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Firm Valuation: There’s a Web App for That

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Independent financial advisors and wealth managers are well aware that they work in an aging industry full of baby boomers, so it’s no surprise that succession planning is a popular theme in the business. What’s not so popular is the struggle many advisors face when trying to do a quick and painless valuation of either their own practices or their boomer clients’ businesses.

To address that problem, a company called CoreValue Software has developed a web application that asks just 90 minutes of an advisor’s time and uses 18 value drivers to evaluate a business in terms of intellectual property, goodwill, market share, brand, ingenuity and customer relationships. The app assesses a company’s ability to generate future profits, and assigns a core value rating on a scale of 1 to 100.

CoreValue founder and CEO Chuck RichardsThe point of this exercise, according to CoreValue founder and CEO Chuck Richards (left), is to help advisors assess where a business’ value gap might lie in order to improve enterprise value and thus more effectively transfer a company to a new owner, raise capital or build for the future.

“Core Value Software launched with beta testing in early 2012, and we started to use it with advisors about a year ago in the fall of 2012,” Richards said in a Sept. 5 interview. “We have been rolling it out to the market, and we’re back-testing everything as we add advisors and businesses. We’re measured in the hundreds of businesses so far, not the thousands, but we have very good data.”

The cost of the product is approximately $1,000, although fees vary based on a tiered subscription model.

CoreValue’s web-based business software platform began as a project of Richards’ web tools firm Chairman’s View Inc., based in Richards’ home state of Vermont, in the town of Norwich, which is close to Dartmouth College and its Tuck School of Business.

Richards, who received a PhD in systems engineering from MIT but also has studied economics, believes that a business — including the intangibles — is like an algorithm and can be quantified. The company’s patent-pending Web application targets small to medium private businesses in the U.S. and Canada, “the majority of which are owned by baby boomers nearing retirement and facing a transfer event,” Richards said.

With the population of financial advisors expected to increase by 40% by 2016, the industry is looking at major oversaturation, Richards believes. Yet the attempted transfer of a middle-market company results in a 75% failure-to-sell rate, and if one adds in businesses that never bother to put themselves up for sale, that brings the total to 90%, he said.

“I’ve worked with a lot of advisors, and there are two issues: the demographic age of advisors, which is between 60 and 65, and the challenge of planners who have 85% of their net worth tied up in their business,” Richards said. “If the business doesn’t sell, the advisor’s financial plan won’t work, and the majority of financial plans are based on the sale of the business whether the advisor is retiring or going into a different line of business.”

In August 2012, CoreValue completed its Series A financing led by Baker Capital, a New York-based private equity firm that has raised more than $1.5 billion in committed capital. Founded in 1995, Baker Capital invests globally in digital communications, media and technology. Other names in Baker Capital’s portfolio are Interxion (INXN), a provider of Internet exchange points and data centers in Europe; Akamai (AKAM), a Cambridge, Mass.-based content distribution and streaming company; and Canal+, a pay television provider serving France, Sweden, Norway, Finland and Denmark. 

Read executive search consultant Mark Elzweig on 12 Real-World Steps to Buying a Practice at ThinkAdvisor.