Planning practice values set to fall: Centurion Market Makers
Financial planners looking to sell their practices can expect to see valuations for their businesses decline over the coming years, a business broker warns.
Centurion Market Makers chief executive, Chris Wrightson, said the ongoing impact of Government reforms of the sector were likely to continue to affect valuations, with prospective buyers focusing on the age-profile of practices' client-bases.
"Buyers now take greater interest in the age-profile of the client base and how the revenue profile of the practice matches the age-profile," he said.
"This practice by buyers is driven by their interest to upsell or cross-sell other services and to identify additional revenue opportunities within a client base.
"There is no science to the way buyers are using this information to assess value, however it is impacting the buyers' view of valuation."
Research by Centurion revealed that many small practices and client books sold for between two and three times annual recurring revenue in 2015, with large financial planning practices selling for five to seven times earnings before interest, taxes, depreciation and amortization.
Wrightson said that many buyers were asking if there are further falls in practice valuations likely over the next three to five years.
"The market outlook says yes," he said.
"And we predict [it will be] by 10 to 15 per cent over the next five years.
"This is particularly relevant for smaller or single-person operations where there is increased seller activity, as well as large practices where there are simply fewer buyers."
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