Financial planners looking to sell their practices can still demand a significant premium if the business establishes solid credentials like having a reliable and consistent earnings base from which to operate, according to a strategic and corporate consultant in the advisory space.
Hunt's Group principal Anthony Hunt said planning principals must concentrate on establishing a manageable cost base as well as a growing stream of revenue when running their practices in order to maximise the value commanded by the business when they decide to sell it.
"So the smart planners are the ones that are structuring their businesses so they are actually good quality businesses and the smart buyers are recognising that and will pay a premium for those businesses," Hunt said.
"As an equity holder in those businesses the buyers will recognise if somebody has set up their business to spit out earnings rather than be a revenue account with a drawing account for the planner then that's a quality business and is worth a premium."
However, achieving this outcome may not be an easy task for financial planners as they will potentially need to separate their relationship building skills from the rest of the business operation.
"The irony is that planning is a personal process but the successful ones are the ones that can de-personalise it and make it part of the business," he said.
"You still need to have the right personal relationship [with clients] but it doesn't need to go to the core of the value of the business."
Hunt cited the assumption of a good financial planner automatically making a good business owner as being fundamentally flawed and hindering the whole practice valuation and selling process.
"The things that make a good financial planner are typically good people skills, being able to build good relationships and having good business development skills, and a reasonable amount of technical knowledge to deal with investments, superannuation and taxation," he said.
"And those things are not of themselves enough to actually make a good business person.
"To be a good business person you need to understand what drives the value of the business, how to grow the value of the business, how to sort out your cost base, how to make it efficient and all sorts of things like that. So there are a range of other things financial planners may or may not have that go towards improving the value of the business."
