by Tony Vidler
It is a little ironic that many professionals in the business of advising people how to get better returns do not understand how to get a better return on their own biggest investment – their business.
Many advisers think a successful personal retirement is simply a matter of selling their business to another adviser, and that selling it for a pretty good price is a straightforward matter.
In years gone by selling an adviser business was a relatively simple matter of working out the recurring revenue that was contracted to come in (e.g. contractual rights to renewals on policies in force; renewable trail on AUM; etc). That still happens of course…but is increasingly looking like poor value to sellers, and good value to buyers.
Because it is just an asset sale, not a business sale.
Valuing an income stream is a pretty straightforward proposition generally, and essentially involves placing a discounted value on a predictable cashflow.
But when you are selling a practice….a real business that has assets and ability and potential well beyond just a known (historical) cashflow, you are buying opportunity. And opportunity generally attracts “premium” pricing – not “discounted” pricing.
If you are an adviser thinking that your business is potentially your biggest investment and you want premium pricing for it, then you need to think about what potential business buyers will be interested in placing premiums upon. Here is a short list of big things that a buyer will want, and be willing to place a premium upon:
Do not underestimate either the manner in which a transaction is conducted. Other factors that can potentially enhance sale value include:
The two keys to successfully getting a better return on your own biggest investment as a financial advice practice owner, are:
1. Building a business which is sustainable without you (that a new owner can walk into and essentially keep running)
2. Creating a business which has growth potential for a new owner, rather than just being a dying contractual income stream.
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