The general interest in M&A, buying, selling and succession planning shows no signs 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 provides a snapshot of the "average" Australian advice firm:
- 6 staff (including 1.5 advisers)
- 70% are single owners
- Annual revenue just under $1.2m
- Funds under management is around $127 million
- Average revenue per client is $3,852
- Revenue per FTE of $214,286
- ‘Notional’ profitability is 28.4%
- Less than one in four have a documented business or succession plan
- And, if they’re not currently thinking about retirement, they will begin to do so shortly.
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. When the time is right, you’ll simply put the word out and the buyers will flock to you? Too easy.
We don’t think so! As with all markets, demand will eventually slow down. And purchasers will become more discerning in what they’re looking for and the Ts and Cs 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 right now.
We strongly suggest that every business should have a document that tells its story clearly and objectively (an information memorandum). It should present the business comprehensively and enable others to gain insight – as well as providing the necessary data critical for them to assess it for a potential purchase.
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. While the details will vary depending on the business, here are the major subject areas we recommend including in every IM:
- What you offer: consider your range of services, fee structure/levels, qualifications/certifications and, for further insight, "average revenue per client".
- Client analysis: a deep dive into the make-up of the client base, including total number, age, occupation, location, fee levels, duration and satisfaction ratings (results of recent surveys are very useful).
- Revenue: level, type (risk- or investment-related, new or ongoing), recent history (say, the last three years) and reasons for any fluctuation.
- Main sources of revenue: note regular referral centres.
- Supporting product and platform providers
- Software: financial planning software, plugins, CRM (if different).
- Compliance: results of the last round of audits, complaints, breaches (if any).
- Staff: qualifications, specialist expertise, development pathways and expectations.
- Key metrics: benchmarked to the marketplace.
- Business valuation: preferably by an independent source.
We strongly suggest seeking external input from an experienced professional when putting together an IM. They’re best equipped to provide an 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.
