Sellers overvaluing planning practices
Financial planning practices on the market are being heavily overpriced because their sellers have failed to adopt a profit-based skew, a broker believes.
Instead of pricing based on emotion or time invested, sellers must realign their value proposition to match the buyer’s mindset and should market the firm’s client/service model, Connect Financial Service Brokers CEO Paul Tynan said.
“The majority of small financial planning books and businesses where the revenue is less than one million dollars are still being sold on a recurring income multiple,” he said, while “larger businesses are based on a profit valuation method”.
As a consequence, financial planning firms are being overpriced and are sitting idle on the market.
Tynan said it is critical that businesses market their client-service model, and the recurring income it generates, when trying to sell their practice.
He said sellers need to understand that valuation models are changing and be realistic when it comes to price.
“It’s natural for sellers to overvalue their business. It’s been their life, blood, sweat and tears and now selling that life time of work is an emotional undertaking,” he said.
“But ultimately it is the current market that determines price.”
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