We are all potential sellers or buyers

02 April 2012 Esmè Davies, Celestis

Buying or selling a practice or client book is not for the faint-hearted. Get it wrong and you stand to lose money or, even worse, destroy client relationships and mutual trust that took years to cultivate.

You may be reading this article because you’re nearing retirement age and considering your options. How do you extricate yourself from your financial services business? Then again, you could be wondering how to maximising your practice value before you even think about retirement.

A way out

Maybe your practice is shipshape but you do not know how to value it. Or, everything is set to go, but you are battling to find Mr Right to take over. You might only be a "part seller” wanting to dispose of a section of your client book or a specific line of business. Or you could be ready to throw in the towel – and looking for a way out.

Does any of this resonate with you? Perhaps you are shopping – looking to buy a business or client book to get you started – or give you access to a specific type of client. Maybe your strategy is to double or triple the size of your business overnight, through acquisition, rather than by organic growth that might take years?

Avoiding the pitfalls

Buying or selling a practice is a risky business. There are numerous pitfalls along the way – any of which can cause financial loss or immeasurable damage to both reputation and long-standing relationships. How do you buy or sell a financial practice or book of business with complete peace of mind?

The good news: You need not go it alone. There are industry experts and specialists able to assist you in the various aspects of a sale or purchase. In the meantime, we have outlined a few issues for you to consider:

If you are a (potential) seller:

What are you selling? You need to clearly define what it is that you are selling. Are you selling the entire business (the close corporation or company), the entire client book or a specific group of client relationships? You must consider which assets are included or excluded and how the transaction will affect your staff.

Make sure that the practice is ready for sale by getting your supporting material complete, up to date and presenting your practice in the best possible light. Examples may include audited financial statements, compliance reports, client contracts and a comprehensive client database. A recent client satisfaction survey will go a long way to enhance your credentials too.

Know what you are worth, and be prepared to substantiate this number by means of an independent business valuation. Using a multiple of recurring revenue is an unscientific "rule of thumb”. Although a proper business valuation does not come cheap, it may add thousands to your asking price.

Take your time in choosing an appropriate buyer that is suited to your clients rather than simply accepting the highest bid. Do not allow yourself to be rushed into a decision.

Be prepared to stay on after the sale to assist with a smooth client handover and do not expect all your money upfront. Agree to a written client transition program that covers all eventualities, including who will be seeing which clients at which venues and for how long after the sale.

Involve specialists. Get an attorney to draft the sales agreement and share the costs with the buyer.

If you are a (potential) buyer:

Know what you want. Make sure that you are able to articulate exactly what you are looking for.

Be prepared to sign a confidentiality agreement prior to receiving any information from the potential seller.

Conduct a thorough due diligence of the practice and be sure to take some experts along, including a practice management consultant, compliance officer and an accountant. Talk to the staff and ask the right questions. Ask to see the audited financials and compliance reports at the very least. Remember, what you do not know can hurt you later.

Consider the various payment options available to you and select the most appropriate model. Always allow for the bulk of the purchase price to be paid over a period of time. This way the potential seller will more likely be more committed to getting involved and making the deal fly.

Post-sale implementation. A key to the successful sale of a practice or client book is what happens after the transaction takes place. Maximising synergies, retaining clients and sustaining profitability during this period requires well thought out and implemented strategies. Insist on personal introductions and client "handover” meetings for all category A and B clients, at least, together with the seller staying around for a minimum of 12 months. Draft a clear list of roles and responsibilities for yourself and the seller.

An independent platform is an online "market” that was created to assist with the trading of independent financial advisory practices and client books in South Africa. The site was launched during September 2011 and is the result of a joint venture between FAnews, Celestis and Moonstone. There are currently more than 45 practices registered as either buyers or sellers on the site.

Key features of the website include:

• The ability for buyers and sellers to meet one another in a safe and secure environment.
• Both seller and buyer listings are anonymous with information released at their discretion.
• A number of additional services are available to assist potential sellers in preparing a practice for sale, value a practice or client book, conclude negotiations and draw up agreements, etc. Specialist knowledge is available and, where required, we will put you in touch with industry experts able to provide the assistance you need.
• On average, each of our sellers has been contacted by at least three different buyers while the listings generated more than 120 emails between members in the first six weeks.

Getting it right

The site has already received some fantastic feedback:

"I’ve had a fantastic experience using this site. It’s a great way to put buyers and sellers together and we are involved in negotiations as we speak.” ~ Hayden Simpson, Buyer.

"I’d like to compliment you on a very slick and professional website.” ~ Anonymous, Seller

"The fspExchange site offered me a confidential portal through which to liaise with prospective buyers. The information divulged was at my discretion and totally within my control and while there was keen interest, I was not inundated with time wasting enquiries. I was able to transact with the parties which I had the most in common with and ultimately struck a deal with the best fit. Thank you to fspExchange for providing the facility - the entire experience was very positive. The industry is fortunate to have this avenue!” ~ Anonymous, Seller

To find out more, log onto or contact us on +27 21 530 5866 or

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