How to Value a Financial Advisory Practice: A Step-by-Step Method

A financial advisory practice is priced on its earnings, adjusted to show what the business actually produces independent of the owner — or, for the smallest practices, on its recurring revenue. In both cases you are estimating a multiple applied to one of those figures, and the multiple is not a fixed number you look up. It is an output of how durable, transferable, and growth-oriented the firm is. Two practices with identical revenue can be worth strikingly different amounts, which is why the drivers in Step 6 matter as much as the math in Steps 1 through 5.

With that framing in place, here is the method.

Start with an accurate profit-and-loss statement for the trailing twelve months, plus a clear picture of revenue and assets under management. “Clean” means you can see, line by line, what the business earns and what it spends, including what you personally take out of it in compensation or distributions, and any expenses that run through the firm but aren’t truly business costs. Most owners are surprised how much of the work of a valuation is simply getting the numbers into a form a buyer would recognize. If your financials aren’t in that shape, that is itself worth knowing early, because a buyer will eventually see the same picture.

Break your revenue into recurring advisory fees — the fees that will predictably recur next year — versus one-time or transactional revenue like financial-planning fees, commissions, or project work. This split matters because recurring, fee-based revenue is worth meaningfully more than revenue that has to be re-earned each year, and because it determines which valuation method fits your firm. Note the share of revenue that is recurring; you’ll use it in Step 6, and buyers will scrutinize it closely.

This is the step that trips up most do-it-yourself estimates, and it is the heart of the method. “Adjusted EBITDA” is your operating profit rewritten to show what the business earns as a business — after replacing the owner’s personal compensation choices with what the work would actually cost at market rates. The walk looks like this:

The replacement-compensation line is the one buyers negotiate hardest and the one owners most often get wrong in their own favor, so be honest about what it would truly cost to replace everything you do. And keep the add-backs defensible — genuinely non-recurring or personal items only. Aggressive add-backs that won’t survive scrutiny cost more in credibility than they add in headline value. Our valuation guide covers the normalization process in more depth.

Which figure you multiply depends on your firm’s structure. A practice with real enterprise structure (i.e., multiple professionals, durable margins, operations that would continue without you) is valued on adjusted EBITDA. A solo practice or a book of business, where the economics are hard to separate from the departing advisor, is valued on recurring revenue instead.

Crossing from the second category to the first — building a firm that runs without its founder — is one of the largest value-creating moves an owner can make. For most firms with a team and a durable client base, adjusted EBITDA is the right lens, and it’s the one this example follows.

Now apply a multiple — but as a range, because no single number is right. For enterprise-structured firms, EBITDA multiples have generally run in the low-to-mid teens in recent years (before earn-outs), with the larger, faster-growing platforms higher still; for books of business priced on recurring revenue, the figure is typically in the low single digits. These are directional, not promises: where your firm lands within (or outside) them is decided in Step 6.

Taking our example at an illustrative low-to-mid-teens range on roughly $1.8 million of adjusted EBITDA produces a starting band in the low-to-mid $20 millions. That is deliberately a range (and a wide one), which is the honest output at this stage, not a shortcoming of the method.

One important caveat to the multiple ranges referenced above: they refer only to Base Consideration, or closing proceeds + retention payments. Retention payments refer to deferred proceeds that are generally paid out within 12–24 months of the transaction, subject to maintaining some threshold amount of revenue (generally, at least 95% of the revenue you had when the transaction closed). Most buyers will also incentivize sellers to grow in the years following the transaction by way of a growth-based earn-out. That earn-out is subject to hitting certain milestones, so it should be viewed as upside, but never as “money good.” Often times when you hear transaction multiples quoted, the multiple includes the perceived value of the earn-out. This is misleading and overstates the multiple range.

This is where a generic estimate becomes a real one. The same adjusted EBITDA prices very differently depending on the firm’s underlying quality, and a handful of drivers do most of the work: organic growth net of markets, the share of revenue that is recurring, client-age and concentration, how dependent the firm is on the founder personally, margin quality, and clean compliance and operations. Strength in these pushes a firm toward the top of its range and beyond; weakness pulls it down.

In our example, a practice with consistent double-digit organic growth, 90%-plus recurring revenue, a diversified client base, and a second generation of advisors who own real relationships would sit at the top of that low-to-mid-$20-millions band or above it. The same practice — same EBITDA — with flat growth, an aging and concentrated book, and a founder who personally holds most of the relationships would sit at the lower end of that range, and more of any eventual price would be contingent on client retention. Our guide covers the full set of drivers and how each one prices. The point of this step is to move honestly within the range based on where your firm actually stands.

One more caution before you treat your range as final: enterprise value and take-home proceeds are not the same thing. How an offer is structured — cash at close versus rolled equity versus an earn-out contingent on future performance — can move what you actually receive by a wide margin, and taxes further separate the headline number from the net.

A range built with this method tells you what the firm might be worth; what you’d keep depends on a structure you haven’t negotiated yet. Our valuation guide covers why enterprise value isn’t what you take home.

Everything above can be done from a handful of inputs. Our valuation calculator runs this exact method — estimating a normalized adjusted EBITDA, applying a size-appropriate range, and adjusting for the drivers you indicate — and returns a range along with the reasons it landed where it did. It’s the quickest way to get a first sense of magnitude and to see which of your firm’s characteristics are helping or hurting. Like any self-serve estimate, it’s a starting point rather than a final answer, but it’s a considerably faster starting point than a spreadsheet (for most people).

Used well, the method on this page gives you a genuine advantage: a credible sense of your firm’s worth, an understanding of what’s moving it, and the ability to spot the gaps worth closing before you ever go to market. What it cannot do is tell you what a competitive process would actually produce or how specific, currently active buyers would evaluate your firm against other potential acquisitions, which is what ultimately sets the price.

When a transaction is genuinely on the table, the number worth acting on comes from an advisor who can tell you what today’s buyers would pay for a firm like yours, and just as importantly, what exactly would move that number higher.