Selling a financial advice business that you’ve built from scratch and developed over years and decades can throw up unexpected challenges, especially if you hadn’t intended to sell. The recent changes that RDR and the end of trail commission have brought to the industry have led many IFAs to consider selling their businesses, but many might struggle to get the best price for them because they fail to put themselves in the buyer’s shoes.
It’s easy in any business after long enough to follow a formula that produces guaranteed results year on year. This invariably happens in businesses such as ours, when a high degree of technical knowledge and a constantly changing regulatory landscape requires IFAs to become experts in their field.
This niche expertise is a two edged sword, however
It often fosters a blinkered attitude in those who have been successful in their field for a long time, making them feel they don’t have to take on board advice or alternative ideas. If life continues smoothly and change does not occur then perhaps this is a workable proposition, but in the last couple of years the industry has undergone such dramatic change that many are struggling to see a future in it at all
New thinking is therefore in order in many firms that are looking for new buyers, many owners never thought they would need to sell their businesses and as a result they never focused on the basic essentials of how to make what they have built up over the years attractive to a potential customer
Here are my seven essentials for maximising the value of your business:
1. Focus on high wealth clients
If you aren’t segmenting your client base you are leaving big money on the table. Any well run, profitable firm will have its own classification system (gold, silver, bronze) for its own IFAs to show who are high worth customers and who aren’t. It goes without saying of course that all customers should be treated with the highest quality service, irrespective of what they are worth, but a potential buyer will be keen to see how many gold standard clients you have before progressing any further. Sitting down to discuss the purchase of an IFA and discovering that the owner has a poor grasp of these basic details is very unattractive for a buyer and most will end the negotiations as there as an indication of future problems that are yet to be uncovered.
2. Focus on where the clients actually are
Equally useful is an understanding of where the client base is physically located. IFAs that have a local clientele and can visit them or expect face to face visits as part of their working day have different requirements and possess different capabilities to those that have customers spread out across the UK or internationally. If I can see where the clients are, I can better understand how the business has evolved and what the client’s needs are. The clients are the business so the more data a prospective seller can give about them the more attractive the business is.
3. Handing over clients without losing them
Clients by their very nature are risk averse and it takes years to develop the trust needed to keep them with one IFA firm; they are notoriously fickle and will take their money elsewhere if they don’t believe it is best served leaving it with you. This is something that all IFAs of course know, and because of this inherent flightiness you might encounter a significant problem when it comes to selling your business. Without clients there is no sale, your client list is your value, but many will become nervous about a new IFA handling their investments. Managing this part of the process, addressing any worries or questions and developing strong new relationships between your client and buyer are essential.
4. Present your business well and get data
Without data, everything is guess work. IFAs hoping to sell their business need to be able to show a clear picture of its assets and liabilities so that a buyer can make an informed decision. Presenting this data well is something of an art form. You need to be clear, concise and confident that your business is capable of growth and worth the price you are asking for it. Just as you would never meet a client unprepared, you cannot afford to meet a buyer without having done the preliminary groundwork; not if you hope to command a decent asking price for your business.
5. Make sure you’ve got proper client servicing agreements in place
As we all now know, legacy is dead. If your firm is sitting on legacy business, you are sitting on a time bomb and no one is going to want to take that off your hands, only for it to explode shortly after they own it. You must make sure that all legacy accounts are transformed to client servicing agreements before you even think about selling your business as any potential buyer will spot this right away and conclude that the business is not worth buying.
6. Provide good data on turnover and profitability
Any valuation is based on profit, not turnover (sanity, not vanity, as the old adage goes), so you need to demonstrate clear data on both, and explain any quarters with high turnover and low profit (moving to new premises, new IT investment etc).
7. Establish value, prove value, demonstrate value
To conclude, your pitch should focus on one thing, value. This is not the same as giving the buyer a bargain, if you have a quality business to sell you should expect to command a decent price. In order to do this, however, you need to demonstrate that what you are selling is valuable and that it will add value to a buyer’s existing businesses. If you demonstrate this, the sale price for your business will undoubtedly benefit.
Bonus step- don’t try to wing the legal side of things
You will need a solicitor specialising in finance to help you and whilst such specialist assistance might come at a premium, trust me, it will be worth every penny. When lawyers want to buy and sell their practices, they employ other lawyers to help them, with good reason. Why? Because they know that doing your own conveyancing is very dangerous without an expert pair of eyes reading the contract for you, it can be a very costly one too.
Are you looking to exit the industry in the next year? If so Bradbury Hamilton is looking to talk to IFAs with firms to sell. Please contact me for further information or an informal chat.