Thinking of selling? Get real!
Rumour has it that we can expect to see a flood of financial advisory practices up for sale before the end of the year. If you are considering selling your practice then you need to get serious about several issues, particularly in the current environment
The market is abuzz with the rumour that it will soon be flooded with financial advisory practices for sale. Underpinning this rumour, apparently, is a strong desire to avoid writing the RE exams and to exit an industry that is becoming increasingly legislated.
But we also know that the average age of financial advisors in South Africa is over 50 and that more and more advisors have realised that their practices represent a valuable, saleable asset. Add these points to the fact that the economy is looking up and we would expect to see more practices come onto the market despite legislation.
Seller’s market
Interestingly, we have been made aware of a number of advisors on the acquisition trail but, as yet, have not evidenced an increase in the number of potential sellers. It could be a seller’s market and if you are considering selling your practice then you need to get serious about several issues, particularly in the current environment.
What is your real intention?
If you put your business up for sale, make sure you mean it. Feeling the water in case a prospective buyer comes up with a good offer could result in some embarrassing questions from clients and staff who get to hear of it.
Ask yourself several important questions and make sure you have firm real answers.
• What is your reason for selling? Simply opting out will reduce your asking price. If you’re planning your retirement then structure your exit, involving clients and your successor in the process.
• What is your time frame? If you’re set on getting out quickly, be prepared to accept a lower price. By being prepared to remain involved, even for a period after the sale date, you may increase your asking price.
• What is it that you want to sell? There is a difference between selling your client book (or a part thereof) and selling your business as a whole. Some potential buyers will only be interested in your clients. Remember, too, that your decision will also impact your staff.
How real is your price?
Sadly, most advisors overvalue their practices and face disappointment down the line. The more your clients love you, the greater the risk that the value plummets when you are no longer in the picture.
Goodwill has little value in a financial advisory practice except in the case of a major business with a substantial reputation that can be maintained going forward. A multiple of earnings sounds like a good way to value a business, but doesn’t hold up during the negotiation stages.
Take the time and spend the money to undertake a professional valuation of your business.
Are you making real preparations?
What are you doing about readying your business for sale? And what can be done to enhance and sustain the value of your practice? Effective business management, even in the short term, can improve profitability and up the value of a business. Sustained over a period of time, better management can have a significant impact on the resale value of the practice.
It’s been said that the value of your business is the amount that the buyer will write on the cheque. But whether you are selling the business in its entirety or all or part of the client book, your clients are key to the transaction. They generate the revenue and will only continue to do so if the business transition meets with their approval.
