Advisers should consider succession planning even before setting up their own practice, according to the head of marketing at Sense.
Intermediaries ought to exercise a degree of foresight when taking business decisions that will affect the future value of the business, said Phil Bray.
Decisions in relation to technology, service proposition and the processes in particular will influence the future valuation of a company, he added.
“Think about it like your home,” said Mr Bray.
“The decisions you take from the day you buy it will affect future saleability, as well as the price you achieve. Loving and caring for your home will maximise its future value. Add pebbledash, neglect the maintenance or fail to get the necessary permissions for extensions and the opposite will be true.”
Risk is pertinent in the minds of potential buyers. Advisers selling the practice are likely to advocate the outright sale of equity, and thus transfer ongoing liability on to the new owner while benefiting from the favourable tax treatment of the sale.
Buyers, meanwhile, are likely to favour the purchase of assets or goodwill, Mr Bray said, adding that business owners who can demonstrate that they have taken steps to mitigate risk are able to negotiate the best terms when they come to exit.
He said: “Buyers of multi-adviser practices will want further reassurance that the asset they buy will not be eroded by advisers leaving and soliciting clients. In part, that means ensuring appropriate contracts are in place for the advisers who work for you.
“Nervous buyers are more likely to reduce the purchase price or increase the amount deferred – which will then be paid only on agreed key performance targets being hit – which, of course, as the seller, you will struggle to control.”
Buyers will also muse on the risk the acquisition is likely to pose to their existing business. The integration process can be a disruptive period for client and staff alike, according to Mr Bray.
He added: “Put yourself in the shoes of a buyer. Think about the factors you would consider when completing your due diligence.
“What questions would you ask and what are the answers that would make you more comfortable?”
Areas of weakness within a business can be exposed by reviewing the company from the buyer’s perspective. Taking steps to address any issue before a potential sale will help advisers to increase the value of their business and their ability to find a buyer, Mr Bray said.
“Of course, a sale is only one option; mergers and internal buyouts can work well, too, with the latter being particularly effective in reducing the nervousness of clients and staff,” he said.
“However, success still lies in effective planning.”
Ray Galt, director of Glasgow-based Macarthur Denton Asset Management, said: “Yes, advisers can up the value of their business by implementing technology and recurring processes, but the sale of the business will ultimately fall under the environment in which the business is sold.
“Advisers do not know when the next mis‑selling scandal will hit and whether they will be caught out by it in the future.”
