What's on my mind

So you think you want to sell your firm?

20th October 2022

Getting a firm’s selling plan into shape significantly improves the likelihood of a successful outcome.

I spend most of my time engaged with the owners of financial advisory firms talking about their succession plans. Over time, I have come to realise that one of the most valuable services I can offer them is to help their planning process. Getting this into shape significantly improves the likelihood of a successful outcome.

Here are the most essential elements.

Set out the rationale and seek challenge

I encourage every owner to set out why they want to sell their firm and what their rationale is. Has there been a sudden “trigger” such as ill health or is this more of a considered plan, and irrespective of the reason(s), what steps have they taken to ensure that their business is ready, and can be presented in the best light to prospective acquirers?

I then ask them what steps they have taken to challenge their thinking. Have they discussed and agreed their plans with their fellow directors/partners, and importantly their spouses/partners? Sometimes one shareholder wants to exit via a sale, but the others don’t, and where that individual is the majority shareholder, careful negotiation, and consideration of the alternatives such as a buy-out, are required.

Set out the ‘must haves’ and ‘like to haves’

If the rationale for a sale is clear, then the next step is to set out what the owners feel strongly must form part of the sale agreement – or must not happen. The most common requirement is for “clients to be looked after,” and this can mean a firm wish that that investment proposition remains the same and/or the level of Adviser Charges do not change for existing clients. The retention of colleagues is also often an important consideration, and sometimes so is the retention of the premises.

“Like to haves” may be to retain the trading name for a period, or the re-allocation of clients to other advisers in the firm if the owner is planning to exit soon after the sale.

Acquirers in my experience feel more confident about owners with clear views and wishes – if they are realistic!

Get the right advisers in place

It is especially important to have the appropriate level of professional support in place before initiating a sale process. Some already will (hopefully) be, for example, the accountants/auditors, but they may not have the required level of tax knowledge. Most firms have relationships with solicitors, but it is vital to retain a firm that has specialist knowledge in relation to the sale of financial planning firms, and we are asked to recommend such firms in most transactions in which we are involved.

The other key adviser is the firm or person who assists in arranging, negotiating, and co-ordinating the sale. Some owners of firms seek to undertake this on their own, but the adage, “you don’t know what you don’t know” applies, and it is likely that the terms of the sale let alone the likelihood of achieving a good outcome will be improved by retaining an experienced firm of business brokers/M&A consultants.

Get the right resources in place

Many transactions are made more difficult or even fail because there is not enough support in place to deal with the due diligence and information requests. This can in part be dealt with by support from the firm appointed to work to sell the firm and is another reason to appoint one.

Have a back-up plan

Not all sale processes are completed first time around for a variety of reasons, some of which are outside the seller’s control. It is therefore important that owners plan and accept that they may need to repeat the process, and for that reason continuing to effectively manage the business day to day is vital.

In summary, good planning is likely to lead to better outcomes.

This article was first published on Money Marketing

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