‘The time to repair the roof is when the sun is shining’*
Terry Bell
Turning data into proven practice management solutions for advice firms. Identifying key profit drivers and benchmarks.
*J.F. Kennedy, 35th President United States.
The interest in M&A, buying/selling and succession planning in general shows no sign of abating. Transitioning, in whichever form it takes, seems set to be with us for some time! And while there remains a dogged belief amongst business owners that there will always be someone looking to purchase their business – this may only be the case if the circumstances are right.
While scale will continue to be the primary focus for corporate and institutional purchasers, what about the smaller end of town? Our data snapshots the ‘average’ Australian advice firm:**
We have observed a number of initiatives where smaller businesses are being encouraged to merge in an attempt to create a scaled business – with cost saving and/or future sale being the driving motive. Easier said than done we suspect.
So, if you’re running the typical practice as described above, and a merger with like-minded colleagues isn’t for you, what are your options?
As the media regularly reports, there are plenty of prospective buyers out there, all (seemingly) looking for a business just like yours. So, when the time is right - you’ll simply put the word out and the buyers will flock? Too easy!
As with all markets, demand will eventually slow down. And purchasers will become more discerning in what they’re looking for and the ‘t and c’ they’ll apply.
The question for every owner to seriously consider must be – why will they buy my particular business? And to answer this question while giving yourself the opportunity to optimise your value, we believe that every business should be sale ready – even if selling isn’t on your mind today.
We strongly suggest that every business should have a document which tells its story, clearly and objectively (an Information Memorandum). It should present the business comprehensively and enable others to gain insight and as well as providing the necessary data critical for them to assess it for a potential purchase.
Crucially, when putting together an IM well before the decision to sell is even made, owners have the opportunity to address any weaknesses uncovered during the process.
An IM should be reviewed regularly to ensure accuracy and currency. And, while the details will vary depending on the business, here are the major subject areas we recommend including in every IM:
1.???? What do you offer – consider range of services, fee structure/levels, qualifications/certifications and, for further insight ‘average revenue per client’.
2.???? Client analysis – a deep dive into the make-up of the client base, including total number, age, occupation, location, fee levels, duration, satisfaction ratings (results of recent surveys are very useful).
3.???? Revenue – level, type (risk or investment related, new or ongoing), recent history (say last three years), reasons for any fluctuation.
4.???? Main sources of revenue – noting regular referral centres.
5.???? Supporting product and platform providers
6.???? Software – financial planning software, plugins, CRM (if different).
7.???? Compliance – results of last round of audits, complaints, breaches (if any).
8.???? Staff – qualifications, specialist expertise, development pathways and expectations.
9.???? Key metrics – benchmarked to the marketplace. ?
10.? Business valuation – preferably by an independent source.
We strongly suggest using external input from an experienced professional when putting together an IM. They’re best equipped to provide objective, frank and honest assessment, while also bringing additional credibility to the document. It won’t cost much, and you’ll certainly be repaid for presenting your business in its best possible light when your time comes to sell.
For your consideration.
?** Note: unless specifically stated otherwise, all statistics referred to have been derived from Business Health’s Future Ready IX report and our latest consolidated CATScan analysis.