If you’re selling a financial planning business, quality data can quickly magnify future growth potential, speed up the transaction and enhance your chances of securing the best price – the key is choosing the right data to showcase.
In episode four of Ensombl’s data quality series, Paul Benson, Principal at Guidance Financial Services, caught up with Andrew “Rocksy” Rocks to hear about how he exited a financial planning business he built from scratch. The former owner gave his perspective on what he would do differently now, in an age of powerful data tools, and how being data-ready can unlock synergies and potentially attract the right type of buyer.
We’ve now seen how quality data can quickly showcase a practice’s value to acquirers, but what does it offer from the seller’s point of view?
Planning practice owners who have been through a sale process will tell you exiting a business can be stressful and time consuming, especially if the other party doesn’t have clear oversight of the factors adding to your practice’s value today and its potential tomorrow. How you intrinsically value the business may not be what the buyer sees when they make their assessment.
If you’re data ready, you can clearly articulate how your business has performed, the profiles of the clients you serve and projections of future growth. The result may give the seller more bargaining power to command the right price.
However, as Andrew pointed out, data readiness isn’t something that happens overnight. Instead, it’s a process that should begin well before you enter the market and involves getting the whole team onboard with the process. Otherwise, you risk losing key talent or letting a deal slip away.
Ideally, a business should be in a position where it can easily pull the key metrics on demand if a potential buyer or merger partner knocks on their door. Even if a sale isn’t the end goal, that level of data readiness ensures a practice is prepared for a variety of emerging scenarios.
Profiling the right figures
Traditionally, financial planning practices were valued on multiples of recurring revenue, but that doesn’t always showcase the complexity of modern businesses, especially if they offer multiple different services. In Andrew’s case, his business included accounting and mortgage broking, which made earnings before interest, tax, depreciation and amortisation (EBITDA) a more useful metric.
Today’s practice owners planning their exit have become abundantly aware they need to be able to put their best numbers front and centre: their growth rate and potential future earnings.
A seller must be able to quickly show the market their profit was the result of choices they made to secure growth, rather than cost synergies (even if cost synergies were part of it). Potential buyers will likely also be interested in the performance of advisers, including revenue per adviser. Collectively, this data can help to rapidly evaluate where growth could occur and where further investment may be needed.
Lessons from exiting a planning business
However, while revenue is an attractive value proposition for potential buyers, it’s not the only metric to watch. The M&A market is increasingly seeking granularity and paying attention to the cost of acquiring new revenue, as sometimes $1 in revenue comes with a $3 risk profile. In other words, the risk profile can significantly outweigh the opportunity.
Data around cost and opportunity is becoming one of the most valuable assets in the financial planning M&A market. Increasingly, acquirers will seek insights and trends on productivity and time spent on certain tasks to give them a broader overview of a practice’s ability to service clients efficiently in the future.
When Andrew exited his business, powerful data tools, such as dashboards, had not yet been developed, which meant the process from both the buyer’s and seller’s side required more back-and-forth to size up the business.
Sellers can now put their best foot forward by sharing easily accessible insights about their clients, including average age and revenue per client, which can give the acquirer a better glimpse of whether the practice is the right fit for their objectives.
As Andrew concluded, “get your numbers right, share it with your people and then at the end, you’ll get massive upside.”
At intelliflo, we believe quality data is the foundation of practice growth and client trust.
Our dashboards help advice practices bring their data to life —turning raw figures into clear, visual insights that help you understand performance, uncover opportunities, and deliver advice with confidence. Book a demo to see how intelliflo can help you harness the full potential of your data.
