discount rate. The valuation method and the risk profile need to align, or lenders will question the value.
Include data on recent transactions in the advisory space, including the valuation multiples used, the size of the practices sold, and the deal structures. This helps lenders understand whether the value is supported by market evidence rather than an unsupported estimate.
Use the numbers as benchmarks, not standalone proof. For example, if the practice is valued at 2.5x revenue, the report should show whether comparable advisory practices sold in a similar range, such as 2.0x to 3.0x revenue, and explain why the subject practice falls where it does.
If the practice is valued at 8x EBITDA, the report should show whether comparable practices sold near that level, such as 6x to 10x EBITDA, and explain whether the higher multiple is supported by retention, margins, growth, recurring revenue, or buyer demand. These figures are examples, but the point is the same in every report: the valuation multiple needs context.
Advisory-specific metrics add another layer of validation. Include assets under management, revenue per client, client retention rate, recurring revenue percentage, and advisor productivity. Lenders use these metrics to assess whether the practice is performing above or below reasonable expectations for its size, model, and client base.
For example, a firm with $100 million in AUM and $800,000 in revenue may raise questions about pricing, fee compression, or a high percentage of low-fee accounts. A firm with a 95% client retention rate may support stronger confidence in client loyalty and recurring revenue stability. These examples should not be presented as universal thresholds. They should be used to show how advisory-specific metrics help explain the value conclusion.
Growth potential data can also strengthen the valuation when it is supported by historical performance. For example, a practice that has grown AUM by 10% annually may support a stronger valuation multiple if the trend is consistent and client retention remains strong. A flat or declining practice may still have value, but the valuation should reflect slower growth, margin pressure, or transition risk where applicable.
Lastly, market data helps lenders understand whether the value is defensible. A valuation significantly higher than comparable transactions can raise questions about whether the value is inflated. A valuation significantly lower can raise questions about hidden liabilities, weak margins, client attrition, or operational issues. The valuation report should explain any deviation from market norms and provide data-backed support for the final value.
Read Next: Understanding Valuation Multiples for a Financial Advisor Practice
Project revenue, expenses, and EBITDA for the next three to five years based on the practice's historical performance. The forecast needs to show how the practice will perform under the new ownership structure. If the buyer is taking over client relationships, account for potential client attrition during the transition. If the seller is staying on for a transition period, show how revenue will be affected when the seller exits. Lenders expect the forecast to reflect the realities of ownership change, not best-case assumptions.
Revenue Projections: Show expected revenue growth based on historical trends, client retention assumptions, and new client acquisition plans so the lender can assess whether the revenue forecast is realistic.
Expense Projections: Include fixed costs like rent, payroll, and technology, as well as variable costs like marketing and professional fees, so the lender can see whether the practice will remain profitable under the new ownership structure.
EBITDA Projections: Calculate projected EBITDA for each year of the forecast so the lender can assess whether the practice will generate enough cash flow to cover loan payments and operating expenses.
Coverage Ratio: Show the ratio of EBITDA to annual loan payments for each year of the forecast so the lender can confirm that the practice has sufficient repayment capacity. For example, a 1.25x coverage ratio means the practice generates $1.25 in EBITDA for every $1.00 of annual loan payments, though the required cushion may vary by lender, borrower profile, and deal structure.
Sensitivity Analysis: Include best-case, base-case, and worst-case scenarios showing how the practice would perform if revenue declines, expenses increase, or client retention is lower than expected, so the lender can assess the risk of a shortfall.
Every projection should be tied to a clear assumption. If revenue is expected to grow by 5% annually, the report should explain whether that growth comes from new clients, fee increases, market appreciation, expanded services, or improved retention.
If expenses are expected to stay flat, the forecast should account for inflation, wage pressure, technology costs, compliance needs, and any changes tied to the buyer’s operating model. Lenders may discount projections that rely on aggressive growth, unusually low expenses, or no client attrition during the transition. A stronger forecast connects the numbers to the practice’s historical performance, the buyer’s transition plan, and realistic post-closing operating conditions.
The valuation report needs to show how the value supports the loan request. Lenders want to see whether the requested financing is reasonable compared with the practice value, the buyer’s equity contribution, the seller financing, and the practice’s projected cash flow.
For example, if a practice is valued at $2 million and the buyer requests $1.5 million in bank financing, the report should help the lender understand the loan-to-value relationship and whether the buyer is contributing enough equity to reduce risk. If the requested financing is higher than the supported value or cash flow, the lender may reduce the loan amount, request more buyer equity, require additional collateral, or ask for a revised deal structure.
