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From Adviser Guide:

Q: How can I attract potential buyers?

A good business is a good business regardless of the sector and can command a better price.

By Emma Ann Hughes | Published Nov 29, 2011 | comments

According to Alan Hudson, chairman and chief executive of discretionary wealth manager and IFA AFH Financial Group plc, quality of earnings i.e. level of recurring income is important, only if recurring income is supported by clear client strategy and service proposition.

Mr Hudson said IFAs should remember their service proposition must fit with the acquirers.

He said: “We are seeing an increasing number of firms charging a high percentage of recurring that renders them unattractive to us.”

Phil Young, managing director of Threesixty Services, said ultimately, the value of your business is the amount someone is prepared to pay for it.

Given that fact, Mr Young said it is important for anyone who is considering selling even in the mid to long term to start to think about what a buyer’s different motivations might be and look to make the necessary adjustments within your business drive value.

Buyers looking to acquire ‘books of business’ i.e. the client bank but not the staff, operating model, etc, are more likely to look at a multiple of recurring income when valuing, according to Mr Young.

Demonstrating that the recurring income is sustainable is important, he said, while profitability is a little less important.

Buyers more interested in buying the business as an ongoing concern will be more interested in profit as a further measurement of value, Mr Young said, so demonstrating that there is very little risk in the business is important in this case.

Buyers such as discretionary fund managers, who simply run money, may look at a valuation based on a percentage of assets under management, according to Mr Young.

Genuine control over these assets will be important here, he said.

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