Advisers are too focused on how much their business could sell for, not how it can improve, according to consultant Simon Hellier.
Speaking at the PIMS UK Forum last week Hellier (pictured), managing director of Rotation Consulting, said he often came across advisers who had misconceptions about what acquirers are looking for.
‘When looking to sell their business, people don’t ask themselves why somebody would buy it,’ he said. ‘The first question is always how much it is worth.’
When looking at valuations, Hellier said the most important thing was profitability. He said an accurate valuation was normally between four and seven times’ earnings before interest and taxation.
‘More and more the market is swinging away from funds under management,’ he said.
‘You have to maximise the profitability during the lifetime of your business because the value is normally at the lowest end of the range (between four and seven times), because you haven’t got sticky clients. They are your clients, not your firm’s clients.’
He added: ‘Businesses can focus too much on the end game and the end valuation and not enough on the journey through it.’