How to increase the value of your Accounting firm by helping your clients reach their goals

I see a lot of Accounting firms have diversified into Financial Planning which is an absolute logical next step, and a requirement if you are to keep giving your clients the level of advice they deserve. What I have not seen enough of is Accounting firms moving into the finance space – Residential and Commercial Mortgages (Along with Asset and Equipment Finance)

Perhaps most were forced into FP so they could keep giving the advice they were accustomed to giving, and old habits die hard…LOL But seriously, it is an essential part of your clients financial lives, and so is debt. I see a lot of Accounting practices either ignore this side of their client’s financial lives or outsource it directly to the Banks or to a friendly mortgage broker down the street. While this may give the client a sense of satisfaction in that they may get into the property they are looking to finance, or get a good result on a refinance, the structure can be incorrect in terms of helping the client with their long-term financial goals.

Added to this YOU are missing out on a substantial asset that can greatly increase the value of your Accounting firm…. simply by facilitating the needs of your clients.

I have 2 reasons to help you understand WHY this works:

  1. YOU are your clients MOST TRUSTED advisor. YOU are the professional they trust the most and they will go where you tell them to go
  2. They are going to get their finance done somewhere – Is not it better it is done with someone they trust – YOU

Now I am not asking YOU to personally write their loans, rather let us help you develop an internal Mortgage Broker division that will do this for you. Low cost, low risk and high return.

Now back to your business

Math time: I want to show you how you can increase the value of your Accounting practice by doing nothing more than fulfilling your client’s needs.

To begin, Radar Results lists Accounting Firm values as a multiple of the annual fees collected currently standing at:

Accounting fees – business clients 0.75 x to 1.2x
Accounting fees – individual returns 0.5x to 0.9x

Trailhomes (A business that buys and sells trail books) currently lists Mortgage Loan book values at between 2.0 x to 2.3 x. Almost double the value of an accounting firm. An example of how this works is if you have 400 active clients on your loan book at an average loan amount of $500k, you have a loan book size of $200mil. The average rate of trail paid as of today is 0.15% p/a. That is an income of around $300kpa, and at 2.0x – 2.3x a value of between $600k and $690k added to your accounting firm.

I generally aim for around a 15% annual client engagement rate (We assist with your marketing, training the accountants to refer etc) meaning it takes around 7 years to go through an average client base, so it is a long game. Best of all the broker is going to attract more clients into the business by generating outside referrals. Done properly and with the right focus, the mortgage broker division becomes a stand-alone business after 4 or 5 years, no longer relying solely on the accounting firm to deliver clients. It is a great result for all concerned.

Let us look at a couple of case studies:

Case study 1:

A reasonable size firm focusing on mum and dad clients (Individual returns) with annual fees of $1,000,000.00

Based on the average value of this size firm we are looking at a sale price of somewhere between $500k and $900k. (Let us settle on $750k for the exercise)

A practice of this size would generally be around 2000 tax returns / individuals, or say 1200 opportunities (Singles and/or couples)

If we add mortgages into the mix and over a period of time we generate a loan book of $200mil, (Being approx 400 clients or ⅓ of your client base)  the additional value this division brings to the business is around $620k (Not to mention the additional revenue you have created along the way)

The business is now worth $750k PLUS $620k for the loan book = $1.37mil

Case Study 2

For a good size firm with say 400 SME clients, generating an average of $6k in fees annually, we are looking at fees around $2.4mpa, or an estimated value of between $1.8m and $2.88mil. (For the sake of this exercise let us call it $2.5mil)

Generally the average loan size of SME clients is around 2.5 times that of a PAYG (Given the spread of loan types – Residential and Commercial and the client take up rate is far higher too as the accountant is more of an advisor and closer to the client)

Again, if we add mortgages into the mix and over a period of time we generate a loan book of $400mil, (Being approx 250 clients or ⅔ of your client base)  the additional value this division brings to the business is around $620k (Not to mention the additional revenue you have created along the way)

The business is now worth $2.5mil PLUS $1.38mil for the loan book = $3.88mil

Sound worthwhile?

And all we have done is help our clients with their financial goals!

In short, adding a mortgage broker division to your business for residential and commercial lending (Including Asset and Equipment Finance) can add a substantial value to your business.

To show you HOW we do this I am running a webinar and would love you to attend. Given this time of year is quite busy I have positioned it at lunchtime, and it will not go for more than 30 minutes.

Details:

Date: Wednesday 26th July 2020

Time: 1.00pm Syd/Melb/Bris

Link for registration: https://event.webinarjam.com/register/3/4q7los7

Steve Lake
National Business Development Manager
National Lending Group
www.nlg.com.au
slake@nlg.com.au | 0406 076 828

Steve Lake

National Business Development Manager at National Lending Group
Steve has been in the Mortgage Broker industry for over 30 years and specialises in working with Accounting groups to build in-house debt solutions (Residential, Commercial, Asset & Equipment etc).

He also owns Referconnect, a marketing company specialising in linking financial service providers to provide better outcomes for their clients and deliver assets and profit to business owners and stakeholders.
Steve Lake

Financial Services

About Author

mm
Steve Lake

Steve has been in the Mortgage Broker industry for over 30 years and specialises in working with Accounting groups to build in-house debt solutions (Residential, Commercial, Asset & Equipment etc). He also owns Referconnect, a marketing company specialising in linking financial service providers to provide better outcomes for their clients and deliver assets and profit to business owners and stakeholders.