Q&A – Maximizing Your Firm’s Value: Preparing for Succession, Sale, or Transition

Following our webinar on maximizing firm value through succession, sale, or transition, attendees had insightful questions about when and how to start preparing.  

The most common theme?  

Start early—ideally 5–10 years out. Whether you’re a $500M or $3B firm, the focus should be on running your business like it’s for sale today: clean financials, streamlined operations, modern tech, and a strong leadership bench.  

Questions also explored valuation multiples, how different ownership timelines impact deal structure, and what really drives enterprise value. From understanding the differences between EBITDA-based and revenue-based valuations to exploring options like “sell and stay” or partnering with outside investors, the discussion made clear: the sooner you begin planning, the more leverage, clarity, and opportunities you’ll have. 

Q: If you are 10 years away from an exit, what are the first steps in building a financial model or forecast?  

A: The first step is to start planning now. It doesn’t matter if you’re 10 years or 10 days out— the goal should be to run your business and your financials as if you were for sale today.  

Think of it like preparing your house for sale: mow the lawn, update the appliances, get the clutter out. For your firm, that means:  

• Having clean, well-documented financial statements  

• Streamline operations and processes  

• Clearly defined roles and compensation plans for advisors and staff  

• Keeping your technology current and utilizing industry leading partners  

• Making sure your compliance records are in good standing  

• Strong client retention and revenue diversified between advisors and clients  

Start having conversations—with potential buyers, bankers, M&A advisors, and peers—to understand your options and what drives value in the market.  

Finally, treat yourself like you treat your clients: plan early, create exit goals, define non-negotiables, and do your due diligence.  

Q: Using an EBITDA multiple model, what would be a typical multiple for a $500M firm vs. a $1.5B firm vs. a $3B firm? Assume each firm has 10 %+ earnings growth and serves high-net-worth clients.  

A: This is a popular—but nearly impossible—question to answer broadly. There are many variables at play. That said, for fee-based firms with 10%+ earnings growth and a high-net-worth client base, a back-of-the-napkin estimate would be:  

• High single-digit to low double-digit EBITDA multiple, depending on the details.  

But here’s the more important point: what is that multiple multiplying?  

Buyers typically apply the multiple to a normalized or adjusted  EBITDA, not solely the net income listed in your reported P&L. This is why cleaning up your financials is essential:  

• Remove personal expenses (cars, club memberships, etc.)  

• Reconcile your revenue against your actual client fee schedule  

• Separate recurring vs. one-time expenses  

• Ensure staffing is appropriate for scale  

• Clarify reinvestment amounts and growth initiatives  

Larger firms generally command higher multiples, but it’s not guaranteed. Factors like culture, leadership depth, client demographics, marketing engine, scalability, and the presence of a next-gen advisor bench all influence the multiple.  

AUM is only one piece of the puzzle, which is why we caution against “waiting until you hit $X in AUM” before considering succession or sale. Buyers are valuing the business and the talent…not the asset amount.  

Q: Regarding the purchase price of an RIA by another RIA: what percentage would you say typically reflects the book value of the clients?  

A: A majority of the transactions today are often based on a multiple of EBITDA or adjusted cash flow. That said, for smaller, lifestyle practices or advisor lift-outs (where there isn’t much cash flow to value or it is staying with a different group), you may still see 1.5x–2.5x recurring revenue as a rough range, depending on client retention, demographics, and growth. 

Q: Can you clarify what you mean by “How early”? Are we talking about how many years in advance? 5 to 7 years? 

A: Ideally, you should start planning 5–7 years in advance—whether you’re preparing for an internal or external succession. That timeline gives you the flexibility to improve enterprise value, identify and prepare successors, and structure the right deal without being rushed or losing leverage.  

That said, Scott on the call mentioned planning as early as 10 years out. And it’s true—just like you’d advise clients preparing for retirement, the earlier you start, the more options you have.  

Q: How would you handle a transition when a firm has owners of different ages—some who want to sell and others who don’t? Would bringing in an outside partner or investor make sense? If so, how?   

A: That depends on your timeline and goals. If you’re aiming for an internal succession plan, and you have 7–10 years, the younger partners may be able to gradually buy equity over time, however this is typically done at a lower multiple/valuation. Moreover, not all younger partners have the risk appetite (or wealth) to buy more equity in the business. The younger partners might not also have the skills to lead and grow the business into the next chapter without the primary founders around.  

As an alternative to the above concerns, or if the timeline is shorter, bringing in an outside partner might make more sense. That kind of partnership can provide more liquidity for older/majority partners and allow the younger owners to roll more equity into the new firm, while still benefiting from personal, professional, and financial growth.  

