Can the scarcity of a commodity or service cause it to increase in value?
Simply put, Yes. In recent times (2023) there have been less FP businesses on the market. With fewer options to acquire, serious buyers can either wait until prices drop or negotiate to acquire at higher multiples for those businesses available now.
How does this impact on FP practices?
With a growing demand for financial advice, owners are considering either staying in the business to try and grow organically or sell to take advantages of increased multiple of annual income.
Better quality
FP businesses are generally more sophisticated and closer to providing hands on advice and access for a range of services. Advisors can opt for specialising in a particular profession, age range, investor type, product type or ethnic group.
Scarcity = Higher multiples
With fewer businesses reaching the market a scarcity has arisen. When a commodity is scarce prices tend to rise. The opposite as was evidenced after the Hayne RC. Those days have long gone. Except of course stressed assets due to ill health, marital problems, staffing requirements or just not keeping up with the technology. Which begs the question will buyers look to buy a run down or lower valued model when they can acquire ready to roll high value operational businesses now?
AFSL’s are looking to keep AR’s within their sphere of influence
Whilst larger AFSL’s are continually looking to access new advisors for their offer they have become very adept at retaining those wishing to retire or leave the business by introducing them to keen buyers already in their group. Hence many businesses for sale do not reach the open market which leads to the current shortage. It is also the “ease of transfer” option that suits some vendors, but which may not allow them to receive top multiples and in turn get a quicker result.
Technology improvements
The marked improvement in technology facilities has meant more work can be done by less people in a shorter time (except for insurance). This has meant many potential vendors have decided to upgrade their businesses and reap the rewards of higher multiples when they do decide to sell. This is starting to show through in the increase in multiples being asked for businesses for sale.
The variables
The variables in a sale environment include:
| Location | RR in $’s | No of Clients | Multiples wanted | % payment up front |
| QLD. Own AFSL | $500K | 75 | 3.0 TO 3.5 | 80% |
| NSW Urban. Own AFSL | $316K | 43 | 3.15 | 80% |
| NSW. Western suburbs | $264K | 143 | 3.0 | 85% |
| WA Rural Own AFSL | $603K | 136 FIFO | 3.0 | 85% |
Knowledgemaster has access to 100’s of buyers in all states. We do not charge commissions. For more information please contact Jim Prigg today on 0408 520 453.
Knowledgemaster International presents this information as a service to its readers. The company does not make any representations in respect of, or warrant the accuracy, timeliness or completeness of any of the information supplied to it. They take all care but accept no responsibility in compiling the information as supplied by vendors.