The importance of long-term planning

The more planning goes into the process of exiting an advice firm, the far more likely it is that the outcomes will be better for all those involved – the business owner, employees, clients and the acquirer.

It is never too soon to think about or begin planning the process by which you might one day want to exit your advice firm.

Or, as Victoria Hicks, acquisitions director at The City & Capital Group, puts it: “You should start thinking about the sale on the day you set up the business.”

She says: “Keep planning, considering and adapting as time evolves in case something catastrophic happens and you need an exit plan in place at short notice.”

Paul Morrish, corporate director at Succession Wealth, agrees that it is never too soon: “Every sale will involve extensive buyer due diligence.

Keep planning, considering and adapting as time evolves Victoria Hicks, The City and Capital Group

“So if you have run, organised, documented and delivered all aspects of your business at a high quality and can easily demonstrate that, then you are effectively always able to showcase that to an acquirer at any time.”

Taking your time

While a deal might only take a few months to transact, it is probably safe to assume that you need to have several years set aside in the run-up to properly plan the sale.

Ms Hicks says: “In reality, a sale can take anything up to five years.

“The first 12 months should be an internally-focused, forensic look at the business – working through the processes which will inevitably form part of the due diligence phase, further down the line.”

At least two years of planning is required to compile a robust set of management accounts that will prove how the business is, and could, be run, according to Simon Goldthorpe, joint executive chairman at Beaufort Group.

“However, you’re likely to achieve a much stronger outcome if you start your succession planning at least five years prior to your intended retirement,” he adds.

Henna Fry, head of corporate development at Foster Denovo, says that from a due diligence perspective, acquirers typically want to see a three- to five-year track record.

“Ahead of any sale process, the advisers should think about their compliance track record and whether there is any need to address the direction of travel in terms of compliance processes that might be evidenced – for example, in improved file quality over a period of time,” she explains.

Mr Goldthorpe advises that in the years prior to selling, it is worth also making sure that your back-office process is equipped with technology to ensure that data can be transferred easily.

Part of the reason why long-term planning is so important is to secure the best possible future for the business.

As Mr Morrish observes: “Selling your business isn’t like selling your car, where you are unlikely to ever see the car or hear about its ongoing performance on the road again.

“Your clients and your staff will hopefully be in the business long after it is sold, so ensuring that their future ‘home’ is as you would wish it to be, is a key part of your own due diligence on who you might sell to.”

Continuity is key

Here, the main aim is continuity.

But to achieve this might mean waiting until the sale process is further down the line before informing your employees, and in turn, clients.

Don’t tell your employees too early because you may create expectations about something they don’t necessarily fully understand Chris Budd, The Eternal Business Consultancy

Chris Budd, business consultant at The Eternal Business Consultancy, warns against informing employees and colleagues too soon of your plans for the business.

“It’s really important you don’t tell your employees too early because you may create expectations about something they don’t necessarily fully understand yet,” he explains, referring in particular to structures like an employee ownership trust.

He says that business owners need to take time to pave the way – and that goes for telling clients too, “because the amount of money you get from a sale is going to rely upon the clients staying”.

“A key consideration for advisers looking to sell their business should be to maintain client and staff continuity as much as possible,” says IWP’s chief executive David Inglesfield.

“Choosing an acquirer with the right fit culturally will be essential to avoid any client or key staff attrition and retain the value in the business, as well as ensuring it can grow.”

If there are some difficult conversations to have, then have them. That is the advice of Ms Hicks.

“Being open and honest from the early stages – and offering a share of the sale, if needed – will help encourage key persons to stay,” she says, adding that the worst thing to do is pretend such thorny decisions do not exist.

“If customer loyalty will be affected as a result of the buyer’s differing approach to service, charges, or investment propositions, it’s important these are addressed early on, especially where you consider a large proportion of the consideration is often dependent on client retention.”

Mr Inglesfield agrees that another long-term consideration is staff succession planning, especially for key roles such as advisers.

Before and after

When planning for the sale of their company, advisers will need to account for a period of time after the transaction has completed, as the work does not stop there.

As Ms Fry explains: “Many advisers would be expected to stay on for the initial 12 to 24 months to ensure a smooth transition of clients and assets, leading to good client outcomes and integration onto the operational platform of the acquirer.”

Ellie Duncan is a freelance journalist