This Tool Aims to Help Advisors With Valuation and Succession Planning

Small and medium American businesses have nearly $3.7 trillion in unrealized value, according to Capitaliz.


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U.S. businesses — including RIA firms — may be undervalued by as much as 15 percent, according to a new study by Capitaliz, a valuation and succession planning platform built for advisors.

The Denver-based firm, which serves more than 500 advisors, half of which are based in the U.S., said there is nearly $3.7 trillion in unrealized value for small and medium-sized businesses.

Capitaliz was founded two years ago by Craig West to help advisors and their clients figure out what is the realistic value of their businesses and what they can then do to increase their valuation.

“What the software does is starts with a business review and evaluation — financial, nonfinancial benchmarking, and industry comparisons — to actually work out two things: What’s that business worth today? And then, secondly, what could that business be worth if we did certain things to prepare it or maximize its value?” said West.

Through the Capitaliz platform, advisors can input company-specific financial data as well as a comprehensive list of nonfinancial data. The software analyzes that information and gives advisors and their clients an estimate of what that business is worth. It also lays out a set of steps that business owners need to take in order to increase their company’s valuation.

“The software tries to break it down into fairly quick and simple analysis,” said West. “And then the advisor’s job is to go away and help the client get all those things in place, get them ready for an exit or succession planning event.”

West said that in general, most businesses tend to have good financials but lose value most often due to a lack of succession planning and overdependence on the owner and to a lack of systematic business processes.

“Most businesses are really dependent on the owner and can’t operate well without the owner being involved day-to-day, including RIAs,” said West. “The second part of it is related to the systems and processes of the business. They need to have a team of quality people in the business that operates not based on what the owner tells them to do, but operates on a system.”

Capitaliz said that on average, businesses the companies have analyzed are undervalued by 15 percent. The company said about 85 percent of its clients get the valuation they’re looking for when selling but that it depends on whether the business owners have the time it takes to fix the issues required to increase the businesses’ valuation.

“What often happens is the business owner is focused on the day-to-day running of the business and that they haven’t got time to do the major projects to solve these issues,” said West.

Succession planning is not just an issue for advisors’ clients but one that RIAs also struggle with.

According to wealth management research and consulting firm Cerulli Associates, about 37.5 percent of advisors, accounting for 41.5 percent of total industry assets, will retire over the next decade, but many still do not have a formal succession plan. According to Charles Schwab’s 2023 RIA Benchmarking Study, only 56 percent of RIA firms with $250 million and under in AUM and 62 percent of RIAs with more than $250 million in AUM had a written succession plan.

Hightower Advisors CEO Bob Oros told RIA Intel last May that an RIA’s lack of succession planning can kill a potential acquisition deal. “We’re not doing deals so that the founder can leave in a year,” Oros said at the time. “We’re doing deals that can help the business start to transition to the next generation.”

Many advisors who have used Capitaliz for clients have also used it to run an evaluation on their own firms, both to help with their own succession planning and also to get a feel for the software, said West.

Capitaliz costs advisors about $350 a month per client to use the software, and advisors typically charge clients an average of $3,000 to $5,000 a month to implement an exit strategy. West said that on average, businesses usually need between 18 and 24 months to bring up their valuation.

Once the business has sold, there is a potential additional benefit to the advisors.

“Advisors are actually using [the software] to extract the value from that asset so they can manage it,” said West. “If somebody’s got $5 million tied up in a private business, the RIA can’t do anything with that. Once they sell it and they get a $5 million check for it, then the advisor needs to manage that $5 million. The problem is, most advisors don’t know how to get the $5 million out. It gets stuck in the business, and it could stay there for a very long time.”

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