- Business Plans – Every respectable business coach will instruct a practice owner to produce a business plan. This concept is well accepted, but it involves a delicate balance between being an adept financial planner and an astute business manager. As a financial planner transitions into a business manager’s role, it’s imperative to align business objectives meticulously to ensure sustained success.
The IM supports business planning as it provides valuable information on different parts of the business. For example, data regarding cash flow and revenue growth assists with setting realistic budgets, and by articulating the core values and focus of the business, management is provided with a roadmap to achieve business goals.
- Sale Ready – Being ‘sale ready’ is more than just being primed for a trade sale. It signifies a holistic state of business preparedness, and encompasses various aspects including organised documentation, streamlined operations, a clear value proposition, and financials that demonstrate profitability or potential for growth. It’s a position of strength for any business and is usually the result of astute management.
- Trend Analysis – Spotting trends within operational and financial data can offer numerous advantages for small businesses, including:
- Helping businesses make proactive decisions rather than reactive ones, allowing for better resource allocation and strategy adjustments.
- Early warning of impending cash flow problems, allowing businesses to adjust accordingly.
- Regularly analysing data can help businesses set benchmarks, measure performance against those benchmarks, and adjust strategies for improvement.
- Recognising negative trends early can help businesses mitigate potential risks before they escalate.
- Recognising past and current trends aids in more accurate demand forecasting, helping businesses prepare for future needs.
- Transparently sharing positive trends can build trust with stakeholders, including investors, employees, and clients.
- Understanding trends, especially in revenue and expenses, can lead to more informed budgeting and financial planning.
- Snapshot – Your IM should provide a concise overview of business ownership, organisational structure and business objectives, to provide any third party with the foundational elements within the due diligence process. Whether the business is being valued in the process of borrowing money, internal succession planning or a trade sale, providing transparent information is vital in building trust and hence supporting your sale price or valuation.
Clear disclosure of ownership also assists when:
- Investors are determining who makes the decisions and how fast decisions can be made.
- Understanding the depth of the management team and any potential key person risk.
- Identifying potential conflicts of interest. For example, certain owners may also have stakes in competing businesses that could influence business decisions.
- Understanding various tax and financial implications.
- Client Segmentation – Many strategic decisions are based on the type, age, number and financial characteristics of your total clients and on each different client category. Understanding client categories aides in the following areas:
- Designing your service offerings. For example, a family with young children may need help with education planning, while a retiree may need help with estate planning.
- Marketing initiatives. For example, a practice that specialises in Aged Care advice may market its services to retirement publications and websites.
- Portfolio construction. A portfolio within a tax-effective Account Based Pension would be constructed differently to a younger client within a higher tax bracket.
- Rationalising client numbers. There may be a strong business case supporting the sale of a number of clients. This may represent an entire client category.
- Compliance Transparency: A transparent and clear track record in a business’s compliance audits eliminates uncertainties about potential past non-compliance. Suspicion around historical compliance issues can significantly devalue a business. While many planning practices might have faced a compliance hiccup in the past, the IM serves as the optimal platform to address the incident and to thoroughly outline measures implemented to prevent its recurrence.
- Identification of historical events – The sale of a number of clients or the purchase of a book of new business throws up anomalies within your financial data. These anomalies require a factual explanation to avoid suspicion or bewilderment within any due diligence event. A clear reconciliation of your financial history is a ‘value add’.
- Investments Exposure – Understanding the total exposure to managed funds, managed accounts, ETF’s and other listed securities, allows informed decision making regarding the following:
- It allows the business manager to identify concentration risks.
- By assessing exposure, practices can better analyse performance attribution and adjust allocations accordingly.
- If the practice has a substantial allocation to a particular investment manager, it might be in a position to negotiate lower fees.
- Knowing total exposure ensures that the practice remains compliant and within exposure limits set by regulators or licensees.
- There is a growing preference in Australia to improve operational efficiency by using managed accounts and hence this impacts valuations.
