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Build Value in Your Business

How to focus on the company itself, your team of employees, and your client base to enhance the value of your practice.

Sandra L. Atkins and Helen Modly, 09/12/2013

It's fascinating to watch the evolution of a business--particularly when it's your own. One day you're struggling to bring in enough money to pay the rent and the next you're trying to hire and train staff to handle all the work you've brought in. What starts out as a small business can very quickly become your most valuable asset. As your business grows, you need to plan for its success and understand what will create and enhance its value.

No matter where you are in your career, there will come a time when you need to put a value on your business. It may be when you decide to merge with another advisor, create an internal stock ownership plan to bring in your key advisors, or buy out your business partner (or yourself) at retirement. Whatever the trigger, you want to make sure you have done everything you can to build the most value in your company.

When enhancing the value of your firm, there are three main areas of focus: the company itself, your team of employees, and your client base.

Your Company
You may have started your career as an advisor, but as soon as you developed a client base, hired employees, and created a business entity in a highly regulated industry, you became a business owner with a responsibility to all of your stakeholders, not just your clients. It's critical to devote your attention to understanding the drivers of value and success in your business.

1. Clarity of vision: Strategic thinking is imperative to understand what you want to accomplish and where you want your firm to go. You need to develop a clear strategy, including creating a compelling value proposition and identifying your competitive advantage. Then you must communicate your strategy to your team, your clients, and other stakeholders.

2. Strong financial management: So many advisory firms are run with no clear understanding of the finances. A budget is a must, with regular reviews of actual results compared with the budget. For any firm in growth mode, pro forma financial data for the next three to five years will help you identify when you need to add additional staff, expand your technology, and so forth. As you grow, you need to consciously decide when to reinvest profits in your firm and what the financial impact will be. Trying to successfully manage a business without this information is like flying blind. It is also helpful to compare your results to benchmarking surveys with respect to profitability, average AUM, average fees earned per client, and other important metrics.

3. Standardized systems and processes: The need for standardization increases as your business grows. This includes everything from operations, client service, investment management functions, marketing, and compliance. The most value will be achieved when you have documented processes that are triggered automatically in your CRM, which will allow for tracking and accountability.

4. Compliance: Whether you outsource compliance or manage it in-house, you always need to be up-to-date with filings and supervision. The value of your business will be severely impacted if you have any negative marks on your regulatory record.

Sandi Atkins, CPA/PFS, is president of Focus Wealth Management, a fee-only registered investment advisor in Middleburg, Va. In 2008, she was named by Wealth Manager Magazine as one of the 50 Distinguished Women in Wealth Management.

Helen Modly, CFP, CPWA, is executive vice president of Focus Wealth Management, a fee-only registered investment advisor in Middleburg, Va. Modly has more than 25 years of experience providing wealth-management services. She is a member of NAPFA and president-elect for the National Capital Area chapter of FPA. She can be reached at info@focus-wealth.com. The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

The authors are not employees of Morningstar, Inc. The views expressed in this article are the authors'. They do not necessarily reflect the views of Morningstar.

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