When buying or selling a practice, personalities count as much as multiples.

If you've looked into the sale of your practice-or even just daydreamed about it-then you've undoubtedly thought about such things as down payments, earn-outs and multiples of revenue.

In fact, a recent report by Tiburon Strategic Advisors, the Tiburon, Calif., research firm, entitled "Trends in Succession Planning, Firm Valuations & the Growing Acquisition Market For Financial Advisors," tells you just about everything you need to know about negotiating a transaction. It lists the steps of signing a confidentiality agreement, reviewing financial statements and client base, negotiating a price, drafting a letter of intent, completing a legal document review, determining an appropriate purchase methodology and, finally, drafting a definitive purchase agreement.

What Tiburon's report doesn't discuss, and what is seldom talked about regarding these transactions, is the buyer's and seller's personalities. A successful transaction isn't simply a matter of finding someone with the right amount of cash, consummating the deal and walking away. We're talking about selling clients, so the buyer has to be able to win trust and transfer relationships. Conversely, the seller must be able to let go of relationships that may date back a decade or more.

Here's the deal: Most small- to medium-sized practices change hands by earn-out. The buyer puts money down and the rest of the purchase amount is expressed as a percentage of revenues for "X" number of years. The other critical element in these deals is the requirement that the seller remain involved for some period of time, usually at least a year.

Suppose I'm the seller. You, as the buyer, are going to give me $75,000 down, and 65% of my firm's $250,000-per-year revenues for the next three years, resulting in a multiple for the entire transaction of 1.86. To preserve this multiple, I ask for an employment agreement as well. After all, I'm going to spend my time assisting you in transferring the relationships. If I'm not paid for this time, then my multiple could, in reality, be much less than 1.86.

Brace yourself. According to David Grau, president of Business Transitions LLC, employment agreements are not the norm. The seller's help in transitioning clients over the subsequent year will be included in the purchase price. So, if I'm not getting any income for my continuing involvement, I want to be sure I find a buyer who has more than just money. He's got to have a personality my clients are going to love, and an aptitude for business and for planning that suggests he can move things along rapidly. In fact, looking for these traits-now that I understand how the game is played-is at least as important as establishing the financial terms I want.

But how does one do this? Appraising other people is one of the hardest things we do in business, or in life, for that matter. Let's find out how two successful sellers and one less fortunate buyer dealt with these issues.

Stu Shiroff, 32, had a brief but successful experience as an advisor working under several broker-dealers before starting his own company in 1999. In 2002, an opportunity presented itself in his family's business, a New Jersey retailer of men's and women's apparel. "I enjoyed financial planning, I was good at it, and I'd built a fair amount of assets under management," says Shiroff. But the family business became a stronger calling.

Working through FPTransitions LLC, an affiliate of Business Transitions, Shiroff received 50 inquiries about his practice. The buyer he ultimately chose was based in California, Shiroff's state of residence at the time. But more important were some buyer traits that matched Shiroff's ideal buyer profile. "I was looking for someone with a strong ethical background, first of all, and someone who would pose the least amount of change for my clients. In other words, someone who would be able to offer similar services as me, such as money management and estate planning, and would have the same BD in order to minimize the necessary paperwork."

Shiroff was so successful in his buyer selection that he closed the deal in November 2002, and he and his buyer had pretty much everyone and everything transferred by February 2003. Says Shiroff, "My involvement the last few months has been very limited." Sometimes clients will continue to ask for a selling advisor even though they may like his buyer; after all, they've had a long-term relationship with the seller and may miss his or her friendship and counsel. "Only a couple of my East Coast clients with whom I'd had close friendships continued to ask for me," says Shiroff.