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in addition to helping our clients retire us financial advisors have to retire too and one big way that financial advisors also prepare for retirement is selling their own business now today i want to share with you guys a tool that's been given to me to show you exactly how much i could sell my financial advisory practice for today time to think like an investor hello and welcome back to the channel guys if you're new here my name is josh i'm a certified financial planner and i've been running my own financial advisory business for six years now and so back in 2017 i'm like a new recruit i've been in the business for one year and i had this high-minded ambition i thought you know i was going to get ahead of the curve with social media and i was going to be really smart and i had all sorts of people interested in doing business with me and i was just going to walk into success and of course unless your dad's giving your clients no one has that experience this business is very difficult to break into and to self-sustain and so i'm a year in and i'm already begging for mentorship because for me it's going actually better than a lot of my you know co-workers who are just getting started but for my standards this isn't growing nearly fast enough and i'm not really living up to the ideals that i set when i got into the business it's just you know how you are when it's young you're just nothing's going fast enough you just want it now now now and so i remember meeting at this semi-upscale restaurant called joey i went to sit down and i was going to meet a new mentor who i kind of just reached out to through the internet and i kind of asked him the question what do i need to do to like grow faster like sure enough i'm getting clients but this isn't happening nearly fast enough for me you know how old are you josh and i kind of said to him well i'm like i'm 20 years old right now that's about it and he says okay if you're 20 years old guys like you in the business have to buy books that's the only way you're going to grow fast if you're not going out and acquiring someone else's business and you're taking on every single client on your own one by one by one and you're not working underneath anyone else it's going to take a lot of time for you to get momentum a successful person is sitting across the table for me and telling me the only way i'm really going gonna probably make it is if i go take out a quarter million dollar loan buy someone else's business farm that and work in it forever while i'm paying off the loan and only get to reap the benefits like four years later once i've paid that debt off and so now i'm completely conflicted because the theory i was holding in my head of how i was going to be successful the world kind of crumpled that up like a paper ball and threw it back at me and said that's not going to work here's another way and it's going to require a lot more risk and a lot more debt and so what did that all culminate in well i never actually bought a book i really don't want to build a business where a lot of the clients know that they've been purchased and what i'm doing is essentially treating them as some revenue stream to pay off some debt at the end of the day i really want to deal with clients that show some initiative and some passion for working with me maybe they start the conversation maybe they come to me maybe they're doing a lot of the follow-up because they're engaged with the process and that way i know that i'm not having to drag hundreds of people through the mud to achieve my agenda it's more about having some win-win with a client who's really engaged with us and so i stuck to my guns and maybe i didn't grow as fast as i could have had i bought a book but over the last five years i've gotten to a sustainable level of clientele where i freaking love my business it's a place where hey am i where i thought i would be at that ambitious 19 year old kid no i was completely delusional and you know you shoot for the moon you land among the stars i'm like kind of maybe more towards like the ozone layer this process did open my mind up to the idea that wait a second one day i could sell my book one day down the line if i wanted to retire in the future i could actually monetize this business i had built anyone who builds their own business has eventually that retirement plan of one day selling their company or passing it to the next generation and so i started to do some research and thinking about okay wait a second although i have zero intentions of selling this business and i'm speaking in present terms as of today i don't think i would ever want to sell this i probably prefer to run this business until i die but it's still kind of fun to flirt with the idea of okay what has all of my hard work and effort for any of you new advisors who are in the business it's nice to know okay this is all accumulating to something because in those first few years you feel like it's really not going anywhere and so for me it's kind of a nice idea to think about okay from a financial perspective what has all of my work gotten me what is the value of this thing and today i actually have a vendor that i work with in my industry that kind of put out this resource on valuing your own practice if you were to sell it the really cool thing about this business is that they aggregate data from all sorts of different financial advisory purchases and sales and mergers and transactions across the country and then from there you can input the data on your business how many clients do you have what's your assets what's your recurring revenue and they will essentially model out for you using a free cash flow analysis tool what your book could sell for if you were to list it today so here is that valuation tool i mentioned i've just logged in and i'm just going to go ahead and like punch in our company's data on some of our general numbers in our business and some of the metrics and you guys can learn from some of this too so right now you guys can go ahead and see all the numbers i'm typing in this is approximately where our business is at as of today um a lot of people message me in the comments and say wait a second you're only managing like 10 million dollars