Nine Questions to Ask If You’re Thinking of Selling Your Financial Advisory Firm

There are many reasons why you might be considering the sale of your financial advisory (FA) firm, or client bank. From seeking an exit strategy for retirement, to reducing the burden of compliance in order to spend more time with clients, selling a business can provide a host of rewards – both financial and otherwise.

While we reflected on the reasons for sale in our recent blog, all too often however, you hear tales of the ‘post-handshake’ reality being somewhat different to expectations. Gaining the satisfaction, you are seeking following an acquisition – whether that’s in retirement or otherwise – can often be difficult.

Slow down the process, take the time to understand what a successful sale looks like to you, and enjoy a thorough courtship with any potential acquirers. Dig deep from the outset to protect your time and reduce headaches further down the line. Success isn’t shaking hands, that’s just the prelude to your story.

Of course, there’s more to it than that. So, drawing upon our own personal experiences – as well as feedback from market research conducted with both buyers and sellers – this straight-talking, nine-step guide walks you through what you should be asking if you’re considering the sale of your firm.

1. What are your goals?

It might seem like an obvious point to make, but it’s important to clearly understand what it is that you are hoping to achieve from a sale – and by when. Having a list of requirements at the very start of the process, can save you time when being introduced to potential suitors.

While you may not know the finer details, you will have some key objectives that are a must. These may include obtaining the maximum sale value, upholding client expectations, staff retention, being able to exit as soon as possible, or maintaining a key role and developing your personal career.

2. Is my proposition clear?

After spending your career building and growing a successful business, attracting the right buyer and achieving a fair financial outcome at the point of sale can sometimes be a matter of simple housekeeping.

You must be ready to showcase your firm in the best light, remembering potential acquirers can only buy what they are able to see. You may know your brand and clients better than anyone, but would an outsider easily understand your processes and proposition? And can they clearly assess the value of your company?

Having a well organised business, with information readily available, will instil confidence in prospective buyers. Formalise any agreements you have – with clients and introducers – and ensure your back-office recording is clear and accurate, with compliant structures and processes in place.

This level of preparation could make the difference in persuading an acquirer to make a quicker decision, putting you ahead of the competition while also making the subsequent due diligence process run much smoother.

3. Does my brand reflect my business?

Your businesses might be exactly what a potential buyer is looking for ‘on paper’, but chances are any prospective buyer will check out your digital presence before even considering a meeting.

During the initial phase of fact-finding, potential acquirers will browse your website, see how you come across on social media and review press coverage, in order to gain an insight into your organisation. You might be clear on the professional and valuable service offered to clients – but does your online presence reflect this?

Consider speaking to a branding expert who understands the financial advisory market, to help ensure your digital image truly reflects who you are as a company – and that any content being promoted is up-to-date and relevant.

This exercise doesn’t have to be expensive or time consuming – particularly when working with an expert in this domain – and could be the difference between getting a foot in the door or not. Don’t be the ‘best kept secret’. Or worse, don’t let your brand show you in the wrong light.

4. Are my revenue streams defined?

A prospective buyer will want to understand your business or client bank – and where the revenue streams are. Therefore, it’s a good idea to analyse and segment your customerbase in the same way any potential acquirer would when considering whether you are a commercially viable acquisition.

You should be able to clearly demonstrate the existence of these various revenue streams – as well as their security. Commission and fee-based income should be clearly identifiable too, plus the division of turnover between the different types of activity you undertake.

If you have various client propositions, these too should be clearly identifiable. Such information will need to be provided in the early stages of a potential sale and confirmed during the due diligence process. As such, accuracy is key in ensuring the price offered at the ‘heads of terms’ stage, is not diluted when the detailed discussions unfold.

5. How long should I take to accept an offer?

In short – take as long as you need. It’s crucial that you understand the culture of any potential acquiring firm – and make sure they appreciate yours – before you sign on the dotted line.

No two organisations are the same and there are going to be cultural mismatches to be aware of – remember during the ‘courting’ phase everyone tends to be on their best behaviour! It is therefore important to really drill down into what could be a complex combination of values and practices.

Even when two well-managed business come together, there are naturally differences in organisational styles. Considering company ethos has an impact on every aspect of the business, finding a company with a similar philosophy is therefore a key consideration for many sellers.

6. Am I surrounded by the best advisors?

Seek help and advice from the ‘best in breed’ – after all, this is a significant decision you’re making, and you want those involved to have your best interests at heart.

Surround yourself with a team of trusted advisers who have specific experience within financial advisory acquisitions. Your core team should consist of legal, tax and compliance experts, and these will become your confidants throughout the process – helping with objectivity and providing great insight into how to maximise your potential at sale.

Amongst other things, a preliminary legal audit could help to identify some realistic parameters in terms of a valuation and will highlight matters of liability both pre and postsale.

This will help you to clearly establish what you would like to achieve in these regards.

Additionally, there are various tax consequences which much be taken into account when selling a business or assets – particularly where deferred consideration is involved. An experienced tax adviser can help you to understand how to structure your sale in order to maximise tax efficiency.

As you progress with discussions, due diligence will involve a compliance review to highlight strengths and weaknesses – as well as any potential risks that may exist for the potential acquirer. It may be worth considering your own compliance audit too, as there could be a few simple matters that you can address, which will help you further down the line.

Examples could include:

– Accurate back office records for clear delivery of information
-Clearly defined advice processes – initial and ongoing
– T&C Files for staff
– Formalising valuable introducer agreements
-Ensuring clients are on the most appropriate service proposition
-Building relationships with any dormant clients.

7. How will the new owner treat my clients?

You’ve worked hard to establish a successful business with a happy client-base. Therefore, you should clearly explain and demonstrate what your customers are receiving at present and learn the new consumer journey too.

Hopefully, you’re very proud of the services you offer and in turn, your portfolio trusts and values the advice being provided. For many potential sellers, making sure standards are upheld is of paramount importance.

Following an acquisition, clients are watching closely to ensure satisfaction levels don’t fall. And in truth, they will seek reassurance that the acquisition is going to strengthen the existing proposition. This may be even more pertinent if you are using this opportunity to retire or leave the industry – and loyalty to you may no longer be prevalent.

For the majority of sellers we work with, they realise that by ensuring values are upheld, as is their own reputation within the industry – even if only a legacy. This may also be imperative to receiving the deferred consideration that you are entitled to.

While future processes and provisions may not be yours to dictate, selling to a company whose service propositions you understand and respect – and being able to share the sale as a good news story to your clients – should make for a better acquisition process.

8. How much should I sell for?

Once you have established your personal goals – and progressed conversations with a company that appears to be aligned with these – it is important to ensure you receive the right financial settlement for your hard work.

Firstly, you should be aware that companies with similarities to your own – in terms of platforms or products used – may bid at a higher price, due to the synergy and economies this will provide to them. Secondly, deferred consideration on part of the sale proceeds should also be expected, and a higher amount may be offered if you are willing to accept a longer deferment period.

In terms of valuations, there are two common methods, and which is used is often dependent on the size of your firm and the acquirer’s preference. For example, a valuation could be based on your recurring revenue, or the profitability of your business (EBITDA).

Make sure you obtain a clearly defined valuation, and thoroughly understand the requirements for any deferred consideration. Under the recurring revenue method, meeting the conditions to receive the balance of monies due is likely to be quite simple and dependent ensuring income from the incumbent clients.

When a profit model is used, you may need to establish the difference between the pre and post-sale EBITDA. For example, the acquiring company may allow certain costs not to impact on your deferred consideration. A legal expert with experience of such sale and purchase agreements, will be able to advise on those clauses to maximise your potential.


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