A Succession Plan: Shaping Your Business For Sale

How to achieve the best price for your business

Financial planning businesses are very valuable – with good reason. They have extraordinarily loyal clients, a sticky recurring income business model and they help their clients deal with an ever-changing economic and legislative environment. What’s not to like?

As a result, every adviser owner is interested in what their business might be worth, should they elect to sell at some point in the future. Good businesses still seem to be fetching solid prices, and that injection of capital at the end of your career can really make a difference to your family’s retirement plans. But how do you ensure your business asset will be in good shape when you’re ready to call it a day?

The key to success is to have a range of areas which work well across your business:

  • Sales and marketing

    • An attractive proposition aimed at your target market
    • Strong brand
    • Good lead flow

  • Operations

    • Strong client engagement and ongoing service processes
    • Skill and depth within your team
    • Solid compliance

  • Business administration

    • Good corporate governance
    • Excellent budgeting, forecasting and financial management

On top of all of these features, you’ll also need to add sound business management and a client-focused (yet commercial) culture.

When you combine these factors, you dramatically increase your chances of running a profitable business with satisfied clients and a good reputation. This makes your business much more valuable and much easier to sell.

The irony is that ensuring these things work well can extend your own tenure. It’s a lot more fun to stay owner of a business that really works!

One reason some owners are looking for the exit door is that their business has ceased to be fun. Regardless of whether you just want to make your business fun again or if you’re looking to sell, the areas you need to work on are identical – so get to work.

Perfect preparation prevents poor performance

If you’re trying to create a high level of value and you want any future sale to be as stress-free as possible, then you’re going to need to start preparing well in advance. Ideally, you’ll have a step-by-step plan over a reasonable time frame of at least 3 to 5 years.

However even in that time frame, you won’t have any room for error. If any aspect of your business or your team goes wrong it can really set you back, so you’ll need to be on top of it.

Mike Godfrey of Cube Financial Planning has shared his story at industry events of how he sold his previous business (FS3) to Bluefin. The key point for me was Mike’s explanation of how long and how detailed the due diligence process was (nearly 12 months in total). As he pointed out, the story had a happy ending, but if for any reason that sale had fallen over at the last hurdle, it would have been at significant cost to Mike and FS3. While they were meeting the demands of the prospective buyer, their time was taken away from running business as usual. Clearly they managed that as best they could, but there was a cost nonetheless.

If you have an internal successor lined up you’ll also need to be sure you’ve backed the right horse (more about this in next week’s blog). As I’ve written about previously, I was the successor in my former business in Sydney, but after 14 years with my business partner it all fell apart.

Creating the value that you’re looking for at sale time means mastering the issues I’ve outlined above and establishing a strategic plan to get you there.

You want to be presenting the best possible business to any prospective buyers – just don’t leave it too late.


Preparing your business for sale

by Alex Rix, Asgard Partners

When you’ve spent years building your business, it’s natural that you want to achieve the best price and terms when you come to sell it.
Here are a few tips:

Allow time

Critically consider your business from the viewpoint of a potential buyer. You want to present a successful operation in terms of revenue growth, customer profile, adviser qualifications, brand and reputation, processes, and infrastructure. Take steps to fix any issues like unbundling of products to instigate adviser charging, cutting unnecessary costs to improve profit, diversifying the customer base (if reliant on a large customer), and resolving any outstanding tax or employment issues.

Prepare well

Historic accounts are required, but forecasts of future earnings are also important. Buyers will want to understand the segmentation of your clients by AuM and to confirm recurring revenue. Investigate the terms of PI run-off cover early, if you think that may be needed.

Obtain entrepreneur’s relief

Ensure that you qualify – avoid building up substantial excess cash that could taint it. Many consolidators prefer to buy the business and assets rather than the company, but can offer schemes to mimic the relief. You’ll need to consider this carefully.

Get issues out early

Buyers don’t appreciate surprises from due diligence, so present your business positively, but also be upfront about any possible skeletons such as past complaint issues. Hopefully you have done all you can to sort out any issues.

Be patient

Maintain a business-as-usual mindset. Continue to focus on profit generation, and keeping to the forecasts, if possible. Talk to several parties and respond to their questions promptly. Selling generally takes longer than you think.

Consider taking advice

You certainly need a good lawyer on your side, but also consider taking corporate finance advice. An adviser should know the best potential buyers and can help you to present your business well, in order to maximise competitive tension between buyers (and therefore price).


Asgard Partners is an FCA-authorised firm of corporate finance advisers that specialises in the financial services sector.

Recent deals include the purchase of Barker Poland Asset Management for Walker Crips, the sale of IFG Financial Services for IFG Group and raising equity expansion capital for Compass Wealth Management Consultants.


“Perfect preparation prevents poor performance.” [click to tweet]


 

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