From Special Report:
Selling Your Business - September 2012
Selling your business: Advising the advisers
For smaller firms, or those without a network to fall back on, the best approach to to finding the right buyer is to call in a specialist
The retail distribution review is almost here and most advisers have already made great efforts to change their business models, achieve the FSA’s required QCF level four qualification and obtain their statement of professional standing.
However, for many others the RDR has proved to be more of an obstacle, particularly for older sole traders who do not relish the thought of having to restudy and sit more examinations, taking time out from meeting their clients.
The idea of having to alter their business model – which has been tried and tested for 20, 30, maybe 40 years, has proved to be the final nail in the coffin of owning an advisory firm. For these advisers, the RDR is the catalyst for them to sell up and, in many cases, retire.
If this is where you are, you have probably read many articles about how it takes 12 to 18 months to get ready and sell your firm. You have probably also wondered about this economic environment and whether you will get a fair price for your life’s work.
Do not be discouraged. What you have is a valuable commodity for which, even in a tough economic environment, other business owners will pay well. And you do not have to panic about whether you have the time to find your perfect buyer, get your firm groomed for sale and look after your clients in the meantime: there are experienced people who will help you through the practicalities, leaving you to get on with running your business until you decide to sign an agreement to sell.
Some advisers may be members of a network, which can help with some support when it comes to selling a business – particularly if another firm within the network, which has the same values and vision, is looking to buy.
There may be some acquisition or introducer programmes on offer from the network and, given the size and scope and experience of the network partners, they should be able to help potential sellers to put a long-term strategy in place.
The relationship between network and appointed representative in particular should mean the network already knows in-depth about a firm’s business model, turnover and ethos. However, the larger the network, the less likely it is that senior network partners will have a real, in-depth understanding of individual firms.
Further, smaller networks whose partners can spend more time getting to know their members’ businesses do not always have the economies of scale to devote to helping owners sell their firms to the right buyer.
When it comes to selling, using the resources of a network may be a good place to start before approaching a specialist who can dedicate the hours to you. For those without a network, approaching a specialist may be the first port of call.
When you decide to sell, it is important to focus on a few main considerations: is there value in looking for a local buyer? Is your paperwork in order? Who should you tell – and when? How can you tell who is a timewaster and who is a genuine seller? And, lastly, how do you secure the right fit?
• Local buyers: It is not always the case that a local IFA owner may be the right person for your client book, or will pay a premium for your business but it is a good place to start. A local firm who understands the local economies, who wants to expand his or her business influence in the region may well pay you more than any other purchaser. So it is worth doing your homework on other firms in the area to see to whom you would trust your clients.
• Paper, paper everywhere: buyers will pay a premium for good records. You need to make sure your firm’s ‘data room’ is up to scratch for when the potential buyers conduct due diligence. They cannot value what they cannot see. Start getting the relevant documents, contracts, commission agreements, business plans, client books, leases and distribution agreements in order, in paper and online form. What are your liabilities, what are the challenges and opportunities facing your firm? Is there ongoing professional indemnity cover? What does the client proposition and investment management proposition look like?
• Softly does it: never make it too widely known that you are considering a sale, even if you are in talks and especially if the potential buyers are local. It is a small world – any careless talk at the tennis club or dog and bull could jeopardise talks. Also, clients could hear about it and get unsettled and professional contacts, such as lawyers and accountants, could begin to look elsewhere for stability. Examine the possibilities thoroughly without making waves, such as looking at buyers’ profiles online in privacy, assured that these buyers have signed a confidentiality agreement when they registered.
• Watch out for timewasters: There will always be firms that want you to do all the work getting your information memorandum put together – which could be between 20 to 100 pages – only to come up with a ridiculously low offer. You have to consider who is serious and who is not – and who might just be a nosey competitor hoping to get their hands on your information memorandum. Size up the seller. Have they had success in the past? Are they reputable? Do they offer high valuations but turn out to be interested only in stripping the value of their acquisitions at the expense of client and any staff they might take on?
• Values and vision: Whether you want to sell to a local business or to a national firm looking to achieve market share, consider the culture and fit of your client base to that model. Do you trust them? Are they considered by your contacts to be fair? Do their ethics and values and vision largely match your own? Consider whether this large potential buyer will let you work with them for a while to help with the handover, not just whether you will get the best price for your hard-earned business. The last thing you want is for your former clients to call you a few months down the line and accuse you of “stitching them up”.
Clearly, the RDR is not far away, and there are still so many regulatory hoops to go through, not to mention looking after clients. Do you have the time to do not just something, but to do the right thing?
This is where hiring a dedicated consultancy specialist can help. There are generalist agencies and there are dedicated brokers who specialise in financial advisers and understand your businesses.
Doing your research well and hiring a professional to coach you through the process means you will not only secure for yourself a comfortable retirement but also do the best for your clients.
Steve Hagues is founder of Retiring IFA