Getting your house in order

Getting your house in order


No one would dream of selling their house without giving it a fresh coat of paint. But if you’re selling your planning practice, what do you do to get a tip-top sale price? 


LONG BEFORE the ‘For Sale’ sign lands at the front gate, most sellers know the importance of a coat of paint for refreshing a property and maximising the sale price. But when it comes to selling what is quite possibly the greatest asset any financial planner has – their business – the basics for ensuring top dollar aren’t as well entrenched.

“If you were looking to sell a house you would make sure that it’s freshly painted, with good carpets, the garden is cleaned and there are no broken windows,” Brian Boggs, principal at Adviser Asset Solutions, says.

“The same with a business: You need to go through and look at it through a buyer’s eyes and get the business up to what would be described as best practice.


“If I were to give a seller any advice, it would be to get their house in order.  They need to keep their business profitable so that a buyer of the future will be looking at the business and saying, ‘this person is currently making a good income; will it transition to me?’”

Paul Tynan, chief executive at Connect Financial Service Brokers, says that while the industry had waited with bated breath for the Future of Financial Advice (FOFA) reforms to come through, sellers still haven’t come to market.

“Everyone thought [that] post-FOFA we might have an uplift in the supply side of the equation, which has always been the lag in this industry, but the actual opposite has happened,” Mr Tynan says.

“There are buyers out there in the marketplace who are wanting to buy practices and the supply side has actually gone a little bit quiet … there are a lot of buyers but they’re fussy buyers.”

So, to make their practice stand out from the crowd, advisers should consider these housekeeping tips from the experts.


If an adviser wants to secure top dollar when selling their business, it’s important they give themselves enough time to see their succession plan through. While many consultants will give advisers a strict timeframe for starting the process, David Murray, principal of Peloton Partners says it depends on “where you are at with your own personal journey”.

“If you’ve come to a conclusion that you need to sell, then ideally you should have been doing something years ago,” Mr Murray says. “Those with longer term horizons have the opportunity to start planning now so that when the time comes you’ve presented yourself in the best possible light to get the best possible result for you and your clients.”

Mr Boggs adds that forward planning means “you’ll enjoy the fruits of your labour while you’re running the business”.

Dan Powell, head of Actuate Advice Solutions at SFG, agrees that the earlier the start, the better in terms of maximising sale price: “You’ve got to start with the end in mind,” he says.

“The day an adviser begins a business is the day they should start planning to sell it as it creates a disciplined approach to establishing processes and documentation.”


One important mistake that advisers exiting their business make is not approaching the sale price correctly.

Chris Wrightson, director of Centurion Partners, says it is important for sellers to look for “the right buyer” rather than settling for the one knocking down their front door.

“The right buyer is someone who runs a business similar to yours,” Mr Wrightson says. “Someone who runs a business similar to yours will have less integration risk.

“A lot of guys out there just go out and talk to anyone who is interested in talking to them about buying their business but you’ll never maximise your sale price like that.”

Mr Powell says that finding a cultural fit for a business is critical when trying to maximise sale price.

“People don’t buy a business and then leave that business to stand alone,” he says.

“What you try and do is you’ve got to bring that business in line with how you’re doing things – there has got to be some kind of cultural fit or alignment with how you operate.”

Mr Tynan adds that he often sees sellers struggling with “the basics” of a sale and recommends advisers take their own medicine: getting advice on their financials.

“Like selling, vendors always want the highest price and that means giving yourself a good reality check on the price you’re going to get,” he says.

“Get advice, talk to someone that’s been down the journey and start planning now.”


While the valuation model in financial services tends to use multiples of recurring revenue, Mr Powell says that with the advent of the FOFA reforms, it’s a model that seems outdated. Buyers are now looking for practices that are valued based on their profitability or earnings before interest and tax (EBIT) instead.

“EBIT is becoming a more dominant valuation criterion and it goes to the heart of business structure – what are the business costs and where the revue is being generated,” Mr Powell says.

Mr Boggs agrees that this change is occurring within the industry.

“There are a lot of valuations based on commissions… so I think it’s going to take a period of time for those advisers that are transitioning their businesses for those businesses to be of any value to anyone,” he says.

Mr Tynan adds that above all, buyers are looking for “real stable and particular cash flow”.

“In other words, you’ve got control over your revenues; you’ve got sound business principles in place so that you are actually running on a profit. I think that’s going to be a bigger trend in the future as people start running their business to make a profit… now that we’re going to fee for service.”


Mr Murray says the other key thing that is often overlooked is the value that a good back-office structure brings. Therefore, if a business hasn’t formally reviewed itself in a while, it could be missing an opportunity to maximise value.

Mr Tynan adds that if a potential buyer comes across such a business, they are quite likely to think it’s “too much work”.

“What is very important is that you’ve got compliance and governance in place and a culture for compliance in place,” he says.

“Because no one will go close to your business if you’ve got a very bad compliance record. There is a fair bit of work to be done and people can add a lot of value by getting their affairs in order.”

According to Mr Wrightson, having access to practice data on operations, financials, clients, staff and new business will help an exiting principal maximise their sale price.

It is essential for all practices, regardless of size, to know their client segmentation as well as their new client data from the last 24 or 36 months.

“If you want to optimise your sale, one of the things you should do is have some sort of business or operating plan with objectives in it and the tracking of those objectives for at least the last two years,” Mr Wrightson says.

“Buyers value [a plan]. What it does is it affects their view of the business, their perception of how well run the business is, and it can de-risk the view of the transaction for them.”


Anyone buying a practice is going to want to make sure the value in the business will make the transition to them when they acquire it. Often, this means ensuring that clients are not going to leave the business the minute it is moved to a new owner. Mr Boggs says this is the number one issue that needs to be addressed for a business to maximise its profitability.

“If the principal left tomorrow, would the business still continue to be profitable?” he asks.
Mr Tynan agrees this is critical: “You need to have a robust client value and engagement model in place and the right referral system in place,” he says. “Ensure that you’ve got all your clients on a computer system and they’re all in categories or segmentation and that you’re delivering that client engagement model to those clients.” «

Getting your house in order
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