Destiny’s downturn dividend

This is not a good time to be in financial services. Not only has the sector been the biggest casualty of the downturn, but after the collapse of financial advice groups such as Storm Financial, clients are understandably nervous.

Destiny Financial Solutions principals Margaret and Reuben Lomas, who focus on property investment and debt management advice, have worked hard at staying close to their long-term clients.

“We’ve actually had an increase in revenue from our current clients , because they’re educated and we look after them,” Reuben says. “Our current client base who are in our system have done more during the economic crisis because it’s a good time to buy property.

“Where we have dropped is in new clients because of low confidence levels. Obviously the inquiry level has dropped, but we’ve already started to see that starting to come back now. We’re expecting to get back to normal in the next six months.”

The company recorded a revenue figure of just under $5 million for the 2007-08 year, and the couple predicts revenue of $4.5 million for 2008-09. That fall is similar to small listed financial planning advice groups such as Count Financial, and far less than most of the larger investment advisers such as AMP and Perpetual.

“Our revenue is tied to client success. They pay us an up-front fee, but we derive income from their success and their property, and during the downturn it’s the upfront revenue that’s been impacted,” Margaret says. “But our on-going revenue actually increased – not by enough yet, but it’s getting there.”

The last $20,000

Today’s downturn is nothing compared to the hardships the couple experienced in the company’s early days.

The pair started Destiny in Perth in 1994 after following a passion for helping others with debt management. “We helped people negotiate with the banks, but also put themselves in a better position to understand finances and budget.”

It wasn’t long before the two decided to move to the east coast, where they both felt more opportunities were available.

“We sold everything we owned, left our jobs, landed on the central coast with only $80,000 and five children under 10, moved into a rental property and had a dream for a business that would provide us with the lifestyle we were looking for.”

But after a poor few months, the two saw their cash dwindle to just $20,000. They approached a local radio station to develop an advertising campaign. The campaign would cost $18,000, which the two say was nearly everything they owned.

The station warned that the campaign would take a week to make an impact, so they made plans to hit the Gold Coast for a break. “But on the way the phone just didn’t stop, and by the time we reached the Gold Coast we had enough clients to book us solid for the next three months,” Reuben says.

“We were totally underprepared, and it required us to sit down and organise a plan for the business to stop it from speeding out of control,” Margaret says.

“Most businesses owners, particularly women, don’t understand the way the finances of their company work, and they need to put in planning and make the business go where they decide it to go, not where it’s going on its own volition.

“Deciding that was a big turning point for us and that’s when we started to become more successful.”

Franchise model

Eventually, the pair decided the best way to manage the growth, and their personal risk, was to move to a franchising model. Destiny now has 21 franchised offices around Australia.

But while the couple says franchising is easier and less risky than opening company-owned branches, it does have its challenges.

“The first thing it does is give you a chunkier business. When you expand and own all the branches, then whatever your goals and visions are for the business are fed down the branches, but when you have a franchise people have a financial interest,” Margaret says.

“But in a franchise, everybody has a different opinion on what should be done, when and why; everyone has an opinion so you can’t make fast decisions, your business becomes less dynamic and you can’t respond quickly to a financial crisis because it becomes more about the network than yourselves.”

Margaret says the decision to expand was a good one and that she has only one regret – not moving quickly enough. She claims holding back can often disadvantage a business rather than keep it safe.

“One of the things I would have done differently is examine my attitude to risk and possibly look to the bank and borrow more money. What we’ve achieved, we’ve done in a longer period of time than we needed to.

“We’d look different with our model; perhaps we’d have less franchisees and more company owned models if we had the risk taking ability to go and borrow more money.”

Margaret is keen to distance herself and Destiny from the failure of groups like Storm. She believes the biggest lesson from this collapse is keeping control of debt, and says Destiny has survived because it uses strict debt repayment plans for clients.

The Lomases have also been careful to be much more restrained than the jet-setting Storm founders, Emmanuel and Julie Cassimatis.

“Once your clients and staff are fine, and when you’re making money, then by all means enjoy your spoils. But don’t have the reward before your clients have seen their own reward.”