We’re Not Looking for Volume.
We’re Looking for the Right Fit.

The “two-times-revenue” rule of thumb has become shorthand for practice valuation — and it is, at best, a rough approximation. As Grau explains at length, value is not a formula. It is a conclusion reached after weighing the specific characteristics of a specific practice in a specific market at a specific point in time. Purpose drives value: the same practice can legitimately carry a different valuation depending on whether the analysis is for an external sale, an internal succession, a partnership dissolution, or an estate filing. There is no single correct number — only a number appropriate to the context.

The two primary methodologies used in advisory practice M&A are the market comparable approach — which references a database of actual completed transactions to estimate what buyers have paid for practices similar to yours — and the discounted cash flow (DCF) approach, which projects future earnings and discounts them back to a present value. For smaller practices (typically under $1M in revenue), the comparable approach tends to be more reliable because DCF depends on profit margins that most small practices don’t cleanly isolate. For larger, more complex firms, a blended approach is common.

What moves the multiple up or down isn’t the size of the AUM — it’s the quality of what transfers with it. Client demographics, average account size, revenue concentration risk (how dependent the practice is on a handful of large clients), service complexity, staff continuity, and the strength of the seller-client relationships all factor in. A practice with $150M in AUM concentrated in three clients who only work with the departing advisor carries meaningfully less transferable value than a $100M practice with fifty relationships distributed across a stable team.

Nearly every independent advisory practice sale is structured as an asset sale rather than a stock or equity transfer. In an asset sale, you’re conveying the specific assets of the practice — primarily client relationships and the goodwill attached to them — rather than transferring the legal entity itself. This distinction carries enormous tax and liability consequences for both parties.

The allocation of the purchase price across asset classes — client relationships, goodwill, non-compete agreement, tangible assets — is one of the most consequential and least-discussed parts of the transaction. Buyers and sellers must agree on this allocation and report it to the IRS on Form 8594. Every dollar allocated to a non-compete or consulting agreement is a dollar taxed at ordinary income rates instead of capital gains rates. Negotiating this allocation carefully is not a technicality — it can represent six figures in after-tax proceeds.

The headline purchase price is only part of what you’re agreeing to. How and when you get paid matters just as much as the number itself — and this is where many sellers make their most costly mistakes.

All-cash at closing is the cleanest outcome for the seller. You receive the full agreed price, bear no ongoing risk tied to client retention or practice performance, and can walk away. It is also the hardest to achieve, as it requires a buyer with significant capital or lender financing, and typically results in a somewhat lower headline price to compensate the buyer for taking all the risk upfront.

Earnouts tie a portion of the purchase price to future practice performance — typically client retention rates or retained revenue over one to three years post-close. They are extremely common in advisory practice transactions and serve a legitimate purpose: they align the seller’s incentives with a smooth transition and protect the buyer against client attrition. But earnouts introduce real complexity. The measurement period, the revenue baseline, what counts as “retained,” how market fluctuations are handled, and what happens if a client leaves for reasons unrelated to the transition are all negotiable — and all contentious if not spelled out precisely in advance. Grau is explicit on this point: vague earnout language is a source of post-closing disputes far more often than either party anticipates.

Seller financing — where you effectively loan the buyer part of the purchase price, receiving payments over time — is common when buyers lack access to third-party lending. It can work well, but it means your retirement depends in part on the buyer’s ongoing ability to run the practice and service the debt. Understand who you’re lending to and whether the business can support the payment schedule under realistic scenarios, not just optimistic ones.

This distinction is one of the most important — and most overlooked — in an advisory practice transaction. Enterprise goodwill is the value that lives in the business itself: the brand, the systems, the team, the processes, the client service model. It exists and continues regardless of who the founding advisor is.

Personal goodwill is the value tied to you personally — your relationships, your reputation, your presence in clients’ lives. In most independent advisory practices, especially smaller ones built around a single senior advisor, personal goodwill constitutes the majority of the practice’s value. And personal goodwill, by definition, does not automatically transfer when you hand over the keys.

This is precisely why transition quality matters so much. A buyer who acquires a practice heavy in personal goodwill and then immediately removes the selling advisor from client relationships has, in effect, purchased the practice and then destroyed a significant portion of what they paid for. The earnout structure in such deals is supposed to protect the buyer from this risk. But the selling advisor who participates genuinely in the transition — introducing clients personally, being present in meetings, endorsing the buyer with conviction — is doing real work that directly determines how much of the agreed purchase price they ultimately receive.

Nearly every practice acquisition includes a non-compete agreement — a contractual restriction on the seller’s ability to solicit or serve former clients or operate in the same market for a defined period after closing. This is reasonable and expected. What many sellers don’t fully appreciate is the tax treatment of payments allocated to a non-compete: they are taxed as ordinary income, not capital gains. The difference can be 15 to 20 percentage points in federal tax rate alone.

Similarly, many deals include a consulting agreement — a formal arrangement for the seller to remain available during the transition, often for six to eighteen months. These agreements serve a genuine purpose: they provide continuity, reassure clients, and document the knowledge transfer from seller to buyer. But compensation received under a consulting agreement is also ordinary income, and it may be subject to self-employment tax as well. How these agreements are structured — their duration, the compensation, and what triggers payment — directly affects the after-tax economics of the deal.

A well-structured transaction minimizes the dollars flowing through these ordinary-income channels and maximizes the portion treated as capital gains on the sale of goodwill. The IRS requires that both buyer and seller agree on the allocation and report it consistently. Any allocation that doesn’t reflect reasonable fair market values will draw scrutiny.

Grau identifies a consistent pattern of mistakes in practice transactions — not because advisors are unsophisticated, but because they are first-time sellers negotiating against experienced buyers. The errors tend to cluster around the same predictable areas:

The last point deserves particular emphasis. A practice that fetches a premium multiple but sees 30% client attrition in the first eighteen months has not been sold well — for the clients, for the seller’s earnout, or for the reputation the advisor spent decades building. The quality of the buyer, and the quality of the transition, determines the real outcome more than the headline number does.

The advisors who negotiate the best succession outcomes — both financially and for their clients — share one thing in common: they started the process years before they needed to. Planning a succession from a position of choice, without urgency, is fundamentally different from navigating one under time pressure.

When you begin early, you can take the time to find the right buyer rather than the available buyer. You can structure the transition around your clients’ comfort rather than a closing date. You can negotiate from a position of genuine alternatives. And you can spend the final years of your career the way you want to spend them — gradually reducing your workload alongside a successor who is already earning your clients’ trust — rather than compressing everything into a stressful twelve-month sprint.

The financial difference is also meaningful. Practices sold with adequate planning time typically command better terms and experience higher client retention — which directly affects earnout payments. A practice sold reactively, under health or burnout pressure, often sells at a discount and with transition conditions that serve the buyer’s timeline, not the seller’s.

The ideal succession horizon, in our experience and consistent with Grau’s research, is three to seven years. Long enough to build the relationship with a buyer, transfer trust with clients gradually, and structure the economics thoughtfully. Short enough that both parties remain energized and the plan doesn’t drift.