Are business valuations tumbling? – Wrong question! Is your business value tumbling?

Hands of businessman catching tumbling Jenga blocks

If you’re thinking about selling your business, there’s a lot to consider – who to sell to, when to sell, and so much more. Yet first, you need to understand if you can achieve the value you want or need for your firm.

What’s more, your business’s value is more than a number on a balance sheet. An accurate valuation is an indicator of your company’s health and future potential.

Unfortunately, several changes in the market and the financial services landscape in recent years could mean that your business is worth less than you think it is.

Read on to learn more about some factors that could contribute to the valuation of your financial planning firm.

Business valuations have fallen over the last year

Between 2019 and 2022, 70% of private equity money flooded the intermediary market. As a result, lots of new acquirers emerged.

Many of these were “buy-and-build” acquirers. In simple terms, this means they came to market with a pocket full of cash, an experienced but expensive board, and a need to get a foothold in the market quickly.

Assisted by access to cheap debt, business valuations rose dramatically.

In hindsight, many acquirers would tell you they overpaid for businesses or bought firms that were less than ideal. Also, a large number of those who exited at this time benefited from the wave of demand stimulated by the influx of private equity.

But debt is no longer cheap. Consumer Duty (more on this below) is having a huge impact, and for many firms, valuations have returned to a more reasonable level.

But the real question is not, “Have business values fallen?”, but “Has YOUR business value fallen?”

The value of your business could be ZERO if you fail to demonstrate compliance with the Consumer Duty

If you cannot showcase documented reviews to the correct standard, the value of your business is likely to suffer.

After all, this is what you’re selling – secure relationships with happy clients who value your service and do not pose a risk!

Let’s take a look at what’s changed.

On 31 July 2023, the Financial Conduct Authority (FCA) introduced the Consumer Duty.

Now, regulated financial advice firms must meet higher standards to protect consumers. If the FCA finds evidence of harm or a risk of harm to consumers it will take assertive action.

Although these changes are relatively recent, they’re already having a significant impact on regulated firms.

While many would agree that firms have had these responsibilities to their clients since the Retail Distribution Review (RDR), Consumer Duty has put some rocket power behind the FCA to enforce this.

Recently, the FCA wrote to 20 of the UK’s largest or quickest-growing advice firms (aka the buyers) requesting information about the number of clients paying for ongoing reviews, the number receiving these, and the number to whom fees have been refunded.

The spotlight is firmly on!

This highlights how important it is that your business can demonstrate compliance with the rules.

Failing to do this could mean that any prospective buyer will see your business as a liability – which could effectively render your business worthless.

For sure, the cost of compensating disgruntled clients could run high. According to This is Money, St James’s Palace has set aside £426 million to cover claims from customers charged for ongoing services they never received.

All this to say, due diligence on your annual reviews will play a greater role in the valuation of your business than ever before.

Your potential buyers will expect to see that you have documented reviews of any clients being charged for ongoing services. If you can’t show this, there may be no appetite to buy your business in the current market.

A succession plan could boost the value of your business

Even if the market is healthy and you’ve ticked every box to show compliance with the Consumer Duty, you need a strong succession plan to achieve the best business valuation possible – or you need to be realistic about what your business is worth.

The majority of owners who’ll be exiting their businesses in the next 24 – 36 months will not have an internal succession plan and may have no desire or ability to build one. There is a lot of appetite for these firms, which on purchase need to be fully absorbed into the acquirer.

However, valuations for these businesses have fallen, and they are unlikely to bounce back. They’re now at a more realistic level – around 15% lower than all-time highs – but that was when demand sent all business valuations a wee bit loopy.

It’s not all bad news

On the other hand, if you’ve built a solid business, that’s compliant, growing, and would run smoothly without you, demand and valuations applied to these businesses have never been higher.

Despite the current market challenges for financial firms with awesome internal succession teams, we are achieving higher valuations than ever.

The acquirers, consolidators, aggregators or whatever they call themselves, need to continue to buy to achieve their plans and will pay handsomely for these businesses.

We have first-hand experience in selling financial planning firms and can help you craft an effective and attractive exit strategy tailored to your needs. We will also tell you the truth, so you aren’t set up to fail, and so you have the time to work on your business to achieve the exit you want, NOT for our own end.

If you’re curious about how much your business could be worth, try our handy valuation calculator, or better still, reach out for some independent and unbiased advice.

Get in touch

If you’re an adviser who’s interested in understanding what your business is worth, the Melo team is ready to help.

Hit us up at or call for a chat on 0113 4656 111.


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