Succession planning can determine practice funding

Darin Tyson-Chan

The head of sales financial planning at Macquarie Bank in Melbourne has advised financial planning practitioners that having a sound succession plan in place can impact the ability of the business owners to attract adequate funding to drive the entity forward.

Speaking at an AXA succession planning forum Jamie Melville said: “Probably the key thing we look for is a smooth transition. Some of the best examples I’ve seen are ones where the transition happens over five to seven years.”

In terms of funding succession planning moves, Melville said the bulk of Macquarie’s involvement has centred on external sales of planning practices and mergers between two existing businesses.

According to Melville, the most important characteristic the bank looks for when funding a business is future maintainable earnings.

“If you are going to buy one of these businesses or we’re going to fund a business, really what we look for is if it’s a profitable business. That’s not just the business being bought, but effectively what the new entity will be,” he explained.

“So really what it is, is sitting down and assessing the underlying dynamics of that business and the merged business to understand what we’re looking at in 12 months time,” Melville said.

A major factor for Macquarie in assessing whether or not to fund a business is the consistency of the entity’s past results and the anticipated results of the new business moving forward.

However, Melville pointed out that arguably one of the most important aspects the bank examines, and one that is often overlooked, is the qualitative factors of the practice.

“The numbers tell you all the dynamics of what we will lend and that, but probably the most impoartant thing is what’s the quality of people behind the business,” Melville said.

“They may be good technically in advising clients, but what’s their ability to manage this business and take it to another level,” he added.