Here's how to boost your business value
A broader income mix is helping to bolster the value of advice businesses.
Wednesday, July 10th 2019, 6:00AM
Russell Hutchinson, of Chatswood Consulting, said advice businesses were currently selling at anything from 1.7 times annual income to 5.5 times.
He has presented a series of valuation presentations to advisers.
Hutchinson said fears that people would drop out through the transition to the Financial Advisers Act regime had proved unfounded, as had predictions that the value of each client base would drop.
Advisers who wanted to eke the most value out of their businesses could focus on a few factors, he said.
They should have a business brand that was not their name, so that it could easily be transferred to a buyer.
If they could get scale in the business that would help, and good systems that were regularly used would be important.
Regular emails and engagement with clients could also boost what a business was worth.
Hutchinson said an increasing number of advisers were hedging against the fact that their client base was getting older by building up a KiwiSaver income stream.
As the insurance clients got older and their need for insurance reduced, the KiwiSaver clients' balances would grow.
Health insurance had become more valued, he said, and good books of KiwiSaver trails were seen as more valuable even than classic investment management businesses.
Hutchinson said KiwiSaver was a long game.
“It’s not rewarding for the first five years. If you leverage the time you spend with clients and are looking at the total value of the product over the years it makes sense. If you’ve got a more transactional view of it that I have to yield this much money now it doesn’t’ make sense.”
He said many advisers would have heard anecdotes about people who sold their business base for a certain amount, or bought a book for a price.
"I think the problem is that they don't hear about enough transactions."
Even headline numbers were not helpful, he said, because a business that was sold for half cash and half equity was a different proposition from a deal that was 100% cash. An offer of 50% cash upfront was different from 100% immediately.
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