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Methods For Valuing a Financial Advisory Practice

Picture of Alan Salomon, CPA/ABV, CVA Alan Salomon, CPA/ABV, CVA June 30, 2025

Practice Development Successions and Continuity

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No matter what stage of development your practice is in, its critical to know the true value of your business. A valuation is essential for securing loans, evaluating the health of your business, and determining equity for succession events. Unlike traditional businesses with equipment, inventory, and other assets, a financial practice’s value is largely based on the goodwill of the firm’s clients.

Essentially, you own a relationship, which can be tricky to quantify, especially if one is not experienced in valuing relationship-based businesses. Valuations Experts that serve the financial services market have proven methods that they rely on for arriving at a number that represents the true economic value of a practice. Specifically, there are two approaches an experienced valuation expert will take: the market approach and the income approach.

Methods Chart (1)-1

Conclusion of Value

To arrive at a true conclusion of value, the totals from the Market and Income approach are averaged. The resulting number is the final assignment of value. This sets a median price that the market would be willing to pay based on all applicable factors that influence value.

Avoid “Rules of Thumb” Calculations

Too often, firms try to DIY many aspects of their business, including placing a value on the firm for investment or succession purposes. Often, advisors are not experienced at developing valuations and so they rely on industry averages and other rudimentary approaches for creating a valuation number. The problem with relying on industry averages and “rules of thumb” is that it doesn’t take into account your unique practice and the significant variations that can occur across the whole range.

If your firm lies on the upper end of the spectrum, an average valuation can cheat you out of hundreds of thousands of dollars in equity return, especially if you are relying on that number to set a sales price. On the buyer’s side, an average can have you overpaying by hundreds of thousands of dollars for a firm that isn’t as operationally efficient or secure as the average firm. Either way, there is a significant cost to this approach, and it fails to paint a clear and accurate picture of your practice’s value.

Again, a valuation is a critical tool for understanding the value of your firm and for making critical business decisions, including whether to buy or sell. It is in your best interest to leverage an experienced valuations expert who can generate a full report and explain all of the factors that influence your firm’s value and how. Your firm’s value is too important to DIY or to guess at. It’s much better to invest in a formal evaluation then to cobble together a rough estimate and hope for the best.

Alan Salomon, CPA/ABV, CVA

Alan Salomon, CPA/ABV, CVA, is a valuation and tax specialist with more than a decade of firm ownership and hands-on experience serving closely held businesses. He provides accredited valuations for buy/sell agreements, estate and gift matters, divorces, shareholder/member disputes, and fair value reporting, as well as personal, business, and fiduciary income tax preparation and planning. Alan’s articles explain how valuation approaches apply to advisory practices, how to document defensible conclusions, and where tax planning can materially impact deal structure and after-tax proceeds. His work emphasizes compliance with professional standards and practical documentation that stands up to scrutiny.