Succession Solutions
Within the current environment of competition and change, financial advice practices are seeking confirmation of their current positioning and the potential practice opportunities that may exist.
This is especially true for succession planning and understanding the potential future business value.
Succession Planning is a service developed and delivered by The Encore Group, designed to cover the complete succession planning process, yet be flexible to suit individual requirements.
It is a service focused on identifying the strategic intent, the collection of relevant, accurate and reliable practice information, demonstrating the business' value and sustainability, assisting the parties negotiate the deal, templates to streamline legal documentation and on-going integration and communication plans to extract the full value from the purchase.
Succession Defined...
"The smooth transition of ownership of a business that appears seamless to customers, suppliers and staff...enabling the maximisation of realisable value"
Engage. Enact. Execute.
The Encore Group has developed a process that it has labelled "The Evolutionary Pathway" when dealing with the issues associated with succession.
The Pathway consists of three phases; ENGAGE, ENACT & EXECUTE.
Each phase of The Pathway contains identified stepping stones that require completion before moving further along the journey.
The Purpose of Succession Planning
The purpose of the succession planning process includes:
| • | Plan the acquisition or sale of the business to achieve the best result. |
| • | Ensure that negotiations cover all the relevant aspects, so that the implementation of the transition occurs with the minimum of fuss. |
| • | Identification and mitigation of the risks in acquiring or selling the business. |
| • | Clarify the objectives behind the proposed strategy, to ensure all needs are met. |
| • | Indentification of the best cultural and strategic fit between parties. |
| • | Formulation of a complete integration plan to ensure ongoing business sustainability and realisation of the potential value. |
DUE DILIGENCE
The Encore Group has extensive experience in the assessment and delivery of Due Diligence services particularly within the financial services industry. The Encore Group continues to develop its process, to ensure that reports not only provide the critical financial information necessary to assess the performance of the business, but to also detail the qualitative areas that need to be examined.
This information will allow a lender to make informed decisions regarding the loan application and the purchaser to make a value based offer on the business' capabilities.
The Encore Group have been selected to provide Due Diligence services for Macquarie Bank and Commonwealth Bank within the financial planning industry. During the period of engagement by both of these banks, Encore have been required to deliver Due Diligence services for a variety of funding applications including:
| • | Refinancing of existing loans. |
| • | Simultaneous purchase of multiple businesses. |
| • | New industry entrants looking to purchase existing business. |
| • | Purchase of client base only. |
| • | Purchase of one revenue stream of business - i.e. purchase of risk insurance portfolio in a multi-disciplinary practice. |
| • | Finance for succession planning and share buy-out from external parties. |
The Pre-Lending Practice Report is the ultimate output from our Due Diligence process and has been developed by Encore to align with the areas that a lending institution seeks verification on in order to make an informed decision regarding the request for finance.
In order to provide the most accurate picture of a business as it stands today, acquirers and vendors are required to complete a comprehensive Fact Find document. Additional information will only be requested if it assists in demonstrating the business value, sustainability and lending risk.
VALUATIONS
Encore are also experienced in completing practice based business valuations. We believe that the market continues to change and mature. There is a realisation that the industry has evolved from a corporatised "sole trader" model, where the cash flow from a book of business supported a sole traders lifestyle in the form of an income stream, being significantly person dependent.
Encore believes that the earning valuation model should be used when assessing and applying a valuation to an existing financial practice. The multiple paid will be a function of the value of the business to the purchaser.
The Earning Valuation Model in Detail
Earnings Models are the best way to value a business. Throughout the world, stock markets are the place where company shares are regularly traded. It is a generally agreed concept in financial spheres that the price that a company’s shares trade at is strongly influenced by both the current and future level of earnings of that company. It is earnings, accepted as earnings before interest & taxes (EBIT) not revenue that determines a company’s worth.
Thus, the principle of valuing businesses, whether listed on a stock exchange or not is to use long term sustainable earnings (EBIT) regardless of the industry in which the business operates. The earnings model views the business as long-term sustainable. The determinates of the EBIT multiple that is paid for a business is mostly about how the drivers of business value are perceived by the purchaser.
The better these business drivers have been implemented within the business and can continue and grow into the future, the greater the multiple and therefore the value of a business will be. The drivers of value include the following:
| • | The Service Offering. |
| • | Cost of service delivery. |
| • | Business structure and systems. |
| • | Client acquisition and retention. |
