Almost half of financial services businesses are being sold for cash, significantly reducing the time taken for parties to transact.
According to Radar Results, cash was being paid for businesses up to as much as $8 million last year for an advice practice in Sydney. Of all the transactions completed by the business in the past year, 46 per cent were bought with cash.
This had the effect of reducing the time taken to buy a practice from around three months to one month.
As to how this cash was being obtained, Radar Results founder John Birt said: “That money can come from the part-sale of their business, which allows for better services to fewer clients. Cash can also come from selling a non-financial services business the Radar client developed or purchased previously.
“Smaller financial planning businesses can also take on one or more partners who can buy in, adding additional money to the combined company.”
In other cases, the money came from an inheritance or family money, particularly as Australia is experiencing an intergenerational wealth transfer with $3.5 trillion expected to change hands between generations by 2050.
Being able to fund a purchase with cash has several benefits, Birt said, in terms of reducing time and costs in approval processes. If a buyer could pay cash, a transaction could be completed within a month instead of around three months if the buyer required financing.
He said: “If you need financing, you may not get it approved, and if you do, it can still take up to two months.
“Selling a business for cash certainly has its advantages over financing options. There is a reduced risk and greater certainty associated with cash transactions. When selling for cash, there is no reliance on third-party financing, eliminating the possibility of deals falling through due to financing issues. This stability provides peace of mind to sellers and streamlines the negotiation process.
“Unlike financing, which may involve lengthy approval procedures and due diligence requirements, cash sale can be completed much faster. This speed attracts buyers and sellers eager to finalise the deal and move forward.
“Due diligence can take one to two days, a sale agreement can be prepared in a week, a licensee transfer deed, if required, can be prepared in two days, and the clients can be moved quickly to the new buyer.”
