During a recent succession planning seminar facilitated by Celestis, speakers raised a variety of issues pertinent to those interested in buying or selling a financial advisory practice.
Adam Cowell of London Cape Town Capital got the ball rolling by asking “just how ready are you to sell?” Like the proverbial shoemaker whose children walk around barefoot, many of us have well advised clients, while our own affairs need attention.
Selling your practice could mean changing from a career that has spanned many years to something entirely different. Are you ready for a change of that magnitude? And what are the implications for your fellow stakeholders, if you have any, or your staff? To say nothing of the onerous task of transitioning your clients from one advisor to another.
What is it worth?
As Cowell pointed out, getting your house in order could mean addressing issues of your own making. All too often, the biggest hurdle is dealing with unrealistic expectations: our own. The value of your practice is ultimately worth the amount that a willing buyer is prepared to pay but this is may be very different to what we expect or the numbers provided by the formal valuation we commissioned.
Another common problem is the result of creative accounting. Published financial statements will be used in the valuation and due diligence audit, and tax friendly expense management could come back to bite you if understated profitability reduces the selling price of your business.
Value of relationships
Being particularly good at what we do can potentially create one of the biggest stumbling blocks to a smooth takeover of the business. We provide brilliant advice, deliver excellent service and end up with clients who only wish to deal with us. Notwithstanding the powerful relationships you have developed, the negative impact of this on the value of the practice can be devastating.
It is issues such as these that can mean the difference between owning a financial advisory practice that is a saleable asset and one that becomes a liability, a millstone around your neck, as you strive to extricate yourself from the business and retire with grace.
Due diligence
Richard King, previously with BDO and now an independent consultant addressed another matter, more relevant, probably, to the potential buyer of a practice. He spoke about the importance of an effective due diligence audit. As King puts it, there is nothing wrong with risk. Rather, it is a question of managing risk and that, to begin with, means understanding it.
Anyone considering buying a practice will need to answer three questions: whether to buy at all, how much to pay and how to structure the acquisition. While the use of a due diligence audit to answer the first two questions is clear, it may be less obvious that the audit should provide more than sufficient pointers that will indicate the terms and conditions of the most appropriate deal.
Expert advice pays
King is emphatic. “What you don’t know will hurt you,” he says. Caveat Emptor (let the buyer beware) applies and the last thing one would want is a nasty surprise, particularly once the deal has been concluded and ownership changed. This emphasises the importance of the due diligence audit.
At the end of the seminar, one thing was very clear. Buying or selling a financial advisory practice is a complex matter. Seek expert advice. It will pay in the long run.