Do the diligence for big moves

The vast majority of Australian advice practices are categorized as small businesses. As our soon to be released Future Ready IX whitepaper reveals, the average practice is comprised a single owner with 6 staff and provides services to some 564 clients, and many are considering big moves to prepare their business for the future.

As with all businesses, large or small, careful planning is needed when it comes to making a major change to their business. Whether it be changing licensee, maybe even obtaining their own AFSL, merging with another practice, establishing a strategic alliance or selling or buying another practice, whatever the change may be – the level of objective ‘pre work’ put in before the decision is made and consummated is all-too-often inadequate. Any decision arrived at without the proper due diligence will surely rest on shaky ground, putting the decision-maker and the business itself at risk.

How to avoid the dangers of inadequate due diligence?

  1. Before you dive in, have a clear view of what you’re looking to achieve and why. At the risk of ‘consultant speak’ – what does success look like for you? What do you expect in return for your effort?
  2. Recognise that conducting effective due diligence takes time and absorbs resources – allow accordingly.
  3. Do you have any ‘must haves’ or ‘must not haves’? Be honest and realistic. Don’t negotiate the non-negotiables!
  4. There’s never a short-cut in the due diligence process, don’t cut corners to save time. Be prepared to invest as much time as you need to, to satisfy yourself. More haste, less speed.
  5. Consider enlisting the services of an independent third-party to guide and advise. Be prepared to accept their feedback.
  6. Never assume or take for granted what you’re told. The proof of the pudding is always in the eating, so dig a little:
    • If a practice you’re looking to purchase or merge with says it is ‘client centric’, its clients are ‘sticky’ and rarely leave, then ask the owner to show you proof. What was the result of their last client satisfaction survey, for example? Or the latest referral rate from existing clients?
    • If the licensee you’re considering a move to, claims to be ‘adviser focussed’, how does it solicit and act upon feedback from its network? Does it have an advisory board in place, for example? When did it last survey its advisers as to their level of satisfaction? What is its longer-term view? Ask to sight its Strategic Plan.
    • And if a business proudly boasts that it’s profitable, well-run and efficient, then benchmark its key factors to see how it really compares to similarly placed businesses.
  7. Communicate throughout the due diligence process regularly, clearly and meaningfully. If you’re looking to purchase, learn the language of the seller. Conversely, if you’re selling, appreciate the language of the buyer. Often the biggest risk to a successful transaction is poor communication.
  8. Trust your intuition and if it’s telling you that something is not adding up, it’s probably a good indication you should move on to the next opportunity – there are lots out there, with many more set to emerge over the next few years as the financial advice profession continues to evolve.

For your consideration.