Price expectation of buyers and sellers

Recently Radar Results conducted a simple poll among the LinkedIn group called ‘Selling or buying a financial planning practice Australia’, and received 103 responses. The single question asked was “What multiple or recurring revenue today would you pay for a quality financial planning (FP) business?” There was a lot of debate over what might be considered to be a quality FP business. Below are the results of the poll.

Multiple of recurring revenue % Poll responses

1.5 to 2.0x 8%

2.0 to 2.5x 43%

2.5 to 3.0x 34%

3.0 to 3.5x 7%

3.5 to 4.0% 8%

Some financial planners said the multiple would depend on whether they were buying or selling; which is an interesting position to take. If they were buying, then they would pay only 2.0 to 2.5x RR; but if they were selling, then they would want a higher multiple. I know it’s human nature to want to have your cake and eat it too, but you can’t have it both ways.

The situation of ‘having your cake as well’ will cause many sales to stagnate. Whilst there may be both a willing buyer and a willing seller, a very wide price-differential starts everyone on the wrong foot. I’m aware of planners who wanted to sell their businesses in 2007/2008 and, as at today, those businesses are still on the market. Both the revenue of those businesses and the multiples they will achieve are now lower. A keen seller could have an offer from a buyer within a week, assuming that they (the seller) are organised and that the sale price of the practice is realistic. A financial planning business will sell easily at a commercially-realistic price, or market price. Radar Results is not in the business of ‘talking prices down’. We are very happy to have our associates around Australia consult in an endeavour to have a commercially-acceptable and happy outcome. I think it’s important that planners realize that, when selling their business to a Radar Results client, the seller does not incur any fees.