Accounting practices and risk businesses are in demand across Australia’s major cities, and the bigger the better for buyers, according to a Radar Results survey.
The consultant’s six-monthly valuation guide for those practices, along with client registers sold since May, found the most notable change was a surge in demand for accounting practices, notably those that do not already offer financial planning services.
“The opportunity for financial planners to acquire an accounting practice and then market their services to the tax clients is considered extremely desirable,” said Radar Results principal, John Birt.
“Their services may include loans, estate planning, general insurance and financial advice. This higher demand has, in some circumstances, forced the usual multiple above $1 for each $1 of tax fees.
“The demand for tax-fee client bases is mainly in the capital cities, whereas demand is less in the country and regional areas.”
Demand for risk businesses has remained resilient due to the Future of Financial Advice (FoFA) reforms having little impact on this sector.
Birt says the prices paid for good quality risk businesses haven’t really changed in three years.
“They rose substantially during the end of the GFC in 2008 and have clearly held their position as the most sought-after financial-services business,” he added.
Those looking to leave the industry should formulate a selling price based on client’s age, type of policy and renewal-commission percentage, while servicing levels also need to be taken into account. A higher multiple is paid for quality clients who have a professional occupation and who pay high premiums due to the higher sums insured.
Bigger is better
Birt says the trend is towards the acquisition of larger financial planning practices, which he defines as having at least $2 million of recurring revenue.
“Boutique planning practices have grown substantially since the GFC through their continued acquisitions and they are now after larger acquisitions,” he says.
“Any financial planner who’s looking to sell their client register or business should first agree with the purchaser on what the actual recurring revenue (RR) they are selling is.
While there’s no hard-and-fast rule, Radar Results has, for many years now, advised that volume bonuses and commission on regular contributions to superannuation policies should not be included in the definition of recurring revenue.
“We even find that sometimes the seller has included GST in their RR figure and, in some instances, neglected to add back the licensee’s service fee.”