Include a section that explains the full transaction structure, including the purchase price, down payment, seller financing, and bank financing. The report should show how the loan fits within the overall deal and whether the buyer has the financial capacity to cover the down payment, closing costs, and ongoing operating needs. Lenders want to see that the financing structure aligns with the practice’s cash flow, not just the final valuation number.
For deals that include seller financing, explain how the seller note is structured. Include the interest rate, term, payment schedule, and whether the seller note is subordinated to the bank loan. If the seller is financing a large portion of the purchase price, the report should explain how that structure affects repayment risk and transition incentives. Seller financing is not automatically a negative, but lenders will want to understand whether the structure supports the transaction or signals that the requested bank financing is too aggressive.
The valuation report should also clarify whether the value is based on a going-concern assumption. In most advisory practice acquisitions, lenders expect the practice to continue operating under new ownership, with the buyer retaining client relationships and ongoing revenue. If the transaction is closer to a client-list purchase, book acquisition, liquidation, or merger into another firm, the value may need to reflect different assumptions about transferability, continuity, and future cash flow.
Lenders want to see that the valuation report identifies the factors that drive value in the practice. These factors help the lender understand why the practice is worth what it's worth and whether the value is sustainable. The valuation report should explain what makes the practice valuable, what risks could reduce the value, and what opportunities could increase the value over time.
Recurring Revenue: Show the percentage of revenue that comes from recurring fees versus transactional commissions so the lender can assess cash flow stability. The report should also explain whether recurring revenue is supported by client retention, fee structure, and transferability.
Client Retention: Include historical client retention rates and explain what drives client loyalty, such as long-standing advisor relationships, comprehensive financial planning, niche expertise, or multigenerational service.
Client Demographics: Show the age distribution of the client base and explain whether the practice faces risk from retirement withdrawals, client deaths, or wealth transfers to the next generation.
Advisor Dependency: Explain whether client relationships depend heavily on one advisor or are distributed across multiple advisors and service team members. High advisor dependency can increase transition risk when the lead advisor plans to exit.
Growth Potential: Show whether the practice has the capacity to take on new clients, expand into new markets, deepen wallet share, or add new services. Growth potential is stronger when it is tied to staff capacity, referral sources, and documented client acquisition channels.
Operational Efficiency: Include metrics such as revenue per employee, overhead as a percentage of revenue, and profit margin so the lender can assess whether the practice converts revenue into sustainable cash flow.
The valuation report should explain how these factors were weighed in the valuation model. Strong recurring revenue may support value, but high advisor dependency, client concentration, or aging client demographics can offset that strength. Lenders want to see a balanced valuation that accounts for both the upside and the risk in the practice.
Read Next: Factors That Impact Practice Value
Lenders will find the risks in the practice, whether the valuation report discloses them or not. It's better to document the risk factors upfront and explain how they were accounted for in the valuation. This shows the lender that the valuation professional understands the practice's vulnerabilities and that the value reflects those risks.
Client Concentration Risk: Show the percentage of revenue generated by the top clients or households so the lender can assess whether the practice depends too heavily on a small number of relationships. Higher concentration can increase risk because the loss of one major client may materially affect revenue.
Aging Client Base Risk: Include data on the age distribution of the client base and explain whether the practice faces risk from retirement withdrawals, client deaths, or wealth transfer to the next generation. The report should also address whether the firm has multigenerational relationships or next-generation retention strategies.
Transition Risk: Explain how the buyer will take over client relationships and whether the seller will stay involved during the transition. Lenders want to understand whether clients are loyal to the individual advisor, the service team, or the firm itself.
Revenue Concentration By Product Or Service: Show whether the practice generates most of its revenue from one service line, such as investment management, financial planning, insurance, or annuity sales. Diversified revenue streams may reduce reliance on one product, market, or client need.
Regulatory or Compliance Risk: Disclose regulatory issues, compliance violations, client complaints, pending litigation, or other matters that could affect practice value or operations. Lenders will conduct due diligence, and undisclosed issues can weaken confidence in the valuation.
Technology or Platform Risk: Explain whether the practice relies on proprietary technology, third-party platforms, custodian systems, or broker-dealer infrastructure that could be disrupted during the transition. The report should clarify whether the buyer can continue using existing systems or needs to invest in new technology.
Explain how these risks were factored into the valuation. High client concentration should result in a higher discount rate to reflect that risk. An aging client base should lead to a forecast that assumes some level of client attrition. Lenders want to see that the valuation is risk-adjusted, not based on best-case assumptions that ignore the practice's vulnerabilities.
