Having a current valuation on an advice practice can be a form of risk management to make sure the business is in order, according to valuation and M&A experts.
Slipstream Group chief executive Sharon McClafferty told the Professional Planner Principals in Practice podcast doing so had value even if there no intention to sell.
“It’s much more fun that you actually take some margin out, take some profit on your way through for those 10 years and then anything at the end is this lovely balloon payment for your energy,” McClafferty said.
McClafferty has spent a decade analysing the performance of Australian accounting and financial planning firms and advised that having a current valuation on the business worked like risk management so that even if owners were not seeking to sell immediately, they could.
“What better insurance policy than to have a saleable business even though you don’t intend to sell,” McClafferty said.
“If a curveball comes your way and your business is saleable 10 years before you intend it to sell, [that’s] incredible insurance.”
McClafferty said consistent profits, rather than recurring revenue, was key to selling a business.
“If you want internal succession, you actually need to have consistent profits for people to be able to get loans to actually buy you out,’’ she said.
Highly valuable
Business valuer and Accru partner Tim Lane said forecasts that advice practice values would fall in the wake of a mass exodus from the industry have not come to pass.
In fact, business values had increased with plenty of international buyer interest, he said.
“After 18 months, there has been no measurable decline in the value of practices and demand has exceeded supply,’’ Lane said.
”The cause of the [Hayne] Royal Commission is that the quality of those assets actually increased. The advice is better documented, the fees are better structured, and… regulatory risk has dropped.”
Lane said Australia’s reputation as a superannuation powerhouse was attracting international buyers.
“We’ve got the best superannuation system in the world that is just going to grow and grow and grow with huge opportunities to advise on those balances so that’s why we’re, we’re so attractive to them and our valuations relative to the international market are lower,” Lane said.
Start planning ASAP
For advisers looking to sell their businesses, McClafferty said a good succession plan is essential.
“The best time to start your succession planning is five years ago and the next best time is now”, she said.
“The great news on succession and valuations is it’s all the same things that you want to do to run a better business.”
When advisers said they wanted to sell, she offered a “love it or list it” project, or renovation to improve its value.
“But by doing that, you’re probably going to fall back in love with it and instead of just staying for another two and a half to three years, you’re going to stay another six or seven,’’ she said
“All of the things that you would do to prepare for sale, are the things that you should do to run a better business.’’
