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To listen to the episode simply click play on the audio stream below or listen and subscribe on your favorite podcast platform. Truelytics is the industry standard for valuations and performance benchmarking for the modern financial advisory firm. They also offer the industry's only comprehensive advisor transition management platform. So as you can imagine, Skyview Partners and Truelytics, well, they go together like peanut butter and chocolate, or cinnamon and vanilla if you have a nut allergy.
You are going to love this episode of the show because Scott Looking for someone by skyview Terry are bringing the thunder with their insights. Before we get started, make sure you subscribe to the podcast on Apple Podcast, Spotify, Stitcher, or Google.
Also, if you have a question or a suggestion for a guest or a topic for the show, please reach out to podcast skyview. The team would love to hear from you. Okay, let's get to it with Scott and Terry. Great to have you guys on the show. Yeah, it's going to be great. So, one of the things that is really exciting about having the two of you together, and then when I think of Skyview and Truelytics as companies, that you're a complementary solution set for RIAs and independent advisors.
In many ways, Skyview and Truelytics are helping RIAs and independent advisors achieve the same goals. You're both helping firms and advisors navigate points of transition or growth for their businesses or careers. What are some of the key Looking for someone by skyview as you look at the industry now that highlight the need for your tag team approach? You know, thanks for giving me the non-softball question, Terry. I appreciate that very much. But obviously, current world events made things more interesting and forced every organization to address what's going on and approach clients in a different manner and present different solutions.
But we continue to find robust demand amongst the advisory community to sell a part or all of their practice. And every day we're just trying to make that experience more efficient. And that's where Truelytics says come in as a crucial partner.
Yeah, I think the world has, I'll say, changed, and everybody's trying to deal with it, with what's going on out there. And people are coming to grips with the fact that they still have to run their business however that is. And so they're getting used to doing it here. But they're also looking to, in many cases, find the right partner to sell their business to because they want to step back and retire after 30, 40 years.
They need people to help them do that, they need funding if they're looking to buy businesses. And more importantly from Truelytics standpoint, is trying to help people understand their business. The vast majority of independent advisors out there who run their own business, really don't understand the metrics. And I've said this on your podcast before, you can't manage what you can't measure.
And we help people measure that with benchmarking and key performance indicators. But we also give them valuations, and that's something that is needed when they're going to talk to someone like Scott at Skyview. So let's talk about valuation Looking for someone by skyview one of those obviously incredibly important measurements, right? One of the services that Truelytics provides to advisors and firms is valuation. Why is a valuation important for a firm in general? I'll tell you that a valuation, originally we purchased IP that was a valuation calculator, it was an incredibly accurate valuation calculator.
And people love it. But you really only need a valuation when you need it. You need it if you're going to get a loan. You need it if you're getting audited from the IRS. You need it if you're getting divorced to find out how much your business is worth to value. You need it if you're going to sell. You need it if you're going to bring in a partner or value a a partnership. But it's not something that you need to have every day. But it is something that you should understand and have an understanding of what it's worth.
Because I think you've mentioned it in the past, it's the ultimate KPI, what your business is worth. And for the vast Looking for someone by skyview of people, they would have no clue what their business is worth. They might have an idea that someone sold their business for X times revenue of whatever, but they don't understand that. And quite frankly, there are a lot of non-financial factors that go into what a business is worth.
And one thing, though, Mike, I'll address the question from our standpoint as well, if you don't mind. Well, from our standpoint, all of our banks require a third-party valuation. It's absolutely requisite for obtaining financing and from an approved valuation provider.
And although Skyview, we're agnostic as to what purchase price buyer and seller end up deciding on entirely, that valuation is extremely important from a bank standpoint because they will utilize that for their loan-to-value calculation, which there's two ratios that they're looking most closely at. It's debt service coverage, basically do you have enough free cash flow each month to take on additional obligation.
And also, what is the loan-to-value or LTV on this transaction. So the valuation is extremely important from a bank financing standpoint. Yeah, and what sets the Truelytics valuation Again, there are many, many companies that can do valuations. And there are some really great companies out there that do it. And they may charge a lot more and maybe go a lot more in depth. But at the core of it, our valuation software, if you're part of an enterprise that has a with us, in many cases it's free. If Looking for someone by skyview then need to get it to be certified if you will then it will be a couple hundred dollars more.
And that is only because the time it takes to make sure that it's not just self-reported, that the s are accurate. But at the end of the day, a valuation is based on the free cash flow as Scott just said. How much is that business generating and how much is it going to be generating in the future? And then that's whether you put a multiple on it or you do a discounted cash flow method, we provide four different valuations.
