For anyone who is serious about taking their business to a new level, it’s vita that you undergo the right kind of evaluation. For example, an IFA business evaluation is one of the most popular methods of evaluation to undergo. This helps you to work out the proper value of your business, which can have major effects on the kind of leveraging that you can do.
It also helps you from overestimating the opportunities that your business offers, making it much easier for you to come out the other side and feel like your business is on the correct path.
Table of Contents
What Is an IFA Business Evaluation?
One of the most commonly visited questions around an IFA evaluation is that of Recurring Income. This is one of the most important aspects of your business, and is generally still used on a regular basis to help evaluate the strength of a smaller business.
There are several IFA valuation models to understand, but it’s easy enough to say that the higher the multiple in your recurring income evaluation, the higher the return that a buyer would expect on their investment. However, you do need to watch out for reductions as overlaying profitability too much can see large sums knocked off the end price.
You also have the choice of what is known as Deferred Consideration. This is a popular move that would see the buyer pay a certain percentage on completion of the purchase. Then, they pay the rest of the balance to you over, typically, a two-year spell. It’s usually around 50% upfront on completion and then around 25% afterward for each year to come.
However, this does mean that if over the two-year period the Recurring Income projection is not met, then you can find yourself making less during the evaluation process.
Handling IFA Business Evaluations
As ever, there is no ‘right’ answer straight away. Every business is different, and the best thing that you can do is invest some time and effort into learning what of the two options above would make sense for you. you always need to be able to make sure that the agreement is water-tight and that there is a clear sense of agreement over the long-term future to come.
If you would like to make more of an attempt to really improve how your business evaluation takes place, then we recommend that you consider working with an expert to best evaluate what model is going to be right for you.
Alongside dealing with other challenging issues like completion accounts and earnings before interest, tax, depreciation and amortization (EBITDA), you need a lot of help to make this kind of evaluation work right. If you are unsure of the best way to do this, or you feel like it may not be achievable, then you should almost certainly look to use an IFA business evaluation as soon as possible.
Done right, this can make a huge difference to the kind of benefit you get from an IFA business evaluation.