Few advisers have a sophisticated data management model and so having the ability to show client- segmentation data would also give you a competitive advantage over other firms. Either way, for those businesses looking to sell, a data audit would be a useful task, especially if any changes are afoot such as moving non-advised clients into an advised proposition.
Some examples of information on clients used in the valuation of an adviser business is the average age, how long they have been with the firm, any increases in services/ fees, average portfolio and whether they are active. This last metric is about when the client has last seen you for advice. All this information together will give the buyer a clearer indication of the quality of your client base, as for example a client with a larger portfolio, who has increased their service use or been in contact recently is of a higher value than a client with the opposite characteristics.
It should also be remembered that the structure of a deal will also affect the price a business is sold for. Experts have found that, if a seller wants to remain active in the business following the acquisition, this tends to affect the multiple on the downside. If you are selling your client bank, then this will likely push the multiple up. If the acquiring firm is taking on some strong staff expertise as part of the acquisition, then it will push the multiple up.
The importance of data collection is apparent again in the onus upon the seller to show the strength of this staff expertise. The buyer will expect to see a breakdown of any staff salaries, remuneration, skills, career paths and logs of chargeable hours for staff with hourly charge out rates. The buyer’s reasons behind making an acquisition will also affect how the company is valued. For example, if they are looking to gain a particular regional foothold, data around geographical representation of clients will be useful to show the buyer.
The way a business is paid for - upfront or as a staggered payment- can also impact the sales multiple. Most deals are structured as a staggered payment and so it is necessary to consider what your business will look like over the payment period, as this is usually linked to recurring income. So for example, if a deal was made with additional payments on the second and third annual anniversary, a drop in recurring income is the likely metric behind these future payments. The third payment is likely to be in 2016 when the sunset clause has been enforced and legacy commission reduced.
