What is the Best Business Model for Financial Services?
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Source: The CPA Journal In the next 10 years, the financial services niche is predicted to become one of the most popular for CPA firms. Studies show that accounting firms of any size that offer financial services have greater revenue than other firms. Nevertheless, at this time, a majority of firms does not offer financial services. There are three different structural forms that firms can use:
Number 3 has been the most successful model for accounting firms. The revenues generated flow almost totally to the bottom line. Moreover, it allows the firm to provide a wider variety of financial services. The best way to find a joint venture or strategic alliance partner is to contact your clients and ask them to evaluate the firms that currently provide financial services to them or their principals. Having identified potential partners in this way, make sure that:
Starting your own financial services niche can cost upwards of $66,000 per year with the largest components being personnel and research costs. Acquiring a financial services firm can be an effective alternative if the cash flow from the acquired firm provides an attractive pay back of your investment. It is important to know whether the cultures of the two firms are compatible. If the cultures are not compatible, the retention of clients may be at risk. The target customers must also be compatible. If your clients are small businesses, you won’t want to acquire a financial services firm that serves, say, teachers. Fee-based financial service firms are generally valued at two times annual revenues, compared to around one-and-one-half times revenues for commission-based firms. Earn-outs are a popular form of acquisition because the ultimate acquisition price is dependent on retention of customers and future revenue. From The CPA Journal, September 2005. For the complete article, click on the following link: http://www.nysscpa.org/cpajournal/2005/905/perspectives/p16.htm. |
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