Updated September 20, 2023, at 11:54 AM
Whether you’re looking to buy a firm or thinking about retirement and selling your firm, the work begins well before you “put the word out.”
Think about this, before you begin to paint a room in your house, there are numerous tasks to accomplish before opening the first can of paint. Before you can actually start painting, you have to purchase the paint and supplies, clean the area, scrape and sand, repair holes, tape off areas to protect from unwanted paint, and put down tarps. All this prep work is why professional painters are in such demand!
Similar to painting a room in your house, when it comes to buying or selling a financial services firm, your focus should first be on preparation. Additionally, there are numerous strategic decisions and tactical components to address regardless of buying or selling a financial services firm. This article attempts to illustrate some of the biggest and often forgotten elements.
If You’re Selling Your Business…
If you want a reasonable price for something you’re selling—a car, for example—it needs to look great and, more importantly, run well! You’ll take it to the service station and have any issues repaired, then take it to a detailer for a thorough cleaning and waxing before you ever put it on the market.
You need your firm organized, running smoothly, and looking good to procure the best price possible. Steps sellers should consider before formally announcing their firm is for sale:
1. Clearly define and document roles and responsibilities for everyone. This includes the financial professionals in your officers. If your team is large enough, consider creating an organizational chart to visually explain your firm’s structure.
2. Document your office procedures. Such as financial planning workflow, meeting prep and follow-up, new client onboarding, seminar prep, and follow-up.
3. Outline your office policies. These include your employee performance management process, paid and sick time, holiday schedule, dress code, cell phone use, client confidentiality, social media and technology policy, and more.
4. Establish a healthy company culture. If necessary, determine and remove any counter-productive team members and reward those who work in a positive manner!
5. Don’t guess or make emotional decisions. Before your sale hits the market, you need to understand the true value of your business and how your key performance indicators compare to other firms by using FIG’s Truelytics platform.
6. Think through some paramount concepts and questions.
- What does my ideal client look like?
- When should I put the business on the market?
- How long am I willing to work during the transition?
- When will I share the news with the staff?
- How will I discuss the situation with my staff?
7. Determine any non-negotiables. For example, your paraplanner must remain employed, the purchase must include the building, or the buyer must be a CFP. It’s important to note, the more non-negotiables listed, the smaller your pool of suitors becomes.
8. In your day-to-day activities, adopt a “buyer’s mentality.” Begin looking at your business from a buyer’s perspective to understand if your business decisions, team members, and operations appeal to potential buyers.
Related: Next Generation Now!
Business Characteristics That Add or Remove Value
You want the most from your sale, and that means taking a hard look at the situations that can affect the final purchase price. According to industry sources, here are some items that may add or remove value from your business.
These are some of the items that’ll add more value to your firm:
- Reliable revenue recurring annually
- Strong business potential
- Accelerating or steady growth
- A strong cohort of younger clients
- Ease of transition
- Ease of business
- Efficient, well-documented workflow and integrated systems
These are some of the items that’ll de-value your firm:
- Aging client demographics
- High concentration of AUM from a few clients
- Declining revenue
- Assets in investments that are difficult to transition or service
- Expenses that the buyer will be required to accept (like your lease or staff)
- A service model that’s difficult or expensive to replicate
- Ongoing compliance issues
If You’re Buying a Business…
If you’re purchasing a firm, you must demonstrate to the seller that your business can facilitate merging an additional business into it (adding another client base, more staff, and more advisors) without hurting the seller’s reputation.
Below is a list of items to accomplish before beginning the very competitive process of making an offer on a firm. You’ll notice some similarities to the preparation a seller needs to do.
1. Clearly define and document roles and responsibilities. This includes everyone, including any financial professionals.
2. Document your office procedures. Such as financial planning workflow, meeting prep and follow-up, new client onboarding, seminar prep and follow-up.
3. Outline your office policies. These should include the employee performance management process, paid and sick time, holiday schedule, dress code, cell phone use, client confidentiality, social media and technology policy, and more.
4. Establish a healthy company culture. If necessary, determine and remove any counter-productive team members and reward those who work in a positive manner!
Related: How to Be Brilliant On Your Next Hire (in Other Words…Quit Winging It!
5. Don’t guess or make emotional decisions. Before your sale hits the market, you need to understand the true value of your business and how your key performance indicators compare to other firms by using FIG’s Truelytics platform.
6. Become a student of mergers and acquisitions. You don’t need to be an expert; you just need a working knowledge of the process. People underestimate how much time is involved in this process, and having a good understanding is extremely valuable and keeps your sanity in check! Review online resources, talk to peers who have gone through the process, or reach out to our Next Succession and Continuity Planning team.
7. Stand out from other offers. To help, understand the seller’s desired legacy and ensure you can implement it, that it’s realistic, and that you can build it into your financial modeling.
8. Pre-build your firm profile. This profile is a one- to three-page document highlighting key points about your firm, such as founder information, staff pictures with names and roles, office locations, investment philosophy, photos of the office, and more. Keep it short but sweet!
As you can see, both buyers and sellers need to have their businesses organized and streamlined to turn an optimal deal into reality.
Once a buyer and seller find each other and agree on deal terms, creating a transition and integration plan will be critical to the deal’s success. This is where the hard work really begins.
Let Us Help With Next Steps
If you’d like assistance working through these decision points, discussing your merger and acquisition strategy, or preparing your firm for the process, please email Surge Business Consulting at info@surgebc.com to schedule a conversation!
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