How to get the business you want by the end of 2012

Now is the time to make the moves necessary for your business to achieve your aims, whether that is repositioning for RDR, merging or selling up, writes Rob Stevenson of Kingmakers.

Imagine it is 1 January 2011 and at the end of next year the regulatory changes brought about by the retail distribution review (RDR) will be in force. Just 24 months away from what exactly? Nirvana for some, a nightmare for others; and the difference between the two is willingness to change, confidence and the right attitude.

If you are hoping that a few hundred of you huddled together will make the regulator think ‘hang on chaps, there’s just too many of these RDR deniers, perhaps we should have a rethink’, then it is time to wake up.

If you are going to take charge of your destiny, here is a simple planning framework, some options to consider and some up-to-date pointers on what is going on right now.

What do you want?

First you should establish what you want. What is your vision for your future? If you do not know, think about it, do some research and find something you want out of life, not as a business owner but as an individual.

Once you have this, check to see if it fits in with your co-owners’ visions; if not, work towards some common ground. If you do not have co-owners, happy days, press on.

What state is your business in?

Next, check the current state of the business and be honest about it. Having the right qualifications, a piece of paper with ‘service proposition’ written on it and a fancy video on your website does not mean you are putting any of it to good use for your clients.

How many of your clients are signed up to the proposition and receive exactly what they are promised? You can fool yourself but you cannot fool someone like me when I come to do due diligence on you and you have not rebalanced any portfolios when you said you would, and you charge clients for switches even though your service proposition says you do not.

Identify, accept and change the things that are wrong before someone else does.

How will you achieve your aims?

Once you know how your business is doing and where you want it to go, you can plan how it is going to get there:

• Think strategically about where your business sits in the supply chain and make sensible decisions about your future business partners.
• Think about your clients, past, present and future, and identify what they need from you.
• Pick the right wrap/platform based on where you want your business to be, not on where it is now.
• Make decisions on investment management in the same way.
• Remember that when it comes to marketing, you are dealing in an unsought service, so make sure your sausage sizzles.

Then you just need to get on with it. Working with a budget, developing a project plan for the key elements of change, dash-boarding the unknown and identifying the metrics you will use to monitor your progress may all sound complex but are easy to create and use.

Strategic options

If your vision stretches beyond 2012 and you feel you could use someone to help with the cultural change and you have cash to invest in your business (and enough time to get a return on it), you can ask an independent, objective business consultant to help reposition your business. This option is for forward-thinking business owners who want to exploit aspects of RDR and position themselves for a capital event after 2012.

If you hope to make it past 2012 but do not have cash to invest or do not want to pay for assistance, you can ask a product provider for help. All their broker consultants have now (miraculously) become business consultants and are perfectly positioned to help you, err, create a business that suits their needs.

There is no such thing as a free lunch. Most of the transition services that product providers and consolidators offer are predicated on the Russian doll concept: help as many firms as possible to look the same and then gobble them up or make sure they gobble each other up, so we still get our piece of the pie. If you are going to do this, get a ‘deal in principle’ before you start and make sure you understand what you are getting into.

Selling up

If your vision does not extend past 2012, selling up is still an option though not if you have an old model business and want cash to sail away with.

Buyers do not want potential they want actual, and if you do not have engaged clients/staff and strong trail income, you can forget it. The days of three or four times all recurring income (regardless of the type of revenue stream or the strength of client relationship) with cash upfront are all but gone.

These days a purchaser wants to load the risk back onto the vendor, so they will use whatever metrics they need to arrive at a value and make some or all of the consideration dependent on post-transaction income streams. If your clients do not perform, you can look forward to an adjustment to what you are due or, worse, what you have already been given.

Other options

There are some other options and the soft-merger model is gaining traction right now.

The idea is that you join a firm that has all its RDR ducks in a row and you integrate all your clients into its service proposition, thus creating real value for it, which it can pay you for in the form of a deferred buyout starting in 2013.

There is no cash upfront, and you are effectively taking a job and hoping for a payout later, so get a proper agreement in place and maintain a floating charge over your clients until all the money is paid too.

All in all, though, it is a compelling argument, particularly if historically you have taken initial commissions and have limited trail. The argument becomes even more compelling when a salesman shows you a whizzy spreadsheet showing that your £50,000 of trail could become £150,000 in two years if you move all your clients into this new ‘environment’.

Beware, a churn is a churn. You should not be fooled by talk of the RDR forcing firms to change business models and the power shifting from product providers to vertically integrated firms.

Think ahead

By 1 January 2012, we will have 12 months left and that is barely enough time to take any positive action or to secure a deal of any kind. As more firms come up for sale, the price will continue to fall, and firms will be given away the closer we get to the deadline.

Act now and avoid delay. Make it your 2011 New Year’s resolution.

Rob Stevenson is director of Kingmakers.