Explore the Business Continuity Decision Tree

Have you been in the financial services industry for more than five years? Are you within 10 years of retiring?

Then you should have a plan for the continuity of your business.

Whether you want to ride out the rest of your career, build your practice or pass it on, MDRT’s Business Continuity Decision Tree helps identify the value in business continuity planning and lets you pick your path to making this transition. For example, the guide highlights three ways you can determine your practice’s value before finding a buyer, structuring a deal and selecting experts to help you along the way:

• Free cash flow. One method used in the United States is to value free cash flow and multiply it four to six times. Free cash flow is the owner’s salary, plus profit, minus what one would need to pay someone else to do what the owner does. The less the owner does, the more valuable the business is, as it essentially runs without them.
• Recurring and nonrecurring revenues. Another method is to take gross revenues for one year and determine how much is recurring revenue (asset fees, renewals, etc.) and how much is a nonrecurring (new sales). The higher the recurring revenue, the higher the value for the business. Nonrecurring revenue adds very little to the new buyer’s price, as this is a “hope and a prayer” type of business. A multiple of 1 to 1.5 times recurring revenue for the past five years is a good starting point for valuation.
• Full business valuation. A third method is to hire a valuation expert to assess your business and determine its market value.

Click here to enter the choose-your-own-adventure-style guide to succession planning!

Plus:

• Learn more about this process with “Success through succession” (video)
• Gain insight about maintaining the longevity of your business with “Building a sustainable business” (pdf)

Written by Matt Pais, MDRT Content Specialist