Grau suggested, because I was an advisor seeking a career change from financial planning to writing, that Behn familiarize himself with my published articles. Behn did so and gained a small advantage. Don't be afraid to find out who your seller is, particularly if he has achieved some public notoriety. Anything you learn about him, personally or professionally, that other would-be buyers haven't taken the trouble to ferret out can give you a leg up on the competition.
He carefully constructed his buyer's listing. At FP Transitions, each prospective buyer can list a handful of key features of his firm and add some brief, general comments. In other words, he's got a very limited opportunity to say just the right things to gain a seller's attention.
Selecting a random buyer's listing from the FP Transitions site, we see he makes the following paraphrased, general comment: "We are a fast-growing financial planning firm with multiple locations nationwide and are interested in acquiring several small firms. Let us introduce our successful business model to your existing client base." This sounds promising until you read through the rest of the listing. This would-be buyer provides no answer to "Designations/Degrees" nor to "Highest Level of Education," which suggests he lacks the minimum desired personal qualifications. For "Operating System Software" he answers "Other" which raises questions about his technology platform. But he really sours things when he indicates he has one year in the business and his total annual gross revenues fall between "$0 and $100,000."
He says he's looking to acquire one or more businesses in the $0-to-$900,000 price range, yet his "particulars" suggest he's incapable of doing so. Could he buy anything? Yes, he might be able to purchase a business segment another advisor is attempting to sell, such as the low-fee, less-complex planning segment of his practice-perhaps clients the advisor picked up earlier on and no longer finds appropriate to his business model. In short, when this prospective buyer shares his information with a seller of, say, a $500,000 practice, that seller will trash that bid faster than week-old leftovers.
Behn's listing, unlike the example above, was internally consistent, as well as congruent with my own listing. That is, it suggested compatibility between the buyer's status and the type of practice he was seeking for purchase.
He demonstrated the capacity to serve more clients. Compatibility between buyer and seller is just part of the equation, though; the rest is capacity. Can the would-be buyer absorb into his practice the clients you are selling? Does he have the idle capacity to do so?
OK, Behn had a fairly typical five-year-old practice. He could demonstrate that he'd successfully marketed, acquired, advised and retained high-net-worth clients to the tune of $15 million under management. Yet, like most solo practitioners with good internal systems, he was nowhere near capacity. It was clear to me that he could take on my 45 high-net-worth clients ($65 million under management), which required 30 hours per week of my time to advise, and provide them the high level of service to which they were accustomed.
Supposed he'd been at capacity? Would he be out of the game? Not at all, but he'd have had to present me with a gameplan for increasing his capacity. If mine was a company with several employees, he might agree to retain them. Doing so would provide a source of continuity for my clients to help them feel more comfortable with the change of management.
Or, if there were no seller employees to retain, he might have presented me with the resumes of several associates he intended to hire. In fact, we might have made this a condition of sale. Perhaps a move to new office space would be necessary and also made a condition of sale.
The key to getting your seller's attention and convincing him to choose you to buy his practice isn't slick marketing that covers up inexperience or lack of capacity. Unless the seller is totally naive or ill-advised, he's not going to select you just because you talk a good game ... especially if your vital stats contradict everything you say about your ability to successfully consummate the transaction. That is, you must be qualified. Conversely, though, the best buyer may be overlooked because he doesn't know how to compellingly present his case and stand out from the crowd.
David J. Drucker, MBA, CFP ([email protected]), a fee-only financial advisor since 1981, is a principal in Practice Merger Consultants Ltd. (www.practicemergers.com), and editor of the Virtual Office News.