One lesson each financial advisory practice should take from 2020 already is this: YOUR cashflow and emergency reserves are your lifeblood.
That’s the same advice you give clients huh?
For advice firms though, reliance upon short term new sales results or new client acquisition is deadly….irregular cashflow is the business equivalent of an irregular heartbeat; at some point it is going to skip too many beats in a row…
There’s a heck of a lot of advice businesses that are just a few irregular heartbeats away from flat-lining right now.
And what has happened to a high proportion of advice businesses is that they never actually turned into service businesses over time. They didn’t evolve beyond being new business sales organisations.
Revenue might have been increasing nominally year on year, and the advisory practice providing a good income for its’ owner, but the business development just didn’t happen. Practices stagnated in reality, but the stagnation was hidden by rising revenues which realistically were more a reflection of rising markets or rising revenue-per-new-sale.
This provided enough cashflow (“blood in circulation”) to look healthy enough. But then all it took was one nasty shock to flatline. When new business or new client acquisition hid the skids and revenue crashed – the commercial equivalent of the irregular heartbeat. Or for some; no pulse whatsoever suddenly.
I do believe though that the reason many advice businesses stay in this transactional model and then encounter the issues they do, and manage them the way they do, is because they’ve never sat down and figured out what their service strategy is. As such they stay in a highly competitive and highly combative state of trying to deliver new “stuff” that people will buy rather than investing in keeping past customers happy and highly engaged.
The essential difference between those advice businesses which stay in the transactional space and perpetually running the risk of flat-lining because their revenue model is driven by hunting and those which have more robust and resilient revenue streams is “service”.
An advisory practice’ ability to survive regardless of how the industry evolves or how society changes is dependent entirely upon how happy clients will be to continue working with your firm beyond the initial advice or initial plan. The service strategy is what will drive the future cashflows for the firm.
That is the lesson we should be heeding.