The current state of play: our latest whitepaper and data analysis, Future Ready VII, paints a very clear picture of the ‘average’ Australian advisory practice (or at least those who have used our ‘HealthCheck diagnostic to assess the ‘health’ of their businesses over the past two or so years)…
The average Australian practice;
- has just under 6 people working in it, 2 of which are owners with at least one thinking very seriously about transitioning out,
- looks after just over 700 individual clients (the majority of which are aged 60+), while Advisers are having just six face-to-face meetings with clients each week,
- generates 81% of total revenue from existing clients,
- annual revenue sits at around $1M, most of which is recurring.
It’s been our view for a number of years, that many owners are currently wearing two hats – being an Adviser, as well as a Business Owner.
This is the shape of advisory practices at the beginning of 2018 as they prepare to come to grips with, and adapt to, the challenges of our new year. They will need to manage a somewhat volatile marketplace, maintain cash flow, work in relative isolation, battle new and differing types of competitors, find/keep good quality staff, achieve their life-balance and… so it goes on. And, while facing these challenges, practices are under the microscope of an ever scrutinising public and demanding regulator – it’s a tough gig!
But, for every challenge there is opportunity. One of the biggest opportunities for business owners surely lies in the capital value of their practice (the asset they are working so hard to preserve and grow). Looking at our latest data, I think it’s reasonable to presume the average practice has, for the moment at least, an attractive monetary value.
The Asset (Future Ready VII data analysis);
- Average annual revenue = $1,164,000
- Notional profit = $380,000
- Marketplace valuation multiples (EBIT basis) = say 5 times
- Approximate market value = $1,910,000
However, surviving the changing landscape will require a change in mindset for many business owners. What got them to where they are today, very likely won’t get them to where they want or need to be. Multi-tasking owners will need to remove their ‘adviser’ hat and put on their ‘business owner’ hat if they want to see a maintenance, let alone an increase, in their asset’s value.
As always, a good place to find some direction and inspiration is to take a look at what some of the most successful practices are doing. Below, I’ve outlined some simple yet proven strategies and philosophies practiced by some of Australia’s most successful advice practice owners.
The successful business owner’s mindset;
- Has a clearly thought out, actionable and achievable plan for both the next 1 and 5 years.
- Views expenditure as an investment with ROI targets, not merely a cost.
- Seeks out external input, listens and takes appropriate action.
- Surrounds him/herself with quality professionals (staff, licensee, service providers, referrers).
- Protects reputation & profile at all times.
- Minimises the risks inherent in all businesses eg. overdependence on a key person (likely to be the owner themselves), lack of backup facilities or inadequate business insurance cover.
- Knows and measures key ‘lead’ and ‘lag’ metrics. Benchmarks against ‘best practice’. Focuses on ‘profitability’ rather than ‘revenue’.
- Always treats clients as the #1 asset of the business. Communicates frequently and meaningfully to their clients. Reinforces at every opportunity the value they’re delivering. Regularly seeks client feedback.
- Appreciates that there is a balance to be struck between business and personal life.
So, how are you traveling?