In “How to Value, Buy, or Sell a Financial Advisory Practice,” authors Mark Tibergien and Owen Dahl suggest poor operating profits are a result of one of three things: declining gross profit; insufficient revenue compared to overhead; or poor expense control.
When evaluating cost-control, overhead expenses shouldn’t exceed 35 percent of total revenue for a firm to optimize its profits. In addition, the firm’s gross profit margin should be around 60 percent. If gross profits are dragging the firm’s profitability down, the authors suggest business owners are probably not focusing on one of the following: pricing, productivity, client mix, service or product mix, or payout.
Source: “How to Value, Buy, or Sell a Financial Advisory Practice,” Mark Tibergien and Owen Dahl