With an increasing number of financial advice practices up for sale over the coming years, it is important that practice principals prepare their business for sale.
My top advice to practice owners in getting the best price for their business is to think about who you are selling to. I liken this process to selling a house. You want to get the best price for your house, so you do your homework on house prices in your suburb, potential buyers, who is likely to pay the most money, and then you set your house up for them. The same methodology applies to financial planning, so you need to have a good idea of who could buy your business.
Just as potential buyers of a house weight up the potential value to them, so too do those in the business of acquiring practices. My main message in this is that a business that sells for more than the assets has good will.
Good will is all about traffic, or the ability for clients to come back into your business and the ability for new clients to come into your business. If you’re focusing on that in your day-to-day practice management – you are in front of clients on a regular basis, you’re surprising and delighting them – they refer you to their trusted family and friends. Then, you are building a good business that’s worth something.
We quite often think of practice valuations as a multiple of recurring revenue, but practice valuations are really about customers and customer relationships. So your ability to sell a business that has the proven ability to generate new customers is always going to be worth more than the business without any proven abilities in new client generation.
If you’re selling your business, it’s easy enough to sell assets. But to get the best price for your business, the real difference is in the good will – why your clients like you, why they come back to you and why they are prepared to refer you.
