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The role of the adviser as a wealth generator

Author: Derek Blair FCA

Published: 21 Sep 2022

Derek Blair FCA, who describes himself as a “strategically creative, critical thinking, conversational accountant”, gives us his take on the role of a business adviser.

I love a deceptively simple equation

Einstein’s famous mass-energy equivalence equation is a perfect example:

E = mc2

One of my own favourites, which has similar characteristics is:

EV (Enterprise Value) = profit x multiple

Why take on business advisory work?

I believe as business advisers we can have a much bigger impact on the wellbeing and wealth of our clients, their staff, the wider business community and the British economy than if we stick to compliance work. It is often an expansion of an existing trusted relationship and a way to add greater value to our clients. And for me, it is much more fun than just doing compliance work.

As an accountant in practice, I consider it my duty and my mission to help all my clients to have the chance of successfully exiting their business on their terms and timetable. I want to help them build their businesses into saleable assets.

Remember that the multiple is a variable

Most accountants, and their business-owning clients, have a reasonable grasp of the concept of profit, but fewer have a deep understanding of the significance of the multiple in business valuations.

Some of my clients run what I consider to be unsaleable businesses. In many cases, their business is too reliant on them as the founder. They are the ‘brand,’ and any potential buyer may be scared off by the prospect of the seller hitting the beach and the business withering without the care, commitment, attention and personality of the founder.

An unsaleable business might be making a profit, but it could effectively have a multiple of zero. Any zero in the equation means that the enterprise value is zero.

My job as a business adviser is to help my clients to increase their multiple over a period of time, in some cases from zero, in others from 1, 2, 3, even 6, to a higher number.

What factors influence the multiple?

All the functional areas of a business - eg sales, marketing, operations, HR, finance, IT, innovation - can be analysed and granularised into dozens if not hundreds of individual factors. Each of these factors represents an opportunity for improved profit performance but also an increase in the multiple.

Each business is unique and the relative weighting that might be applied to each factor will differ from business to business. There may be “low hanging fruit” – factors that can be improved quickly, with little effort and little cost but may nevertheless make a substantial difference. Other factors will take greater time, effort and expense to improve.

Does the business adviser need to be an expert in every functional area?

No. The business adviser needs to be a commercially aware generalist who can identify issues and opportunities. They also need to develop a network of tried and trusted experts that they can refer their clients to, for those experts to provide specialist advice and to conduct the specialist work.

For example, a business adviser might discover that the key members of the client’s management team are on out-dated employment contracts with just a one weeks’ notice clause. The business adviser will not draft new contracts, instead they will probably recommend that the client engages a suitable expert to create up-to-date employment contracts with a three months’ notice clause and may introduce their client to an employment lawyer or HR consultant who they have grown to know, like and trust over time.

Throughout, the business adviser will remain by the client’s side, acting as their lead adviser and guide, helping them to build up the business and make it more valuable.