Since Christmas prices paid for financial planning practices have stablised and in some cases, even reduced. The main 2 causes have been the downturn in the sharemarket and a change in supply with more sellers entering the market. Planners who were once considering staying in the industry have now decided to sell and not wait for a market recovery. Selling with lower trails now seems a better option than waiting and not knowing what’s going to happen in the next year or two. A planner’s average age is now nearly 60 and last year 23% of sellers who contacted Radar Results indicated they were selling due to ill health. Many said they were “just burnt out” after 20 years of looking after clients. Basically, they’ve just had enough and would like to either do something different or just spend time with their families. So, what would you receive today for your FP business?
Prices paid for FP practices – last 5 months
Radar Results experience shows that larger practices with a sale price of between $1M-$3M and situated in a capital city, will sell for 3.0-3.5 times recurring revenue (RR). Larger practices can also sell on an EBIT mutiple of 4-6 times – which hasn’t really changed. Smaller practices are selling for a slightly lower price multiple of between 3.0-3.2 times RR. We are finding country and regional FP practices tend to sell for an even lower multiple due to their isolation.
Often a practice will sell the lower end of their client base, commonly referred to as Cs and Ds. Surprisingly these prices have actually increased from around 2.0 times RR last year to 2.2-2.8 times RR now. It’s also interesting to find there’s a lot more of these types of books coming to the market place. Advisers find them easy to transfer to a buyer (usually within 30 days) and the additional capital can be used for an A grade client reward program, new offices or pay off debts. It’s hard to know when is the best time to sell but try and do it while you’re healthy. Remember, 1:4 sellers suggest their reason for selling is burn out or something more serious.
If you’d like your practice valued so you’ll have an idea of what price to expect, just click on the link Valuation Questionnaire – which will take you 4 minutes to complete. We’ll have a written appraisal back to you in a few days. Any questions just give me a call on 02 4384 5670 Head Office – Central Coast NSW.