Gaining Peace of Mind: Tips for Selling Your Practice

After being in the financial services industry for over a decade, there is one thing I have found to be an almost universal truth: Independent financial advisors absolutely love what they do. The topic of selling is often sensitive and difficult for advisors who have been growing an independent practice for the majority of their careers.

Many advisors who have built their practices from the ground up are not always ready to sell and walk away. There are some, however, who are ready to slow down after years of a rewarding career and view selling as a path to retirement. Whatever the situation may be, there are several things that you should consider if you want to receive the full value of your practice while also finding the best fit for your clients.

 Knowing When to Sell

“If you find yourself exhausted with the day to day operations of your practice, fed up with the growing maze of compliance, and dream of spending more days in your boat on the water than in the office, it may be time to sell.”

We have found that the majority of entrepreneurs in our industry will drive their practice into the ground before finally letting go and deciding to sell. Typically, this client attrition happens when an advisor starts spending 30 hours a week or less servicing his or her clients without a plan for scaling back. This is dangerous for both advisor and client; the clients do not get the attention they need, and the advisor is left with a practice worth half of its initial value.

If you find yourself exhausted with the day to day operations of your practice, fed up with the growing maze of compliance, and dreaming of more days spent in your boat on the water rather than in the office, it may be time to sell.

The good news is: there are signs around the industry that the current market is arriving at a peak. Regardless of whether or not the market has yet hit a peak, the market at its present state is very favorable towards sellers. In facilitating many practice sales, we have noticed several trends that make the current market very appealing to sellers:

Knowing How to Sell

“Just as you would not let your clients walk alone and uninformed into their financial future, you should not go alone into the wild west of the open market if you decide to sell your practice.”

When selling, there are several steps you can take to ensure that you receive what your practice is worth and that your relationship with your clients is protected until they are transitioned to the buyer.

The first step is to get a professional, market-based valuation of your practice. Knowing your practice value will give you a solid foundational value when listing your practice and when considering offers. Remember, a great verbal offer is only worth its weight in words; no offer is legitimate or final until it is given in writing.

Selling your practice is a life changing event and you don’t have to do it by yourself. While you have the option of selling on your own, taking the guidance of a professional consultant can both reduce stress and save time. A good consultant can help you navigate the intricacies of deal structure, tax implications, and can help you find a buyer who has the capacity and business model to best service your clients. Just as you would not let your clients walk alone and uninformed into their financial future, you should not go alone into the wild west of the open market if you decide to sell your practice.

Know exactly how you are going to structure the deal. If you do decide to sell your business you should already have considered the following: Will you sell individually or as a corporate entity? Are you comfortable providing financing for the buyer? How long will that seller-financed note be? Will there be a look-back adjustment? Think about everything from your closing date to your due diligence period.

Keep yourself organized by making a master timeline that shows the steps you must take to reach your target closing date and monitor your progress throughout the life span of your deal.

Knowing How NOT to Sell

“The less room for interpretation in your deal, the better the end result of your transaction will be.”

Just as there are important steps you must take when making a successful sale, it is just as important that you avoid some common missteps during the process.

Don’t give away too much, too early. Sharing personal information can inadvertently cause your value to drop by jeopardizing your relationship with your clients and staff. We have seen many transactions where an advisor gives out information to potential buyers too early, only to have that same individual call the office asking questions and alarming the staff about the sale. Furthermore, some of the clients found out about the sale through the proverbial grapevine and decided to look for another advisor, resulting in significant client loss and therefore loss in value.

Introducing clients to a potential buyer before your sale is finalized can have a similar effect. On more than one occasion, we have witnessed potential buyers unconsciously–or sometimes intentionally–poach clients from the seller through introductions made too early in the process, causing the practice to lose value. Once you identify a buyer who will be a great fit for your clients AND you complete the sale, then you can work together to transition the clients.

Avoid “napkin negotiations.” You might have a family member in the industry, a business partner, or know another advisor who you know would be more than willing to buy your practice and would be a great fit for your clients. In conversation, that person may even present you with what seems to be a great offer, such as paying more than your asking price or putting more money down than other offers. Regardless of how well or how long you have known this individual, however, make sure any agreement between you is legally binding and thoroughly documented. This not only protects the relationship between you and the buyer, but protects the relationship between you and your clients until the time comes to transition.

Never rely on guesswork when negotiating your deal. An initial offer at your asking price can look appealing, but can end in a poor deal for the seller if the details of the transaction are not written out in a legal document. The more defined the intent of your deal, the better the end result of your transaction will be.

Don’t leave any detail unconsidered. Make sure all the elements of the deal, such as the tax allocation of the purchase, terms of payment, compliance and legality, and the client transition period are clearly laid out. The success of your deal depends on each of these considerations. Having a professional consultant with experience in practice brokerage is a great safety net to make sure you have the details of your agreement laid out correctly and that you understand all the fine points of your deal.

It’s All About the Right Fit

“You may not be able to find a buyer who does things exactly like you do, but you can leave your clients in the best hands possible when the time comes to step away."

In the process of selling your practice it is not uncommon to feel like you are giving up your children or your best friends. This is a relationship driven industry and turning over your clients to another advisor should not be a decision made hastily. Only in rare cases of unexpected death or disability without a continuity plan in place should choosing a buyer be in the least bit rushed.

It’s important to be sure the buyer of your practice not only has the business qualifications needed, but takes the time and emotional energy to treat your clients like family, just as you would. You may not be able to find a buyer who does things exactly like you do, but you can leave your clients in the best hands possible when the time comes to step away.

Understanding the basics of when to sell, how to sell, and how not to sell will put you on the path to a successful transaction where you get the value you deserve, and your clients receive the consideration they deserve. Choosing someone new to service the relationships you have developed over the span of your career can be nothing short of nerve-wracking: You don’t have to go it alone. Give yourself the same sense of security you provide for your clients so when the time comes to sell and take that sailing trip around the world, you can do so with peace of mind.