If you want to place your advice business in the best position for a sale, you need to embrace change, be technologically up to date and consider fixed-fee revenue models, presenters said at a workshop during the 2018 Financial Planning Association Professionals Congress.

Even then, you’ll probably over-value your business, said Scott Monotti, executive director at advice consultancy firm BStar.

“If you go get your business professionally, independently valued, often that is a lower number than expected,” Monotti said. “It’s just a fact of life that over 90 per cent of people think their business is worth more than it actually is and that it’s easier to sell [than it will be].”

Monotti was presenting amongst a group of specialist brokers, industry veterans and advisers. The group came to a few common conclusions about buying and selling advice practices.

Business valuations should be done “at least every second year”, Monotti said, especially if the intent is to use the proceeds to fund retirement.

“If you agree that your business as an asset is a valuable part of you gaining your own financial independence, why are you only bothered to get it valued when you’re three months out from pulling the trigger?” Monotti asked.

Steve Prendeville, managing director of Forte Asset Solutions, took the crowd through three successful advice business sales he had facilitated, all of which shared a theme.

“They have all embraced technology,” Prendeville said.

Along with technology, Prendeville identified fixed-fee payment structures and a willingness to introduce modern elements to a business as elements that attract buyers. Speaking on his first case, Prendeville praised their fixed fees, social media offering, marketing focus, use of next-generation platforms and Millennial client base.

“When I look at this business, I think they’re way ahead of the other advisers in the industry,” Prendeville said.

Referring to the second case, which he called a “complete business of the future”, Prendeville said it took the owner weeks to figure out what the funds under management figure was because that wasn’t how the business operated; it had a segmented service offering and was paid under a “project management basis”.

Prendeville said he eventually estimated the business at a multiple of 3.25 but “we got 3.5 times because this business is absolutely built for the future”.

The third case featured a business that employed a more traditional FUM-based revenue system but had a distinct advantage, in that one of the key employees had a computer science degree.

“Everything was run on steel tracks,” Prendeville noted. “Everything was able to be reported on and computerised.”

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning.
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