How Much is Your RIA Firm Worth?

How Much is Your RIA Firm Worth? - Elevate CPA Group

Do you know how much your RIA firm is worth? Many firm owners don’t think about their firm’s value every day, or even every year. Often, the question comes up only ahead of a sale or owner transition. But knowing your firm’s value is critical for more than these occasions. For starters, doing so can enable you to unlock powerful opportunities for growth. And this is where a fractional CFO who has expertise in business valuations can help.

What is a Fractional CFO?

Simply put, a fractional CFO is like having a virtual CFO for your business. Instead of keeping a full-time CFO on your payroll, you hire a CPA firm to provide outsourced CFO services. There are many reasons why an RIA firm might want to consider a fractional CFO. The one we’re focusing on today is the ability to track the valuation of your firm.

Why is it Important to Know the Value of Your Firm?

If you’re like most RIA firm owners, your firm is one of your largest assets. Now, what do you tell your clients about their largest assets? If you don’t know how much your firm is worth, you’re likely going against your own advice!

The thing is, it’s important to conduct a valuation of your firm at least once a year. Doing so is critical to understanding how you can increase your firm’s value and how your day-to-day decisions could affect it. A fractional CFO can easily provide you with a valuation as part of their CFO advisory services.

Allow me to explain…

Fractional CFO: Looking Beyond the Numbers

When it comes to your firm’s value, its revenue stream is only the tip of the iceberg. A fractional CFO will dig into your RIA firm’s revenue stream to determine exactly what makes up your revenue, such as the demographics of your client base. To give you a true value, a fractional CFO will normalize certain expenses and make sure they’re in line with market value. These could include officer compensation or even rent. With these insights, your fractional CFO can advise you on how to best grow your business and adjust your expenses or compensation if needed.

Rules of Thumb Matter

Your fractional CFO uses certain rules of thumb to help you better understand your firm’s value. This might involve walking you through your firm’s revenue per employee, the average wage per employee, or discretionary earnings. With an understanding of your revenue stream, your fractional CFO can apply rules of thumb that account for the factors that make your firm uniquely valuable.

Outsourced CFO Services Grow Your Firm

By assessing your firm’s value each year and advising you on ways to increase it, a fractional CFO can be your secret weapon for growth. Comparing your firm’s value year over year can also help you see if you need to cut expenses or change the composition of your client roster. To explore how a fractional CFO could benefit your RIA firm, contact us today.