Financial Advisor Success Ep 072: The Financial Mechanics Of Buying Into An Advisory Firm And RIA Valuation Trends with Dave DeVoe
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May 15, 2018 Dave DeVoe, founder of DeVoe & Co., brings his expertise in advisory firm valuations and M&A to the discussion. He highlights the flaws in traditional revenue-based valuation methods, advocating for a more nuanced, cash flow-focused approach. The conversation explores the emotional complexities advisors face in partnership decisions and the importance of governance and succession planning. DeVoe also delves into the current duality of the market, revealing unique insights into financing strategies and the nuanced dynamics of mergers in the advisory space.
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Lack of Succession Plans Example
- Many advisors previously lacked any succession plan and intended to "die with their boots on."
- This disconnect risked leaving clients unsupported if the advisor unexpectedly passed away.
Start Succession Planning Early
- Start your succession plan early by addressing family protections and drafting a buy-sell agreement.
- Begin grooming successors and regularly assess valuation and ownership migration stages over time.
Valuation: Profit Beats Revenue
- Revenue multiples are a flawed valuation method; profitability and cash flow reflect true business value better.
- Larger firms get higher valuation multiples due to reduced operational risks and greater stability.