They call someone like a Moss Adams to come in and tell them what the place is worth, or find one of the firms that matches sellers with buyers. The accountants descend upon them, pull out their microscope, delve-in and look at the practice and, suddenly, it is worth a fraction of what the producer thought it was worth.

Turns out that the accountants are having a hard time finding the one thing they want to see: recurring revenue streams or income streams. The problem is that there basically aren't any. Some trails off of mutual funds, some fee-based revenue thrown off of a few TAMP programs they sold and some insurance renewals. And that's it. The producer finds out that the practice is worth maybe one-times trailing 12 month gross dealer concessions, or something not far away from that.

It is at this point that the selling producer either comes close to having a heart attack, goes into shock or nearly explodes. After all, this has been a successful business for decades. The practice generates a million-plus in annual GDC. So, how can this be?

It is explained to them that, sure, it generated a million plus in GDC, but that was with them at the helm. No telling what could happen once they are gone. And, second (and most important), they didn't annuitize the thing. Their generation of recurring revenue is a fraction of that annual GDC. There is basically no income stream, upon which, can be counted.

I call the situation the producer now finds themselves one of "reverse sticker-shock." The price is so low that they find themselves in a near catatonic state, and so, do nothing.

The moral of the story is two things. First, when you are valuing your practice, look at the income stream that has been created. How much recurring revenue can be counted on, with you or without you? Have you sufficiently annuitized the thing? Fees, trails, renewals. That's about it. What are they bringing in each year? That is really what the lace is worth in a strictly monetary sense.

Next, if you are going to transfer this practice to a junior partner, or an existing full partner, or a colleague or another firm entirely, you had better start the process early, and allow your clients sufficient time to get to know them and to get comfortable with them - or they could easily jump ship once you are gone.

Any practice consolidator or roll-up or any firm that specializes in acquiring financial services practices is going to be seriously  concerned about not just number one above, but number two as well. After all, what reasonable assurances can be given that once you are gone that those clients won't disappear also? And don't think they won't think of that - believe me, they will. Both things must be in place.

You must annuitize your practice, and create a good strong income stream of recurring revenue - and you must have your successor firmly in place and already on sound footing, with a good relationship with the clients. In short, they must go from your clients to clients of the firm.

In the end, this is still firmly a relationship based business, and that will never change. Clients want to deal with someone that they can trust, and that trust is not earned over night. You can't pack-up and jump-ship and expect them to stay on board.