How to Know It’s Time to Sell Your Practice

Last Edited by: LPL Financial

Last Updated: April 02, 2024

three people in a business meeting close together

Advisors who are considering retirement and want a return on what they’ve built must plan carefully to sell their practice when it commands peak value.

Not sure if it’s time to sell your financial advisory practice? Selling as your business nears peak value may allow you to capitalize on the upside.

When it comes to selling your financial advisory practice, timing is crucial. So when is the right time to monetize? Valuations are based on projected future cash flows of you practice, and businesses command the highest purchase price just before they hit their peak. Therefore, advisors who are considering retirement and want a return on what they’ve built must plan carefully in order to sell their practice when it commands peak value. 

“My revenue is stable, why should I sell?”

Potential buyers much prefer to purchase businesses with rising revenue projections rather than businesses in decline. As clients age, it’s important to remember their client lifetime value decreases. Assets under management for older clientele tend to shrink over time, as they are no longer in the accumulation phase and assets are withdrawn as clients pass away. This means that to even maintain the value of your practice, younger clients and new assets must be added on a regular basis. Although it’s tempting to continue running your practice with the same clients and processes you have for years, this can result in decreasing the value of your business when it’s time to sell. 

“This sounds great, but I’m not ready to retire yet.”

Many advisors enjoy their job and have spent most of their lifetime building a book of business consisting of clients and friends they truly care about and want to continue to serve. The good news is that selling your practice doesn’t mean you must fully retire. LPL’s Advisor Financial Solutions team can help structure deals that allow you to monetize today and retire later. These are commonly called “sell-and-stay” or “sell-and-service” models, and they’re growing in popularity. 

This approach might also be a good fit for those who want to avoid competing against the wave of retiring Baby Boomer advisors. According to Cerulli,1 more than a third of advisors managing 40% of total industry assets are expected to retire over the next decade, but a quarter of them don’t have a set plan for transitioning their business. This could trigger significant mergers and acquisitions activity in the coming years and make it difficult to stand out from the pack.

“The sales multiples on revenue are not attractive enough for me to sell now.”

Misconceptions about sales multiples are another factor that leads some advisors to sell their practice past its peak value. Although the average sales multiples are hovering around 2- to 2.5-times recurring revenue and 1- to 1.2-times transactional revenue*, it’s important to note that these multiples are based on gross revenue before expenses and tax, rather than on take-home pay. Once expenses and ordinary income tax are factored into the equation, the sales multiples typically range from 4- to 5-times net income when expressed in terms of take-home pay. 

Tax implications on income are another factor to consider**. The income earned from operating each additional year is subject to ordinary income tax, whereas income earned from the sale of your practice is subject to a much lower capital gains tax rate. 

Is the value of your practice growing at a rate that outpaces the tax advantages of selling your practice at its current value? Does the estimated terminal value of your practice plus the net cash flows (take-home pay) from working additional years exceed the current market value of your practice? These are important questions to consider when assessing the appropriate time to monetize your business. 

Operating risk should be monitored and assessed as well. For example, market level risks and individual health status risks should also be considered when determining the marginal value of continued operation.

Next steps if you feel it’s time to sell

Whether you’re eagerly awaiting retirement or aren’t quite ready to pass on your business to the next generation, it’s important to plan your succession responsibly. Early and strategic succession planning is in the best interest of you, your clients, and the legacy of your life’s work. Here are a few best practices to follow to maximize the value and purchase price of your practice:

  • Plan: Develop a plan for your business that considers market conditions, your book of business, assets under management, and growth strategies. Revise this plan as part of your planning cycle and treat it as a living document.
  • Determine: Have a valuation of your business performed to understand the current value of your practice, gain awareness of its value drivers, and obtain an updated valuation annually. Consider participating in LPL Financial’s Valuation Consulting Program. Contact the Advisor Financial Solutions team for more details.
  • Consult: Speak to other professionals like bankers, CPA’s, attorneys, business brokers and/or business partners about your business strategy and succession plan. Also discuss this openly with key stakeholders like your spouse or family to create an exit strategy that satisfies your goals.

Reach out to LPL’s Liquidity and Succession team to learn about your options for increasing your business value and monetizing the legacy you’ve built while also freeing yourself of business ownership duties. Through a market-competitive M&A transaction with LPL, you can recognize the enterprise value of your business while continuing to serve clients how you see fit. You instantly gain the benefits of a fully loaded support structure with minimal disruption to your clients. 


1 “More than One-Third of Advisors Plan to Leave the Industry in the Next Decade”, Barron’s, June 2022

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