There are a number of key elements that contribute to and drive value within financial planning practices
In No More Practice 4, Sam Henderson is on a journey to grow his SMSF practice. A key part of my role in the show involves advising Sam on this process from a financial perspective as well as different options for funding his plans for expansion.
To assist in attaining funding for growth or expansion plans, one of the most important things any good financial advice practice needs to have a handle on is key drivers of value within the business.
1. One of the most common drivers of practice value revolves around having a client value proposition – whether it be for a standalone practice or for each individual business within a larger, diversified financial services firm.
So you really need to know the type of client that you’re looking to talk to and ultimately service. In this process it is good to segment clients into A, B, C and D categories, so the clients that earn you the most revenue could perhaps be in the A category. You might even want to segment them in terms of a particular niche area that you’re focusing on, and have individual advisers within your business focus on those key areas. Businesses that have a significant focus on particular niche areas generally run at premiums compared to other practices that don’t.
2. Another important driver of practice value is having great systems in place that allow you as the practice owner to transition clients over a period of time to a new owner if need be. Businesses that have systems in place to help monitor and effectively manage clients as they come in the door and through the lifecycle of the client journey are in a much more advantageous position with regards to client engagement and retention.
Good systems will not only help maximising the potential value of clients to a practice, but also assist in running a cost-efficient practice. If you have good reporting systems that talk to each other and minimise double handling of work, for example, then this can contribute to the productivity and overall profitability of a practice.
3. A key practice value driver from a buyer’s perspective relates to how a business is run to minimise principal dependency. If a practice is based on a corporatised model in which the business as a whole is seen the key provider of financial advice, rather than the practice owner themselves, then this will help in transitioning client relationships in an easy and seamless manner – which will be a key concern of any potential buyer of your practice.
4. Key to the above point is servicing clients. Apart from the obvious importance of provision of good advice, it’s often the little things that count here that will see clients stay for the long-term – and ultimately drive revenue and profitability. For example, you could have a client’s name tag on their parking space when they come into visit, you can wait for them at the door and also have a coffee waiting for them when they do come in; it’s the little simple things that help them feel like important individuals.
5. Get the basics right. Any potential buyer of your business will want to understand the P&L financials of your practice in a simple and transparent manner to better quantify its value. So practice owners need to be able to track how their business is performing and also demonstrate they are running a cost-efficient operation.
One thing that a lot of business owners neglect to do well is when they’re setting a budget at the beginning of the financial year, is to review this on a monthly basis and revise the budget in light of cost overruns or revenue downgrades. This process also helps in understanding where potential savings lie within the business.