Read Next: How An Aging Client Base Hurts Your Practice Value (And What to Do About It)
The valuation report should include the appraiser's credentials, experience, and the valuation standards used. A valuation prepared by a Certified Public Accountant (CPA) with an Accredited in Business Valuation (ABV) designation should disclose that credential. A valuation prepared by a valuation analyst who follows the American Institute of Certified Public Accountants (AICPA) standards or the Uniform Standards of Professional Appraisal Practice (USPAP) should reference those standards. Lenders are more likely to accept a valuation from a qualified professional who follows industry-recognized standards.
The valuation report should also explain the scope of the valuation and any limitations. A valuation based on financial statements provided by the seller without independent verification should disclose that limitation. A valuation that didn't include a site visit or interviews with key employees should explain why. Lenders want to know what the valuation professional reviewed, what assumptions were made, and what information was not available.
For valuations prepared for a specific purpose—financing, estate planning, or tax planning—state that purpose. Lenders want to know whether the valuation was designed for their use or whether it was prepared for a different purpose and is being repurposed for financing. A valuation prepared for estate planning may use different assumptions or valuation methodologies than a valuation prepared for financing, and lenders need to understand those differences.
Not all valuations are designed for lender review. A valuation prepared for internal planning, partner buy-ins, estate planning, tax planning, litigation, or strategic benchmarking may use a different scope, standard of value, report format, or intended-use language than a valuation prepared to support financing.
The valuation report should explain what type of valuation was performed, who the intended users are, what purpose the report serves, and whether the report is appropriate for the financing request. This distinction matters because lenders need enough support to evaluate value, cash flow, collateral, repayment capacity, and the structure of the proposed loan.
| Valuation Use Case | Lender Suitability |
|---|---|
| Acquisition Financing | Usually requires a lender-facing business valuation with normalized cash flow, market data, forecast support, risk analysis, and a clear connection between value, purchase price, deal structure, and loan request. |
| Internal Planning | May be useful for benchmarking, strategic planning, or early succession conversations, but often lacks the level of documentation, intended-use language, and lender-specific analysis needed for financing review. |
| Estate Planning | May be formal and defensible, but it is typically prepared for estate, gift, tax, or IRS-related purposes. The assumptions, discounts, standard of value, and intended users may not match what a lender needs for a financing decision. |
| Partner Buy-In | May focus on the value of a specific ownership interest, buy-sell formula, or internal transfer structure. It can support ownership planning, but lenders may require additional analysis on enterprise value, cash flow, repayment capacity, and deal structure. |
| Tax Planning | May be prepared under tax-specific rules and assumptions. Even when professionally prepared, it may need to be updated or supplemented if the lender needs a financing-focused view of value, cash flow, and transaction support. |
When a valuation was prepared for a non-financing purpose, the valuation provider may need to update the report, prepare a supplement, or perform a new valuation for lender review. The goal is not to reuse a value conclusion from another context, but to give the lender a report that matches the financing purpose, the intended users, and the risk questions tied to the loan.
Read Next: The Advisor's Guide to Tax Planning Before Selling Your Practice
The final step is to package the valuation report so a lender can review the value conclusion, cash flow support, assumptions, and risk factors without having to search through disconnected schedules. A lender-facing report should be organized, clearly labeled, and supported by exhibits that make the valuation easy to follow.
The report should also make its purpose clear. If the valuation is being prepared for financing, the report should identify the intended use, intended users, scope of work, standard of value, valuation date, and any limitations on reliance. This helps the lender understand whether the report was designed for underwriting review or originally prepared for another purpose.
Executive Summary: Include a one- to two-page summary stating the value conclusion, valuation date, valuation method, key assumptions, major risk factors, and conclusion so the lender can understand the report’s main findings quickly.
Table of Contents: Provide a detailed table of contents listing each section, exhibit, and schedule so the lender can locate financial support, assumptions, market data, and risk analysis.
Financial Exhibits: Include financial statements, tax returns, add-back schedules, normalized cash flow calculations, and cash flow projections in a clearly labeled appendix so the lender can verify the numbers used in the valuation.
Valuation Methodology Section: Explain the valuation approach, selected valuation method, discount rate, multiple support, growth assumptions, and any terminal value calculation so the lender can understand how the value was derived.
Market Data Section: Include comparable transactions, industry benchmarks, and advisory-specific metrics so the lender can see how the practice compares with similar firms.
Risk Analysis Section: Document relevant risk factors, including client concentration, aging client base, advisor dependency, transition risk, compliance issues, and platform or technology concerns.
Appraiser Credentials: Include the valuation professional’s credentials, relevant experience, and independence or objectivity statement so the lender can evaluate whether the report was prepared by a qualified professional.
