Evaluating the Income Statement

The income statement is the most revealing document in a financial-advisory practice because this is where you can isolate the management issues, such as poor productivity, poor pricing, or poor cost control. Observing the ratios in relationship to a benchmark and to a trend over several periods will help put the problem into context. Use industry benchmarks, such as those published by Moss Adams and the Financial Planning Association, or other relevant industry standards that are published by...

Profiling the Ideal Buyer

Once you've defined your objectives and created a sales strategy, you're prepared to identify the characteristics of the ideal buyer. For example, if your main objective is to maximize liquidity in the trans action, you'll look for a buyer that's growth oriented, has capital available to fund the growth, will enable you to participate in the growth, and will compensate you for your contribution to it. Of course, if you have the conflicting desire to get out of the business quickly, you'll...

Industry Comparisons

When analyzing a firm for valuation purposes, it is helpful to compare the subject company's operating performance with a benchmark as discussed in chapter 3. This analysis is presented in Figure 5.4. Industry comparisons are from the 2004 FPA Financial Performance Study,1 published by the Financial Planning Association and produced by Moss Adams for companies considered elite ensembles, and from the Annual Statement Studies 2004 2005,2 published by the Risk Management Association (RMA). The...

Acknowledgments

A reference book that tackles a complex topic requires the help of many people, and How to Value, Buy, or Sell a Financial-Advisory Practice was no different. We would like to acknowledge the valuable guidance on legal issues we received from Tom Giachetti, who heads the securities practice for the law firm of Stark amp Stark in Princeton, New Jersey Dick Fohn, a partner at Moss Adams, for his guidance on the tax issues and Jet Wales, a principal at Moss Adams Capital, for his insight and...

Calculating the Capitalization Rate

The capitalization rate is the expected return that a buyer requires to be persuaded to invest in a particular business. The capitalization rate takes the discount rate one step further by subtracting an expected growth rate into perpetuity. To calculate the capitalization rate C , subtract the assumed growth rate into perpetuity G from the discount rate calculated in Figure 3.3, that is, C Ke - G . Then calculate capitalized cash flow by dividing one year's forecasted free cash flow by the...

A Financial Advisory Practice

A MANUAL ON MERGERS, ACQUISITIONS, AND TRANSITION PLANNING How to Value, Buy, or Sell a Financial-Advisory Practice Also by Mark Tibergien with Rebecca Pomering Practice Made Perfect The Discipline of Business Management for Financial Advisers Virtual-Office Tools for a High-Margin Practice How Client-Centered Financial Advisers Can Cut Paperwork, Overhead, and Wasted Hours by David J. Drucker and Joel P. Bruckenstein The New Fiduciary Standard The 27 Prudent Investment Practices for Financial...