I’m often asked how an adviser can increase the value of their business beyond the discounted value of your future income stream. This is particularly relevant for advisers who are looking to exit, and want to achieve the greatest sale price possible for their business.
It’s an area that I’ve written about before, but you might want to consider in a bit more detail a few of the factors that could drive up that sale price in your favour.
The Shape of your Revenue Model
One of the key factors in driving up the value of a business is the shape of revenue in the business. Is the business mainly living off high upfront commission payments with smaller future payments due, or has the business moved to flatter commissions on protection business and trail commission / fees as opposed to upfront commission on investment and pensions business?
Obviously the latter will be far more attractive to a potential purchaser. There are many advisers actively making this shift or looking to make the shift at the moment, either on their own or with the guidance of some of the product providers.
The size of this future income stream is important, but equally so is the persistency of it. A buyer will look to see your firm’s ability to both build up and then retain clients, to ensure that this income stream will continue into the future to their benefit.
Your Brand Value
Is there equity (value) in your brand? Having a brand that is well known, respected, considered better than a competitor’s brand is strategically really important. It is also famous for being very difficult to measure! But there are ways that you can influence this really important factor, to help you achieve a better sale price for your business.
How well known is your brand? How much time and effort to you put into building the awareness and credibility of your brand among your target audience? Is your brand positioned where you want it to be, and equally importantly where a potential purchaser will see as attractive?
Does your brand then actually deliver? Can you prove this through any quantitative measures (brand awareness measures, customer satisfaction results) or through qualitative feedback such as testimonials from clients about their experiences of working with your business?
Being able to demonstrate this brand equity could very positively impact the value of your business at sale time.
Your Sales & Advice Proposition
Has your business been built successfully (but solely) around your great relationship building and client acquisition skills? While this has undoubtedly been really valuable for you, what value does it hold for a potential buyer if you are planning on walking off into the sunset?
Alternatively, some advisers have built on these skills, for the benefit of other members of their sales team by developing processes and supports to acquire and deliver advice to clients. These processes and supports ensure that if you are out of the equation, your business should continue to develop sales and deliver excellent advice-based solutions to clients. Now that is really valuable to a buyer!
Clear & Valuable Target Markets
A buyer of your business will place a lot of value on your business offering “something different” to them. This might be particular expertise, skills or indeed access to a corner of the market that they have failed to access themselves.
Can you offer a potential purchaser access to a new segment of the market? This might be based on a product offering (for example the corporate pensions market), a geographical area where they currently don’t have a presence or a sector of the economy (a particular business sector or group of professionals). For this to be credible, you need to be able to demonstrate a genuine focus on the area, a differentiated approach that you utilise with this segment and demonstrable results in successfully gaining traction in the target segment.
After all, if your target market is “anyone”, what are you then actually bringing to a potential purchaser in terms of new opportunities?
A worry for someone buying a business is the skeletons in the closet. Are they suddenly going to be faced with a load of legacy problems – poor advice that will come home to roost, poor documentation that could leave them exposed, lots of clients who are completely disengaged from your business and who really have little loyalty towards it.
These factors will seriously undermine your price. Indeed they will often completely undermine the sale of your business at all, as a buyer just won’t want to take on these challenges. That is except possibly at a real knockdown price.
The challenge for you is to deal with these issues now and address them so that you are handing over as healthy a business as possible. And getting the best price as a result!
These are some of the factors to consider when looking to “fatten up” your business for sale. For any of you looking to buy or sell, do these match your experiences and what other factors do you consider? All comments as ever are welcome!