“Out of your vulnerabilities will come your strength.”

Dr. Sigmund Freud

What the heck does this have to do with business growth? Before we get to that, I want you to start by asking yourself the question, “IS YOUR BUSINESS GROWING??”

How would you answer this question? Maybe you point to revenue growth or the amount of AUM you have now vs. last year. Maybe you get more granular and can identify the net new number of households or can point to net asset flows. Whichever metric you choose, let’s be honest about something in our industry – the last 10-12 years have provided such a tailwind in market performance that some advisors may not be truthful about business growth.

I would argue that although the metrics listed above contribute to business growth, they are not the truest indicators. The VALUE of your business from year to year is the purest indicator of growth. We know that many factors go into valuation of financial advisory practices, but if you are focused on true business growth, you must start by understanding your numbers and how they affect the value of your organization. I’m not talking about revenue growth or AUM. I’m talking about the gritty, much less sexy numbers, for example:

  • Do you know your profitability ratios?
  • What is your gross profit margin? What should it be?
  • What is your earnings yield?

I’ve worked with many advisors in analyzing these numbers and I’ll be the first to tell you that NONE OF THEM really got excited to discuss it. In fact, the conversations usually didn’t start here. It may start with a simple question like, “should I have an account minimum for new clients?”. Or “I’m feeling swamped, should I hire somebody to help?” If you’ve asked yourself these questions, in order to effectively answer it, you must understand your numbers, and more importantly, what are they telling you. You may also find vulnerabilities within your business that you didn’t see coming. I’m sure Dr. Freud wasn’t talking about profitability ratios, but the principle applies.

Understanding your vulnerabilities requires you to be honest about where you are. In business, that requires you to dig into the foundation and be truthful with yourself.

Most financial advisors did not get into the business to analyze their own organization’s metrics. But you cannot effectively and efficiently grow and increase the valuation of your business without this analysis. You may have experienced great revenue growth recently, but if you don’t feel like you have a grasp on what the true numbers behind your business are telling you, we’d love to help.

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Categories: Insights

by Ben Mossman


by Ben Mossman