And it again will be very accurate based on the information that they provide. Well, first of all, they don't get upset with us then when they get the valuation they don't Looking for someone by skyview. We can just blame Terry and have them call them. So it still needs to flow through a Truelytics to get really bank approval on that valuation. So how is a valuation used in the underwriting process? I know you hit on this a little bit.
But is it similar to the way that a mortgage lender uses a home appraisal? You know, when it gets to credit questions and how it's actually utilized, I've got a lot of smart guys that could probably answer that question better than I can. I'm kidding. No, it's very similar in a sense that the loan-to-value calculation, like I said, is a pillar of what banks look at. And that's kind of just a cursory look at an applicant and at one of our credit memorandums.
That is one of, I believe, five data points that if it does not fall under a certain amount for LTV and above a certain amount for debt service cashflow, the bank won't even dig in. So let's talk about some other business metrics and benchmarks. Terry, you teed this concept up. And she mentioned how important it is for the Skyview team to look under the hood of an RIA or advisor's business to really get to understand everything that's going on there. What other metrics or benchmarks are important in the lending process?
You know, we collect a lot of data. And a lot of that data is also synchronized with the valuation. Because from Skyview's standpoint, why we're of value to our bank partners, is that we're collecting a lot of fundamental data about the practice such as demographic risk, what's the average age of the client, where do the clients fall within each age group. We're looking at investment risk, how are they actually investing client portfolios, a lot of different fundamental factors that our banks have less experience looking at and that we're able to help them decipher what separates a good practice from one that's not run as well.
That's a good point that if you look at two Looking for someone by skyview, they could be very similar from the outside. They have similar assets, similar of clients. But when you dig in, you might find that one's average client age is 45 and the other one is That's fine, but those business are different.
If you do all institutional business, those things tend to come for an RFP on a very frequent basis and there's the risk that you might lose that. Or if one or two of those families decide to move or they pass away and you don't have a relationship with the next generation. So looking under the hood and going deeper than just what your GDC or your revenue was is critical, not just to get a valuation, but to understand your business. It may have been great to get to where you are today by doing it with fewer people. But that's not necessarily the best ideal business to sell because there's a lot more risk associated with that revenue stream than it would be if it was families.
So Terry, you and the team have invested a ton of time in understanding which benchmarks or KPIs are most critical to the success of a modern financial advisory's firm. You just hit on some of those elements there, and Scott did as well.
Can you share some of why the True Performance scorecard tracks, or what the True Performance scorecard tracks and how firms are using them today? It tracks both, as I said, the financial stuff, the revenue stuff, etc. But it also tracks all the non-financial factors as well. I mentioned a couple, but I'll give you a few more. If you are heavily reliant on referrals, that's a great way to grow your business, but it's not as valuable to somebody that might be buying your business.
So that might be a ding in your business if you have too much of a concentration in a few clients. If you don't have enough advisors in your advisory firm based Looking for someone by skyview the of clients you have, there's an ideal of clients that one relationship manager advisor can service. Then if you're under that, then that means that's not as attractive.
It doesn't mean that your business is bad, and it doesn't necessarily mean it's not going to be valued high. But at the end of the day, the valuation is a point in time metric, and it is not necessarily what someone is going to buy your business for. Just as Looking for someone by skyview example, I know two people recently who put their homes for sale. Now, why? Well, because there was demand. There's demand in suburbs of Philadelphia right now.
So you could get a valuation, that's not necessarily what it's going to be worth or what somebody's going to pay for it. And then the last thing about valuations, particularly when you're talking about transactions, is what is the structure that the deal is. Because those Looking for someone by skyview can not be looked at solely, you have to understand that there's the price then there's the terms of the deal.
And sophisticated buyers are going to make sure that they're getting the return that they want. For Scott's purposes, the valuation is based on today for all the things that they're looking for, debt service coverage, etc. But valuation is not necessarily what your business is going to transact for. What's really interesting to me when I think about Truelytics and it kind of goes under the radar is the killer app of it, if you will, the killer feature, is the fact that it looks at an advisor's or a firm's peer group. It's looking at comps, and you go back to that real estate analogy.
You don't just buy a house in a vacuum.
You look at how it compares to other homes in the neighborhood of similar size and quality. How do you factor in those types of comps, Scott, when you think about lending to a firm? Are you looking at, okay, we've seen other ones that look like this and how does this one compare? You know, we love all of our children and credits the same. So there's always some things we like about particular practices and some things that we favor a little bit less. But overall need to score in the different of fundamental and conventional underwriting to be approved by Skyview before we place it on our lender marketplace and it ever leaves our walls.Looking for someone by skyview
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