13 June - 2020

The Real Value of Growth

When it comes to your RIA, not all growth is created equally. Firms with a sustainable organic growth model can receive a significant premium to the valuations that slower growing firms would receive.  Understanding the consistency and repeatability of the demonstrated growth is critical to determining the appropriate impact on valuation.

While periodically adding large clients in a “lumpy” fashion can certainly be valuable (especially when it has occurred consistently in the past), this kind of growth tends to be less predictable on a go forward basis.  Like commission-based revenue, this kind of growth is given a lower valuation as a result of the lessened predictability of future cash flows.  Repeatable strategies to consistently drive growth and a clearly defined path for these to continue into the future, on the other hand, may be valued more highly as there is more predictability.

In many ways, the value of the growth a firm has demonstrated boils down to the repeatability and predictability of the strategies being leveraged.  Companies that can consistently drive growth are rare, and as such, those who have firms with organic growth strategies that can be repeated in the future will have an increased valuation relative to those that do not.    However, there is nothing more valuable than maintaining a high level of service to existing clients on an ongoing basis.


Apella Capital, LLC, provides this communication on this site as a matter of general information. Information contained herein, including data or statistics quoted, are from sources believed to be reliable but cannot be guaranteed or warranted. Nothing on this site represents a recommendation of any particular security, strategy, or investment product. The opinions of the author are subject to change without notice. All content on this site is for educational purposes and should not be considered investment advice or an offer of any security for sale. Please be advised that Apella Capital do not provide tax or legal advice and nothing either stated or implied here on this site should be inferred as providing such advice. Apella does not approve or endorse any third party communications on this site and will not be liable for any such posts.

Related Blogs