A checklist for buying or selling a business

A checklist for buying or selling a business
Photo by Markus Spiske from Pexels

Q. What is the most important thing to consider when buying – or selling – an advice business?

A. They say the three most important aspects of buying a property are location, location and location.

Whether you are buying an IFA practice, or are an IFA being acquired, I would argue the three most important aspects to consider are culture, culture and culture.

The technical aspects of a sale or a purchase are relatively straightforward. There is a proven process to follow and there are certainly a number of rules:

• Do your due diligence, not just on high-risk advice and regulatory processes, but on all contracts and leases (especially property leases with dilapidation clauses).

• Engage HR legal regarding transfer of undertakings (protection of employment) if you are taking on staff. This will help staff feel secure and ensure both employees and the employer are protected by law.  

• Make sure your sale and purchase agreement is clear and fair, but stops the assets you have purchased leaving you later.

• Take good advice about how you structure the deal and the payment for the business.

All these are obvious and can be outsourced to experts, who will charge you (sometimes quite a lot), but it is normally a sound investment. Buying the wrong business can be ruinous. 

And if you are selling, I urge you to do due diligence on the acquirer. If the company buying you is flawed, your deal will fail and thus you and your clients will suffer and you will end up trying to extricate yourself, staff and clients.

• Do not just look at the accounts – really understand the drivers of the business buying you. For example, what are their long-term plans?

• Instruct a compliance audit on the company, and it is important that this is conducted using your documents; just looking at the latest audit conducted on the business isn’t enough.

• Take advice from a specialist financial services lawyer.

• Understand the value of any share options (if payment is part equity) and understand the real worth of any deferred payment. You can bet you will not end up getting more than you were hoping for.

• Be certain of what you are selling. Asset or business? The difference is significant in many respects.

• Take good tax advice – sounds obvious but it is often overlooked.  

You can pay someone to do the obvious, technical stuff. But as the seller, you need to consider some important issues:

• Does this company genuinely have my clients’ interests at heart? Or are they driven by their own short-term commercial gains only? 

• Ask yourself whether you clients are going to find themselves encouraged into expensive solutions (normally under the guise of ease of compliance) when there are better, less expensive products available. 

• Are you prepared to become a client yourself? 

Your clients are used to an IFA approach, where the adviser works for them, cares about the outcome of the advice given and has probably been with them for decades. Is the new adviser reflective of this? Or is the new experience going to feel like a vertically integrated product push?