{"id":55817,"date":"2021-05-14T10:21:49","date_gmt":"2021-05-14T00:21:49","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=55817"},"modified":"2024-10-30T08:44:49","modified_gmt":"2024-10-29T22:44:49","slug":"the-practice","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2021\/05\/14\/the-practice\/","title":{"rendered":"After 21 Years – The Practice"},"content":{"rendered":"\n
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After delivering \u2018health checks\u2019 and benchmarking the performance of advice practices since 2000, the team at Business Health has released a summary of the key learnings they have observed over the last 21 years. In the first of what will be a three-part series, this great summary article focuses on key takeaways associated with the structure and activities of an advice business\u2026<\/h3>\n<\/div>\n<\/div>\n

<\/p>\n

\"\"<\/a>Six Observations<\/strong><\/p>\n

Observation 1<\/span><\/p>\n

While client numbers have significantly reduced over the years, the notional profitability of practices has remained static. It seems to us that practices today have effectively trod water in their search for an acceptable ROI \u2013 with the savings provided by technology, reduced client numbers and a more disciplined approach to charging (fee levels and structures) being more than offset by increasing operating costs, regulatory requirements and time pressures.<\/p>\n

Observation 2<\/span><\/p>\n

The need for scale has gradually and surely emerged over time as a key factor. Practices with annual revenue of $500K for example, are averaging a notional profitability level of just 10%. And while this may have been acceptable in years past, we don\u2019t believe it is tenable going into 2021+. Add to this the comments of several respected industry commentators earlier this year, that a revenue level of closer to $1M will be required and it\u2019s easy to see the enormity of the \u2018scale challenge\u2019.<\/p>\n

Observation 3<\/span><\/p>\n

The % of practices seeking external input\/advice through a coach, advisory board or respected B\/PDM has remained frustratingly low over the years \u2013 disproportionate to the value of the practice itself. When we consider the challenges of the 21st century, we can\u2019t help but ask why haven\u2019t more business owners sought advice, guidance and external input into their business?<\/p>\n

Our frustration has only risen over the years when, we can see through our bi-annual Future Ready analyses, that those practices who engage with a coach etc on a regular basis, are achieving a higher level of profitability when compared to those who don\u2019t.<\/p>\n

Observation 4<\/span><\/p>\n

As shown in the table, financial planning practices have not been very adept at putting in place plans for their own business. In much the same way as the plumber with a leaking tap at home, financial planners don\u2019t plan very well for their own business.<\/p>\n

While this trend has remained a major disappointment for us over the years, it has reached \u2018alarm bell\u2019 status in our view \u2013 the marketplace is simply too challenging to navigate without clearly thought out, documented and actionable business plans.<\/p>\n

Observation 5<\/span><\/p>\n

It\u2019s perhaps the ultimate irony that we\u2019ve seen no real progress in the area of succession or transition planning over the years. The % of practices with an effective plan in place, has continued to lag behind the owner\u2019s advancing years \u2013 so much so that we believe that we\u2019ve reached a critical point.<\/p>\n

The fact that succession planning can be difficult, challenging and even daunting does not excuse owners from proactively taking control of their transition planning. If they don\u2019t plan, they will remain vulnerable to the vagaries of the market and exposed to the real possibility of an increasing number of practices coming onto the market, a shortage of potential buyers and (surprise, surprise) reduced valuations.<\/p>\n

Observation 6<\/span><\/p>\n

The accumulator demographic which has comprised the major portion of the client base for most practices has obviously aged and has seemingly not been supplemented by a younger base. Clients aged 60+ now make up 55% of the clientele \u2013 significantly higher than the 38% stat of 2001. They have stayed and they have greyed. And they don\u2019t have the same needs as they once did.<\/p>\n

Tips for practice owners<\/strong><\/p>\n