The financial planning industry is gearing up for a mass exodus ahead of FoFA - but there are a few things you need to know if you're selling your business. We speak to Mike Stewart of Radar Results and Anthony Hunt of Hunts' Group for the dos and don'ts of the sale process.
Video transcript below:
Donna Sawyer, Wealth Professional
Donna Sawyer: Financial planners are set to leave the industry en masse over the coming months as many older advisors hang up their hats in the transition to FOFA reforms. But before you pitch ‘for sale’ sign, Mark Stewart of Radar Results says get your house in order.
Mark Steward, Radar Results
Mark Stewart: It’s not a matter of saying, well now I want to sell. You know if, I mean encouraging anybody that wants to sell, prepare your business to sell now, even if it’s 5 or 10 years time. Get the right structure or the right advice in place and the right processes inside your business, because they could be the difference of upto a couple of million dollars on the valuation of your business.
Anthony Hunt, Hunts’ Group
Anthony Hunt: If there are structural things in your business that need to be addressed around dealing with FOFA related issues, on your income stream or bidding down operational practices in your business or sorting out some compliance issues, you need to take the time and energy to focus on those things to get them right. Those are critical to get your business in as good as shape as it can be to then take it out to the market. Everybody wants to be out there talking about what it might be worth, what it could be worth. My advice is take the time to get your business in as good condition as it can before you start going out and talking to other parties.
Donna Sawyer: Anthony Hunt of Hunts’ Group says deals often go south when due diligence uncovers hidden truths about a business. He says that it’s wise to be upfront about any issues your business has had.
Anthony Hunt: They don’t want to see any risks in your business. So first and foremost that means make sure your files are uptodate, that if there are any compliance problems or issues like that, that they are in the process of being clearly dealt with and that there are no surprises. If a buyer has any inkling that there are things in there that if they looked under the covers, they would not be happy with, they will probably walk away or they won’t be prepared to pay the price that you think it’s worth. So if you do have problems in your business and a lot of businesses do, it’s not unusual, it’s really important to be on top of them and to be open and upfront about them and be there on a no surprises basis for any buyer.
Mike Stewart, Radar Results
Mike Stewart: Don’t hide any skeletons in the closet. If there is things there, they will always be found sooner or later, because when it gets to due diligence time and the clients are being assessed and the books being looked at in detail, sooner or later that stuff comes out, so if you’ve got some compliance issues in the past, if you’ve got some claims, if you’ve got some staffing issues, if you’ve got some things there that need to be disclosed, obviously once a confidentiality agreement has been entered into, talking to a prospective buyer it’s pretty good to get that element on the table early, so those things can be dealt with.
Donna Sawyer: So what’s the going rate for a good financial planning practice in current market conditions? It seems there are buyers willing to pay a premium for aligned businesses.
Anthony Hunt: There is still an opportunity to get a premium multiple provided you can demonstrate the quality of the business and find the right buyer who can say, I am comfortable with the quality of this business and paying a higher multiple for it and also if there is a strategic premium to me as a buyer. So if you’ve got that institutional alignment with their products set, then you know that they are going to get some value out of the products set that your customer base has.
Mark Stewart: It’s all well and nice to have 20 – 30 different platforms and 13 different insurance products for your clients, but the reality is when you come to sell that, it’s very very difficult, because you know if you’ve got somebody wanting to buy something it’s all one particular platform or two particular platforms, it’s easy for transition, it’s easy for management, but if you’ve got multiple platforms and multiple products, well I guess it’s very very difficult to value. Number one, you’ve got to chase all that data through and generally in the transition, it’s quite difficult.
Donna Sawyer: This is Donna Sawyer reporting for Wealth Professional.