Valuation guide for your practice
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Radar Results has produced its 6 monthly Valuation Guide for those practices and client registers sold since May 2012. The most notable change has been the surge in demand for accounting practices, notably those that do not already offer financial planning services. The opportunity for financial planners to acquire an accounting practice and then market their services to the tax clients is considered extremely desirable. Their services may include loans, estate planning, general insurance and financial advice. This higher demand has, in some circumstances, forced the ‘usual’ multiple above $1.00 for each $1.00 of tax fees. The demand for tax-fee client bases is mainly in the capital cities, whereas demand is less in the country and regional areas. An indication of prices as at Nov 2012
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Demand for risk businesses
Demand for risk businesses is as high as ever, particularly since FOFA has basically left this sector alone. Prices paid for good-quality risk businesses in Australia haven’t really changed in three years. They rose substantially during the end of the GFC in 2008 and have clearly held their position as the most sought-after financial-services business. Before you formulate your selling price, aspects such as the client’s age, type of policy, renewal-commission percentage and servicing levels need to be taken into account. A higher multiple is paid for quality clients who have a professional occupation and who pay high premiums due to the higher sums insured.
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Demand high for ‘larger’ financial planning practices
Inquiries to Radar Results this year for the acquisition of larger financial-planning practices have increased. When asked ‘what’s considered as larger’, the reply would be ‘at least $2M of recurring revenue’. Boutique planning practices have grown substantially since the GFC through their continued acquisitions; and they are now after ‘larger’ acquisitions. |
| Recurring revenue (RR) definition confusing Any financial planner who’s looking to sell their client register or business should first agree with the purchaser on what the actual recurring revenue (RR) they are selling is. Whilst there’s no hard-and-fast rule, Radar Results has, for many years now, advised that volume bonuses and commission on regular contributions to superannuation policies should not be included in the definition of recurring revenue.
We even find that sometimes the seller has included GST in their RR figure and, in some instances, neglected to add back the licensee’s service fee. This may change the RR figure by up to 20%. If you are thinking of selling your financial planning business, you may benefit from asking a Radar Results’ consultant for advice before you go to market. Practices that have been sold in the past on a payment-instalment method, and where the second or third payments are yet to be received, may be affected by the ban on volume bonus. If the revenue previously included a volume payment, then the future instalment payments by the purchaser to the seller may be lower than would have been expected. |