you have 300 clients that's a horrible ratio yeah that's true i was a very new advisor and i took on any client i could get and over time we've pared that down and grown our assets and reduced the total number of clients that way we don't get spread so thin and end up hating our jobs and doing a terrible job for more people instead of a really good job for less people so we're working on that but over time this is kind of what our metrics have kind of come up to so when i press calculate it will show me what the approximate value of my business is okay this is really fascinating okay so it says that our valuation today is 730 000 am i a millionaire nope not quite but anyways guys here's the thing this is not something to say oh look how great i'm doing it really genuinely is about helping people who are in the position now where i was four or five years ago thinking there's no help and helping them see hey keep at it there's light at the end of the tunnel seven hundred and thirty thousand you know typically in our business we hear about things like multiples of earnings you know sometimes two to three to four to five times if you get really aggressive the earnings of the business and so this discounted cash flow gives us a more detailed idea now am i taking this number to heart am i thinking about 730 000 and adding that to my personal balance sheet no the reality is the business is only worth what someone's willing to pay for it unless i have another party who's willing to pay me that today it's not really worth that this is just some model to give me a general idea another thing to understand is this is not simple if you were to buy a financial advisor's business and acquire them to help boost your growth or you were to sell your business there is so much more involved in that than just oh here's the value here's a check there are lawyers involved there's accountants involved there's month week-long year-long negotiations of what the business is worth there's the fact that you have to stay on with the book for a period of probably two or three years to help transition those clients in to make sure not too many of them leave and by the way that valuation is totally dependent on how many clients actually stick with the advisor who purchased it from you you know if they all leave that means the book isn't worth nearly as much and therefore you're gonna have to reprice it and these transactions are never check at one time to sell the whole business it's usually okay a year's gone by here's the first third and the two years have gone by here's the second third three years have gone by there's the just to make sure that if anything terrible happens there's some backstop that the different parties can use to make sure that the deal still is fair if things don't go ing to plan ultimately i'm not really looking at these numbers and thinking about them as part of my financial plan as part of my retirement at the end of the day that's kind of just some bonus that comes down the line i don't really think about it that much for me i'm doing exactly what i advise my clients do i'm taking as much money as i can every month and investing it and productively allocating that capital so it grows and if i can get a rate of you know eight to ten percent in aggressive investments from now until when i'm 55 or 65 retirement will be taken care of and that will just kind of be seen as a total bonus something i'm not really that focused on so reflecting on this what lessons am i taking away i think the first thing is there's really something to be said for building your own business as the penultimate way to create wealth as a young person i think it's just kind of a fact the more risk you take and effort you put in the higher the return you're going to get out of any investment you see if i were to go do the numbers and think about what i put in to start the business about 15 000 bucks and the fact that this thinks it's worth around 730 or whatever it might be that means the compound annual growth rate over the last six years was about 91 compounded that's crazy in order for me to grow 15 000 into this at regular market rates of return let's say 8 to 10 that would have taken me 40 years so i think one of the big lessons i'm taking away is we talk about generating wealth and we want to create freedom we talk about using investments to do that but the reality is it's really difficult to get around the fact that building your own company is almost always going to be the fastest way to propel yourself to a new height but secondly and more importantly this exercise kind of led me to believe okay wait a second what if i just took the check and moved on and just kind of found something new well the reality is that would kind of just leave me at a dead end existentially i wouldn't want to do that because this business provides me so much meaning and it provides me the relationships and it provides me a fulfillment and ultimately the sale value is essentially just three or four years worth of revenue so why not stay in the business and work in it while i'm young and keep it going it makes no sense even if someone were to offer me five to ten times what this thing said i probably still wouldn't want to take it and the reason is because at that point i would end up just kind of like rich and sad and i see far too many clients and far too many friends in that position so i think for me the best thing to do is continue to grow this and find the meaning in the growth rather than the financial benefits that comes along with it but anyways guys i hope you got some value to this video if you're a new advisor or if you're someone who's an existing advisor maybe you're thinking about getting into the business it's definitely a perk hey if you build your own company in any industry one day you might be able to sell it and what i found here is a business like mine high growth young clients always consistently growing it's probably worth four to five times the profit of the company every year so thank you so much for watching this video and if you've got any value or hope out of it whatsoever make sure to hit that like button hit subscribe and turn on post notifications for more videos just like this one every single week until next time [Music] you