Practice Management
Building capital value in a business
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In most cases, building value is about evolution, growth and a journey.”
In most cases, building value is about evolution, growth and a journey. Many advisors start their careers as tied agents and then take the big step to independence. Unlike tied agents, independent advisors set the rules – deciding when to work, what to do and with whom to do business. Independent advisors need to take a further step by choosing to build and run a business with entrepreneurial flair. In other words, advisors must want to drive and create value. Capital value in a business is built through both financial and non-financial drivers. Financial drivers are the advisor’s selected business/economic model, as well as expense management and cash flow. Non-financial drivers include business operations, risk management and post-sale client retention and transferability.
Ian Middleton, CFP® | Managing Director, Masthead
Value in a financial planning practice cannot be built overnight.The value of a business is a compound picture of all the decisions one has made to date. Value means different things to different people and ultimately lies in an individual’s perception. It is agreed that capital value has an end value greater than the beginning and can also be understood as what a willing buyer would pay a willing seller. To run a successful business requires the right mindset. Advisors who wake up every morning thinking they are unemployed do not have the right mind-set and this will reduce their success in building value.
The Financial Planner
The business model determines aspects such as the nature and source of income, product diversification and the product providers from which solutions are sourced. Income comes in various forms, with transferable recurring income streams offering the greatest value. Being able to track and forecast revenue enhances this value. A variety of product lines may add value and reduce risk due to diversification. Diversified offerings mean customers experience one-stop service, while the advisor enjoys crossselling opportunities and the benefits of diversified income streams. An important aspect here is to ensure that the products offered to customers are actuarially sound product solutions from sustainable product providers. This involves doing a due diligence and choosing providers and products carefully. Moving to expenses, advisors should keep track of both current and future expenses and know the cost of acquiring new clients and providing ongoing service. Some expenses should rather be seen as a business investment.
August / September 2011
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