As mergers and acquisitions (M&A) activity continues to rise in the Australian financial advice sector, industry professionals are urging business owners to ensure their firms are “sale-ready” at all times. In light of an increasingly opportunistic M&A environment, financial advice practices must prepare in advance to seize potential opportunities, or to protect themselves against unexpected circumstances that could trigger a sale.
Terry Bell, principal at Business Health, emphasized that financial advice businesses—regardless of size or current business goals—should always be prepared for a potential sale. According to Bell, many smaller firms underestimate the importance of being sale-ready, assuming that they do not need to worry about it because they have no immediate intention to exit. “Many businesses today are unprepared for a sale negotiation,” Bell said. “Some believe they’ll address it when the time comes. But every business, whether planning to sell soon or in five years, must always be ready.”
Mark Calvetti, head of corporate finance at William Buck, echoed this sentiment, stressing the unpredictable nature of the market and external factors that could spur a sale. “You never know when you’ll receive an offer that you can’t refuse, nor can you predict when something might change—be it a health crisis or the loss of key staff,” Calvetti explained. “That’s why being sale-ready at all times is essential.”
To ensure that advice firms are ready for sudden, unforeseen circumstances such as illness or resignation, Bell recommends creating an information memorandum (IM) document. This comprehensive selling document outlines the key aspects of the business and provides potential buyers with a clear overview. Bell suggests that having such a document on hand not only facilitates a smoother sale process but also helps identify areas of improvement within the practice.
The contents of an IM document typically include:
- Service Offering: Details on the firm’s services, fee structure, qualifications, and revenue per client.
- Client Analysis: Information on the client base, such as number, age, occupation, location, fee levels, and satisfaction.
- Revenue Breakdown: Insights into revenue levels, types (risk or investment-related), and historical performance.
- Revenue Sources: Identifying main referral sources and supporting product/platform providers.
- Systems and Software: Information on financial planning software, CRM systems, and compliance audits.
- Compliance Records: Results from recent audits, complaints, and breaches.
- Staff Overview: Staff qualifications, expertise, and development pathways.
- Business Valuation: Preferably provided by an independent third-party source.
Bell encourages all business leaders to regularly update their IM, regardless of their timeline for selling. This process can help identify issues that might not be apparent on a daily basis, such as staffing or technology challenges. “Preparing this document can highlight areas of weakness that you may want to address now, even if you aren’t planning on selling for years,” he said.
John Birt, founder of Radar Results, also noted that the initial stages of a sale may require sellers to provide detailed information on client demographics, account balances, and revenue generation. As the process advances, further data will be required, including personal client details, policy numbers, and detailed financial statements.
For Bell and Calvetti, the key takeaway is that financial advice businesses should seek external input to assess their current position and benchmark themselves against competitors. “It’s essential to get an independent view of your business, to see it for what it is—warts and all,” Calvetti said. “By doing this, you can identify areas in need of improvement and ensure your business is aligned with industry standards.”
Bell wrapped up his advice with a reminder based on a famous quote by former US president John F. Kennedy: “Repair your roof when the sun is out.” In other words, business owners should proactively address potential issues and prepare their firms for the future, even when things seem stable.
By staying vigilant and ensuring that their businesses are always “sale-ready,” financial advice practices can position themselves to take advantage of market opportunities and protect themselves against unforeseen challenges.
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