Selling Your Financial Planning Business in Uncertain Times - When Is The Best Time to Sell?

Business Brokering Monday 25th of February 2019

With the pending FASEA requirements and predicted changes as a result of the Hayne Royal Commission into the Financial Services industry we are certain to see planners exiting the industry in increasing numbers. Should you go? And if so, when?

Analysts have been forecasting a 50% reduction in adviser numbers for some time, and more recent surveys are even more alarming.

This is likely to have ramifications for the financial planning practice marketplace.

First, more planning businesses will be on the market at the same time. Simple supply and demand suggests tighter prices, but we can't predict when and to what extent.

Second, uncertainty over the value of some types of ongoing revenue will also make prices less predictable.

It’s only natural to experience some uncertainty in the face of these circumstances, particularly when it comes to choosing the timing of your sale. Consider the following common questions:

  • Is it better to go now, or to wait a few more years? Can I get ahead of the surge of planners seeking to exit?
  • If I do sell now, how can I get fair price for my ongoing component? Are buyers willing to pay multiples on insurance commissions or mortgage payments which might or might not cease?

If you have a purely fee-for-service practice then you can certainly get in ahead of the rush and sidestep many of the complexities.

But if not – if your practice includes an ongoing component from one of the threatened classes – then you are going to have to deal with those complexities. And sooner is may be better, if you plan to realise fair value.

Ultimately, the solution to this conundrum may be found in the structure of the sale agreement, and the conditions placed therein. There are several ways to structure a sale agreement to account for contingent income flows. It’s possible, for instance, for trail income to be shared between the parties for however long it lasts – the percentages and conditions vary from situation to situation.

If you’re in the position where you’re considering selling, and if you’ve been worrying about these kinds of questions, then I’m happy to discuss these with you.

Mark Witt CA

Mark is the Head of Brokering at Business Exchange with over 20 years experience and 400+ completed transactions


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