Is Organic Growth The New Route To Increase Business Value?

The appetite to buy financial advice businesses has never been stronger. It was already high before the pandemic, but even in the most difficult times, advice firms have shown great resilience and achieved impressive trading figures.

That has only increased demand among external investors.

But the problem that many acquisitive firms, and in particular their investors, are finding, is that there is limited organic growth among the businesses they buy.

Whilst there is a lot of business interruption during the time it takes to do a deal, these issues usually run a little deeper than that.

As a result, demonstrating strong organic growth has become a critical way to increase the value of your business, and attract buyers.

It doesn’t matter whether new business comes from client or professional referrals, marketing activity or just pot luck. 

If you can show that it’s consistently coming in, you will set yourself apart from the pack.

Here are some rules of thumb to see how your business compares in the eyes of an external investor:

• A growing firm’s average Compound Annual Growth Rate for revenue or assets under advice over time should be 10%.
• The sweet spot for the ratio of recurring revenue to new business is 80/20.
• Half or more of your total ‘new’ business should come from brand new clients, not just new money from existing clients.
• Collecting initial high fees for new business is not a good measure of success - conversion of new business to profitable recurring revenue is.
• Your existing client bank should yield 10-15% warm, new referrals every year.
• An acquired client bank, once fully integrated, should also yield referrals after year three.

Ten years ago, there was little appetite to provide debt or equity funding to advisers. But a recent report by Citywire showed the progress of 34 private equity firms whicho are currently invested, with more to follow. 

Debt funding is also more readily available than ever: specialist lenders such as ThinCats and Vertus, sit alongside established banks, providing terms which have attracted a number of growing firms.

Driving organic growth is therefore crucial if you wish to make your business an attractive proposition for investors.

Helping you improve and prove organic client and revenue growth is the key focus of Hatch. Book in a demo to see how we can help.

Want to find out more about how Hatch can help your business?

Book a demo today and lets talk.