Fulfilling your business goals in 2023

Fulfilling your business goals in 2023

Many advisers will be thinking that 2023 is the time for them to consider exit strategies. But what might doing that actually involve? How could you get started? Wealth Holdings’ CEO, Keith Brown, has some practical suggestions for you to consider to ensure that your New Year gets off to a good start.

With Christmas and the New Year still in the rear-view mirror, the wintery weather is still with us as we look ahead to 2023 and what that might mean for us and our businesses. Also, with the FCA’s new Consumer Duty rules looming large on the horizon and industrial action and political misadventures dominating the news, it can be difficult to notice that the days are getting longer. I’m pleased to see that the early signs of spring are popping their heads up through the frost (we have early daffodils and snowdrops breaking through in the garden). Before we know it, we will be wondering where the time went, asking what happened to our well-intentioned New Year’s resolutions and we will be reviewing the first quarter of 2023.

Looking to the future
If 2023 were to be the year of change, the year you took the steps towards retirement either now or in a couple of years, then, just like the early bulbs pushing through the frost, there are now many new and exciting businesses emerging that could be your ideal partner going forward. But how do you find out about them and the opportunities which might exist?

Wealth Holdings is proud to work with many established wealth management firms. We’ve been delighted to have been able to help many IFAs to find the ideal partners to take the next step in their careers or enjoy their well-earned retirement. We are equally excited to be working with a significant number of new entrants, or at least they’re new to the acquisition of high-quality practices, to further grow their already successful businesses. The well documented inflow of private equity (PE) money in 2022 is now being put to market but it doesn’t end there. These well-resourced, ‘new to acquisition market’ firms are using strong profits, privately- raised funds and shareholder investments to offer flexible and interesting propositions for IFAs who may be considering their options.

Strong valuations for the right businesses
The good news is that valuations remain strong for well-run practices with their underlying principles following the now traditional methodology.

Traditionally, there are several ways a financial advice or planning business can be valued. These include:

• A multiple of recurring income

This is the most common method in use in the IFA sector. It is relatively straightforward: a multiple of your recurring income (RI) which should seem easy to identify and calculate? However, there are some complications that, as a vendor, you should consider when preparing your business for sale. The buyer will typically only be looking at a contractually-bound recurring income (RI) stream with a provable service history i.e., has the vendor delivered the service promised in the signed Terms of Business, be it annual or biannual reviews etc? Other forms of regular income may have a value but could differ from the contractually bound and proven income stream.

• A profit-based multiple (EBITDA)

EBITDA multiples are increasingly being used to value IFA businesses even if the final offer is translated into a more commonly recognised RI figure. The acronym specifically relates to Earnings before Interest, Tax, Depreciation and Amortisation. As a profit figure it is therefore independent of these features – independent of tax, independent of artificial accounting policies that relate to the balance sheet and independent of how the business is funded. We know many smaller practices are owner-managed and run accordingly. It is not unusual to see a significant pension contribution being made in the name of the owner and their partner as a fellow director which would not be the case post acquisition. It is therefore important to work with each vendor to produce an adjusted EBITDA figure that represents a post-sale EBITDA to understand the true value of a business.

• A percentage of assets under advice or management

This is rarely used in IFA practices, being more common in larger fund management businesses where AUM is more of a driver of value. As you can see from my points above, and below, this approach doesn’t allow for the complicated intricacies of valuing IFA businesses.

But these are just the start point of a far more complicated process that requires much thought when considering an acquisition or preparing for a sale of a business.

At Wealth Holdings, we always talk about ‘Good Outcomes’. But what do we mean by that? We understand that for any deal to be viewed as successful, the retired/retiring planner needs to be able to bump into a former client a year or two later and be confident that all is well with their relationship with the new firm and adviser. We are successful if we have managed to achieve a good outcome not only for the selling IFA, but also a good outcome for the acquiring firm and their shareholders, for staff and most importantly a good outcome for the clients, who ultimately represent the lifeblood of any business.

2023 promises to have many challenges as each year does. I have been working in financial services since 1990 and I can’t recall a period when there wasn’t some form regulatory, economic or political upheaval to be considered and integrated. 2023 will no doubt be the same. Equally, I don’t believe that IFAs have had so many good options in front of them when planning their own futures as they do today.

Our job is to support you in making some of the most important career moves of your life. We’re extremely well set up to do just that and welcome enquiries to explore opportunities to see how we can support you in achieving your objectives.

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