Preparing your business for sale

David Villa-Clarke - Business Development Consultant

I have met many IFA’s who wish to sell their business at some point in the future. How much can I get for it?  I want 6 times income! Who is paying the most?

All very good questions but in my mind, not the pertinent question. When I appraise a business, the first question I have is “what is your exit strategy”? What has been the plan to get your business into shape in order to maximise the goodwill that you have built up over the years? Sadly, not many IFA businesses have an exit strategy. They are invariably too busy working in the business, rather than working on the business. They tend to think about exit as they are approaching retirement age, or as regulation forces them to take their business in another direction.

An adviser helps their clients build a financial plan, which is monitored on an annual basis, in order to achieve their personal and financial goals. Risk questionnaires are used to help clients identify the level of risk that they are prepared to take within their financial plan.  This same level of planning should be applied to business owners in their attempt to develop an exit strategy.

An exit strategy will not guarantee you sell your business for the price you want. It will however put you in better shape when you are looking to sell, or when potential acquirers are showing interest.

Top three things that an acquirer is looking for:


1. Compliant Business

To capitalise on your business, an acquirer would prefer you to have zero upheld complaints and no outstanding liabilities.  In reality if you have a large practice and have been trading for a while, you may have had past complaints.  When conducting due diligence, the acquirer will be reviewing your current and past processes, focusing on compliance, complaint handling and a detailed review of your client files and documentation. Do your files tell a story of the transactions that you have conducted? Most importantly, can you demonstrate the suitability of your recommendations in the event of a FCA visit?

2. Client Segmentation

Your business is being purchased for the potential that it can bring to an acquirer. An example I often come across is where an adviser has hundreds of clients that he/she cannot physically service. They can therefore become a long term hindrance if they are not getting an annual review or receiving any other contact from your practice. Clients come and go and an acquirer would want to know that you have a concrete relationship with your clients. It makes sense to have a clearly defined strategy for working with your clients, demonstrating the differentiators that you offer to your ‘bronze’, ‘silver’ and ‘gold’ clients. This will aid with integration of your clients into the new business. Do not underestimate the power of ensuring that you have a streamlined investment proposition.

3. Investment Proposition

An acquirer would prefer that investments are in an easy to manage format that have passed the client suitability test. Does the client’s risk profile match the investment that has been recommended by the adviser? Is the level of volatility appropriate and how is it being managed? The FCA have stated in their review on assessing suitability, that businesses must have clearly documented processes on how they have arrived at their recommendation and can demonstrate suitability. This one point alone can devalue your business if you cannot meet the FCA requirements. Therefore, it is important that you review your investment proposition to ensure that it is in line with current FCA thinking and limit liabilities for a potential future acquirer.

Of course there are many other factors that come into play when an acquirer is looking to buy, such as location of clients, synergy savings, reputation and good record keeping. Selling your business for the maximum amount requires you to work on the business and have a well thought out strategy that will help you capitalise on the practice that you have built.

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