If you’re considering a private equity investor, just keep in mind that you’ll likely give up some control. It’s essential to ensure there’s cultural alignment and that the PE firm brings more than just capital—whether it’s operational support, scale, or growth infrastructure.  

Q: Can you discuss the differences between a “sell and stay” arrangement versus a sale that includes a short-term consulting contract?  

A: A “sell and stay” arrangement means you remain actively involved in the business post-sale—often with defined roles, performance-based earnouts, or rolled equity. You’re part of the ongoing leadership or operations within the acquiring firm.  

By contrast, a short-term consulting agreement typically follows a full or near-full exit. Your role is limited to helping transition client relationships over 12–24 months to support retention, with no long-term responsibilities or equity stake.  

Q: For a cash deal upfront, what is typical—100%, 50%, 200%? d separately? 

A: It varies. Most common is 60–80% upfront, with the rest tied to client retention over the first 1–3 years. Full 100% cash closings are rare and usually involve a discount. Anything more than 100% upfront is more typical of a wirehouse-to-wirehouse recruiting deal where there is no ownership/equity involved, no team or support infrastructure is coming over with the advisors, and also highly uncommon within the independent or RIA space. 

Q: What are the key areas to focus on now to start increasing enterprise value?  

A: 

• Diversify revenue – Shift away from product-based income toward recurring AUM or planning fees, and also be able to explain any revenue concentrations within your client base   

• Strengthen leadership and operational efficiency – Build documented processes and a leadership team beyond the founder.  

• Improve client demographics – Focus on retaining clients, but also track age and profitability (e.g., average relationship size).  

• Build a second-generation bench – Groom next-gen advisors and support staff talent to create continuity and reduce founder dependency.  

• Balance your team structure – Ensure an efficient ratio of advisors to support staff for scalability.  

• Invest in robust and current technology and compliance infrastructure – A modern, scalable platform is a key valuation driver.  

• Demonstrate sustainable organic growth – Show consistent new client acquisition and marketing ROI.  

• Define your differentiating value proposition – Planning and client care are expected. What truly sets you apart—an industry niche, a standout marketing engine, or a repeatable process for attracting and developing advisor talent? 

Review the 6 essentials on securing the best valuation for your firm.  

Q: What’s the difference between market-based valuation and equity-based valuation?  

A: 

• Market-based valuation looks at what similar firms are selling for—often using EBITDA or revenue multiples—and reflects the value of the entire business. It’s typically used for external succession planning, such as selling to another firm. It has typically been valued at a premium due to the competitive nature of the market over the last 10 years. The devil can be in the details, so you need to do your diligence to highlight what you might be getting, or giving up, to get a higher valuation from an external partner in the marketplace.  

• Equity-based valuation focuses on the value of your ownership stake after accounting for debt or other liabilities. It’s more commonly used for internal transitions, like selling a portion of your firm to a partner or next-gen advisor.  

Q: Josh (panelist), I didn’t quite understand—what did you gain in return by joining Merit? Was it mainly the ability to attract larger clients?  

A: Josh and his team gained scale—greater investment resources, operational support, and the credibility to attract larger clients. His original firm was very successful in Wisconsin, but they struggled to move upmarket because ultra-high-net-worth clients didn’t believe they had the capabilities to continue to serve them.  

By joining Merit, he gained access to a national presence, expanded services, and the infrastructure to compete for more complex clients. Plus, he now has a community of experienced advisors across multiple specialties—so when complex situations arise, he can lean on others for guidance and make more informed decisions for his clients.  

Josh and his other shareholders also gained diversification within their equity. They’re no longer solely responsible for growing their equity, nor the risk associated with losing a large advisor or client locally. The greater entity has historically grown much faster than any single advisor or team, like a flywheel.  

Q: What is the typical range of valuation multiples a fee-based advisor generating $300K–$500K in revenue (with a solid succession plan) should expect?  

A: Typically, valuation multiples fall in the 2x–3x revenue or 5x–7x EBITDA range for fee-based firms generating $300K–$500K, especially with a strong succession plan in place.  

Where you land depends on factors like profitability, growth rate, client demographics, and how transferable your relationships are. Firms at the higher end tend to have recurring revenue, loyal clients, and a clear next-gen plan.  

Q: What are some good resources to learn more about this topic—especially from the perspective of a successor preparing to buy?  

A: 

• FP Transitions: Succession planning guides, industry benchmarking and webinars  

• DeVoe & Company: Whitepapers and valuation tools  

• Mercer Capital: Valuations – external and internal  

• Podcasts: RIA Edge Podcast with David Armstrong or the Buyers Boardroom by Alaris Acquisitions  

• Visit Merit’s For Advisors page for more information 

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