TRANSITION TALK

Succession planning is a critical, foundational element in building a sustainable business. Incorporating new talent into your ownership structure is a process that takes continuous planning, evolution, and monitoring. When done correctly, succession planning ensures incredible employee culture, firm growth, and enduring business value. When the brunt of the planning is complete and documented with the help of partners like FP Transitions, firms have to stay focused as they begin executing their plan. Owners and next generation leaders must engage in transparent communication to navigate the inevitable bumps that can occur throughout the planning and execution of a succession strategy. The reality is, we’re all human. Life presents curves, and personal and professional goals can change. These anticipated bumps can necessitate larger course corrections in order to keep your plan on track.

Typically there are three areas where succession plans may need course corrections: if founder/owner plans change, if successor plans change, and if Plan B needs to be activated.

The market for wealth management firms has dramatically changed. 20 years ago, people didn’t see resale value in these businesses. When an advisor retired, they hoped they’d find someone who would agree to take over their book. As the industry matured, sales slowly started taking place. It wasn’t easy – there were no standards for valuation or deal terms, no strategies for client retention, few financing options, and concerns about liability.

These days, those issues have mostly been resolved, providing for a real marketplace and more competitive deal terms for businesses. It’s a seller’s market, and in our open marketplace sellers often field 75 or more inquiries for a listing. Practices are being purchased by synergistic partner firms that are aligned from principles, staff and client standpoint. There are many more options for an advisor than existed 20 years ago.

EXPLORING YOUR OPTIONS

Every firm I have talked with in the last year – both large and small -- has received inquiries and offers If your business plans do not include selling, you could file the offer away for the future in a file that may well include other such letters. On the other hand, maybe the offer sparks your interest to learn more about what options you have in the current marketplace. Selling what you have built can be a good strategy when the time and circumstances are right.

Everyone has a unique vision of their future; we’re all trying to forge a path with our careers to that end goal where we can take a big breath and simply enjoy the life we’ve earned. While we might have an idea of the specific journey we will take, it’s important to remain open to alternate routes and unexpected shortcuts along the way. The hardest step on this journey for most is that which takes them out of the professional world they’ve been a part of for many years.

Unique goals and unique journeys require a creative strategy. For financial advisors, the Sell and Stay® path offers flexibility and freedom for an exit from the industry. There are advisors in the industry who have built a team of advisors with next generation owners and have built an internal transition into the sustainability of their business. The majority of our industry, however, is still made up of single-owner practices. Luckily, Sell and Stay® offers them the option of a similar exit path.

During our 2021 Mid-year Market Update, in addition to up-to-date transaction data and trends, our experts, M&A Director James Fisher, JD and CEO Brad Bueermann, explored some myths and misconceptions about the current M&A marketplace.

The problem with misinformation is that as a buyer you may find yourself discouraged from exploring acquisitions or mergers as a growth strategy or from inquiring on businesses that could be a great fit and expand your reach. As a seller, misinformation can lead you to compromising your fit criteria or from exploring a wider pool of buyers.

The following are the top five misconceptions we hear from advisors and from other market participants.

MYTH: Reported transaction data shows a complete view of the industry M&A marketplace.

No current reporting of annual M&A transactions–including ours–encompasses activity across the entire industry. Even if data is being reported based on publicly advertised transactions, many are private and not publicized as larger M&A deals tend to be. Details and terms are often kept confidential regardless, and, as the old adage goes, "the devil is in the details." So, comparing the data and transaction activity across firms participating in M&A can be tricky.

Selling your business is a big decision. The good news is that demand is high and you have many options for structuring your exit. You also have many places to conduct your buyer search: reaching out to your professional and community networks, pursuing unmonitored listing bulletin boards, entertaining an unsolicited query on the table, or engaging in an open-market search. Most of these strategies result in having to navigate the process alone.

Buyers who have bought businesses before have the advantage of prior knowledge of the acquisition process, but as a seller, you often only get one shot at it. It’s important to understand what to expect. What follows is an overview of the process for selling your business through the FP Transitions Open Market.

PHASE ONE: Finding the Best Match

Business value and selling price can be two different numbers. A comprehensive and professional valuation will provide a fair foundation for your selling price that considers revenue, expenses, client demographics, geographical location, and much more.