The report may also include a cover letter or transmittal letter explaining the purpose of the valuation, the scope of work, the valuation date, the intended use, and the intended users. If the report is being prepared for a specific lender, the letter should reflect that engagement scope from the start. This helps avoid confusion about whether the valuation was prepared for lender review, internal planning, tax planning, litigation, or another use case.
Read Next: Financial Due Diligence Checklist: How to Prepare Your Business for Sale
A lender-ready business valuation report should make the underwriting review easier, not harder. The goal is to show how the practice value was calculated, whether the cash flow can support the requested financing, and what risks could affect repayment after closing.
Use this checklist to confirm the report includes the financial support, valuation analysis, forecast assumptions, and deal details lenders typically need to review an advisory practice acquisition.
Three Years Of Financial Statements: Include tax returns, P&Ls, balance sheets, and bank statements that reconcile across all documents so the lender can verify the practice’s financial history.
Normalized Cash Flow Schedule: Provide a detailed add-back schedule explaining every adjustment to EBITDA, including owner compensation, personal expenses, and one-time costs, so the lender can assess the practice’s recurring earning power.
Primary Valuation Method Explanation: Explain which valuation approach was used, such as the income, market, or asset approach, why that method fits the practice, and how the value was calculated.
Market Data and Comparable Transactions: Include industry benchmarks, comparable transactions, and advisory-specific metrics that support the fair value conclusion so the lender can compare the practice against market norms.
Three- To Five-Year Forecast: Provide revenue, expense, and EBITDA projections showing repayment capacity. Include a coverage ratio calculation so the lender can assess whether the practice can support the loan.
Risk Factor Documentation: Disclose client concentration, aging client base, advisor dependency, transition risk, and any regulatory or compliance issues that could affect practice value, cash flow, or repayment capacity.
Appraiser Credentials and Professional Standards: Include the appraiser’s resume, credentials, relevant experience, and a statement identifying the professional standards followed, such as AICPA, USPAP, or other recognized valuation standards when applicable.
Deal Structure Summary: Explain the purchase price, down payment, seller financing, and bank financing so the lender can see how the loan fits within the overall transaction.
Executive Summary and Table of Contents: Provide a one- to two-page summary and a detailed table of contents so the lender can quickly locate the value conclusion, key assumptions, financial exhibits, and risk analysis.
Financial Exhibits And Supporting Documentation: Include financial statements, tax returns, custodian statements, normalized cash flow schedules, forecast exhibits, and valuation exhibits in a clearly labeled appendix so the lender can verify the numbers used in the valuation.
A lender-ready valuation report proves the advisory practice can generate enough cash flow to support the loan, retain clients through the transition, and operate profitably under new ownership. Lenders review valuation reports to assess repayment capacity. The valuation process must include normalized cash flow, transparent valuation methodologies, forward-looking forecasts, and risk-adjusted assumptions that reflect the practice's financial health.
The valuation report connects the value to the loan request, explains the factors that drive value, and documents the risk associated with the practice. Clean financial statements, market data, and qualified valuation professionals who follow recognized professional standards are required. Without that documentation, the valuation becomes a planning tool rather than a financing tool.
Key takeaways:
Advisor Legacy supports financial advisors preparing for acquisition financing, succession funding, and internal buyouts. We work with Lenders who specialize in advisory practice financing and provide Lending Support to guide advisors through the financing process. Our Business Valuations are designed to meet lender standards and include normalized cash flow, market data, and risk analysis.
Get a lender-ready business valuation report that supports your financing request.
A lender-ready valuation report is a documented business valuation that meets the standards lenders require to review a financing request. It includes normalized cash flow, transparent valuation methodologies, market data, risk analysis, and a forecast proving repayment capacity. The report is prepared by a qualified valuation professional and follows recognized professional standards like AICPA or USPAP.
Lenders prefer the income approach, specifically the discounted cash flow (DCF) method, because it ties the value directly to the practice's ability to generate future cash flows. The market approach is used as a secondary method to validate the value using comparable transactions or industry multiples. The asset approach is rarely used unless the practice holds significant tangible assets.
Lenders assess repayment capacity by reviewing the normalized EBITDA, the forecast projections, and the coverage ratio. They verify the practice generates enough cash flow to cover loan payments, operating expenses, and owner compensation. Most lenders require a coverage ratio of at least 1.25x.
Lenders need three years of tax returns, profit and loss statements, balance sheets, and bank statements. They also expect custodian statements showing assets under management and fee revenue. All financial statements should reconcile across documents, and any discrepancies should be explained in a reconciliation schedule.
The valuation report should document client concentration risk, aging client base risk, advisor dependency, transition risk, revenue concentration by product or service, and any regulatory or compliance issues. Lenders verify the valuation is risk-adjusted and that the value reflects the practice's vulnerabilities.