The Multiple You're Hearing Isn't the Number That Matters
When advisors start talking about a sale, the conversation almost always starts with a multiple. Wayne Hewitt, who spent two decades in wealth management, including running his own advisory practice, before joining Live Oak Bank, said that's happening more than ever. "A conversation I had yesterday afternoon is a conversation I'm having on a weekly basis now," he told advisors on FindBob's Summer Series webinar. An aggregator floats a number, and a succession plan that had been quietly in motion for years suddenly gets recalculated around it.
The problem, Hewitt said, is that the multiple getting tossed around often has little to do with what the practice is actually worth. That's the single most useful thing to take from his session: the multiple is the last step in a calculation, not the starting point. Before it, a lender wants to see growth, cash flow, and a deal structure that holds up. Skip those and the multiple everyone's excited about is often the reason a deal falls apart later, not the reason it gets signed.
Only five buyers are actually qualified for every seller
Hewitt cited data from Succession Resource Group: for every seller, somewhere between 65 and 75 people express interest, but only five are qualified buyers, a ratio that hasn't moved in a decade. "A qualified buyer is someone that has their house in order... they're running a phenomenal business," he said, with what he called "financial moxie": the actual ability to get financing. They also behave differently in a first conversation. "Qualified buyers don't lead with multiples. They lead with, where are you? What are you trying to accomplish?"
You're valued on cash flow, not GDC or assets under management
Hewitt walked through two similarly sized practices that landed about $700,000 apart in valuation. The gap wasn't size. It came down to recurring revenue, profit margin, and staff count. "In real estate, the three rules are location, location, location. Lending in the investment advisor space, the three rules are cash flow, cash flow, cash flow," he said. "We do not lend on GDC, we do not lend on assets under management... we lend on operating profit." As a rough target, he suggested around 40% of top-line revenue toward direct compensation for producing advisors, another 40% toward overhead and other costs, leaving about 20% profit margin.
Growth sets the multiple, and most firms are growing Less than they think
According to a Dimensional Fund Advisors survey Hewitt referenced, the five-year compound growth rate for an investment advisory practice runs just over 16%. Strip out market performance and that drops to about 4.3%, meaning most firms aren't growing much organically once the market's help is removed. Growth comes from two places: organic, through referrals and centers of influence, and inorganic, through acquisitions. Hewitt has also seen seller preference shift over the last 18 months, away from buyers who grow purely through acquisition. "If they've only grown through inorganic, what they're afraid of is they're just going to become a very small cog in a very large wheel."
The deal structure decides what that multiple actually pays out
A multiple quoted off EBITDA looks dramatically bigger than one quoted off revenue, even for the identical deal. Hewitt said aggregators are commonly "offering nine to 12 times EBITDA," which "more times than not relates to a three to four times" multiple of gross revenue for a well-run firm. What matters more than the headline number, in his view, is how much of it is fixed versus variable. "I've always said for the last decade, deal terms are more important than the valuation." A high multiple built mostly on an earn-out or stock shifts the risk onto the buyer, and it only pays out if the practice keeps performing after close.
What a lender is actually underwriting
Live Oak typically lends around three times the combined EBITDA of the buyer's and target's businesses, based on three years of tax returns and profit-and-loss statements. About 15% of its loans go through the SBA; the rest are conventional. A common structure pays 50 to 70% of the purchase price to the seller at close, with the remainder held in escrow against a 12 to 24 month look-back tied to client retention. Underwriting weighs five factors Hewitt called the five C's, character, capital, cash flow, collateral, and conditions, with character and cash flow weighted most heavily. Conventional loans generally want a personal credit score of 700 or higher; SBA loans can go as low as 625 to 650.
Where this leaves you
None of this is about talking anyone out of a deal that makes sense. It's about knowing which number to trust before a lender or a buyer hands you one. Before your first real conversation, know your actual operating profit, know where your growth has come from over the last few years, and know whether you could live with the deal structure if the multiple turned out to be mostly variable.
If you want a clearer starting point on your own numbers, FindBob’s valuation tool is a reasonable place to begin. It won't replace a certified valuation or a lender's underwriting, but it gives you a real baseline before you're in a room debating someone else's multiple.