Part 1: Increasing profitability by digging into the data

Hurdle rates, client segmentation, M&A, valuation, and exit strategy – you’ve heard these terms before, but maybe aren’t quite sure how they might apply to your financial practice. In this three-part series, we’ll break down some common terms and misperceptions. We’ll show you how looking under the hood of your financials can ignite growth in your practice, streamline your operations, and reduce overall expenses. We’ll also look specifically at your P&L, the importance of determining your valuation, and client segmentation.

The above terms are all important. Each one can bring a level of depth to analyzing the overall health of your practice, where you need to spend more time, and ultimately your profitability. But there’s one foundational element that you may not look at regularly, and it can map the way to organizing your business and your time in a way that yields greater results. That report is your Profit and Loss Statement (P&L) or Income Statement. Most advisors are focused on end-of-year gross commissions, which are an important data piece. However, without backing into a P&L, some key information may be lost.

Individualized benchmarking is key

Income statements calculate your top line revenue, minus expenses. What is yielded is your profit. Expenses are one area on a P&L that can reveal new information and opportunities. There are ballpark overall expenses that every financial advisors has. Then there are expenses that might be particular to your firm, your geographic location, the size of your firm, and any niche or specialized area you serve.

When looking at expenses, many financial advisors tend to benchmark against others in their industry, and may not recognize that reviewing expenses must be done with highly individualized benchmarking. If you’re an advisor in Arkansas who specializes only in pre-retirement and retirement clients, your expenses will be very different from an advisor in San Diego who specializes in similar clients, or one who has more or less staff than you do. There may be other particulars that factor into an accurate benchmarking of your business. Regardless of these factors, it’s important to partner with someone who can drill down on this level of benchmarking with you. Otherwise, you may miss opportunities when it comes to reducing or re-working expenses.

Hurdle rates help move you forward

Finally, knowing your P&L is a way to also calculate your hurdle rate, also known as your break-even point. Without knowing what you need to make to break even, planning and strategy goes out the window. How can you plot a course forward without knowing where you need to go?


We’ll cover valuation in more depth in the next article. With that in mind, if you’re thinking about growth, especially inorganic, retirement, or succession planning, your P&L will play a key role in determining your valuation.

As you can see, reviewing your P&L regularly – preferably with a trusted partner who can bring additional insight and expertise – can set up your practice for success in multiple areas.  LPL Business Strategy Services offers senior level business strategists with decades of industry experience to help you look under the hood.

Learn more about Business Strategy Services.