Accurate financial records - It sounds obvious, but how can you expect a buyer to evaluate your business if you can’t prove its value through full accurate records? Financial information will be needed at the initial stage of negotiations. These include total gross revenues of the firm after three years, recurring income, assets under advice, cost of fee base per calculations and net cost per £1 revenue based on cost of fee base. Ensuring you have full accurate records before any negotiations with potential buyers begin makes sure the process starts off in the best way possible. It also allows you to reflect on them and identify any potential flaws that may let the firm down. For example, if you have a low percentage of recurring income, you can show how this is grown and emphasis the strength of your other sources of income. To find out more about the three biggest mistakes financial services firms make when selling their business, please download our free eBook on the subject here.
Client segmentation - As client segmentation data is still rare in the industry, showing these figures would give you a competitive advantage over other firms by producing evidence of the quality of your client base. Information on clients used in the valuation process may include the number of existing clients, average age and portfolio, how long they have been with the firm, any increases in services/ fees and whether they have been seen by your firm recently for advice. If you don’t think these averages are representative, then if you do have a percentage of high-net-worth clients, this can be shown in the segmentation data.
Fees - Charges are becoming more of a focus now as some advisers have introduced hourly charging. However, the majority of charging arrangements are still on a percentage fee of assets. It is important to demonstrate the strength and development of your fee base by showing the percentage of your fee increases implemented over three yearsand fee base retained after three years. Clients may be on a range of charging models, so it’s important to show this split. If your ongoing charge is low, the opportunity for an increase (even if it’s not you who implements it) shows the prospect of an increase in recurring income. So it’s worth reflecting upon your charging model.
Finding and focusing on your unique selling point - The advent of online advice and simplified propositions has made the adviser landscape even more competitive. The necessity of defining yourself against other businesses is fundamental not only for organic growth, but as a selling point for potential buyers. Although financial figures make up the bedrock of value for a business, a firm’s worth is what a buyer will pay for it. If you can convey a differentiator that shows the strong prospects of your business, then it is more likely to stand out against other businesses for sale. State what it is that you do well and make the message clear. If the answer is not immediately obvious, you should start working on your USP. You should then use this thinking to convey to clients why they ought to choose your firm for advice. A USP can enable you to survive the price wars in the financial services industry, justifying your fees to clients even as competitors attempt to undercut you. Having the right USP can also help you create more clients and leads, and better client retention. There is a particular opportunity this year to attract new clients as the pension reforms come into effect.
Staff records - Remember that this industry is a people’s profession. The quality of your workforce is a selling point for a potential buyer, as a firm with strong client relationships is more valuable than one without. Records that the buyer will expect (as part of the valuation process) are a breakdown of any staff salaries, other remuneration, skills, career paths and logs of chargeable hours for staff with hourly charge out rates. Retaining trust and showing value to employees and clients is essential not only for your business plans, but for your brand and future goodwill, which is a major selling point for a buyer.
Expertise - As the value of an advice firm is (by definition) tied into its expertise, it is important to be able to describe it. Clients may use a range of your services, so it is important to show breadth and depth of expertise. This is also likely to be evident in how highly qualified your financial planners are, such as how many have reached Chartered status. While it’s a good idea to identify the opportunity a particular specialism offers, such as winning pension business this year, you should also show how your expertise has met clients’ needs at different stages of their financial life. You should do this regardless of whether there have been recent changes in a particular specialism, because buyers are interested in the long-term prospects of your firm.
Firm’s growth and development - Achieving organic growth means, at very least, doing what the firm does well, striving to do it better, and dealing with what it does not do well through amending and improving processes. It’s likely you have set out a coordinated growth strategy to position the firm to take on new clients, maximise revenues and minimise loss. It’s important to show potential buyers that you have achieved organic growth and the business has developed over the years. This may include taking on additional staff to boost your expertise, improving client retention, expanding into new areas or client types, or a combination of these. The buyer needs to be able to identify the value of bringing your firm on board.
Communication - Some excellent firms fail to achieve the growth they set out to achieve, not as a result of serious problems with cashflow or over-ambitious targets, but because the boss has not been able to communicate his thoughts to his colleagues clearly, so they haven’t caught his vision. Every member of staff, from management to administration, must be on board with your plans. Engage them in ways to build up your company. Get grass-roots ideas and observations factored into your business plan. Also, let your clients know how well the firm is doing. This creates confidence in your business by making them aware of its achievements. Effective communication can both help the firm achieve success and also convey this to the outside world. This in turn will help build your brand awareness and create a good impression for potential buyers.