CFS research identifies value gap in advice businesses

New research from Colonial First State’s (CFS’) education and business coaching portal, CFS 10x, has found a significant value gap in Australian advice businesses standing at an average of $1.1 million.

The Hidden Value report, commissioned by CFS and business advisory firm, Succession Plus, highlights the “non-financial risks” that could be damaging to the value of advice business and how to best address them.

A survey of 116 advice businesses revealed there was a major difference between the current value of the business and its potential worth, to the tune of over $1 million.

“While 85% of advice businesses report being prepared for an unplanned sale, there remains an average value gap of $1.1 million across these businesses,” CFS Group Executive Distribution, Bryce Quirk, said.

“This presents a significant opportunity for the industry to enhance business value.

“With established practices looking to exit, ambitious firms eager to expand, and substantial capital flowing in from non-traditional sources, now is the perfect time to understand and maximize your business’s value.”

The report, which comes at a time of heightened merger and acquisition (M&A) activity across the financial advice landscape, also urges advice practice owners to “rethink traditional valuation methods” and “focus on non-financial metrics” such as staff retention to allow their business to grow to its full value.

The research confirmed that exit-ready businesses have “clearly articulated succession management plans” and a limited level of key-person risk.

“This should be a primary focus for any owner,” Dr Craig West, Founder and Chairman of Succession Plus, said.

“Often business owners only think about their costs, revenue, profit and turnover when they consider the value of their business, but there’s so much more to it than that.

“They also need to take into account the non-financial aspects because that’s what exposes them to risks and ultimately drives down their value.”