Increased Options For Sellers
Advisors have an increasing number of options for what they can do with their practices as they age. They can:
Keep working their book of clients and simply let business slip away as clients opt to work with younger advisors;
Hire, train and mentor a junior to take over the book;
Bring the next generation of the family into the business;
Sell the business to an individual-either to a stranger or someone they know;
Sell to an institution;
Sell to employees; or
Merge with another firm and stay for an indefinite or defined period.

'Stage' The Business
Business transitions are a relatively new phenomenon in financial planning, unlike those in other industries, because the first generation of practices have only recently begun to change hands. How do you begin the process of positioning your practice for sale so it presents well?

An interesting analogy is to look at what the real estate industry does-where homes are typically "staged" for resale. To get it ready, the home owner repairs, repaints, declutters, highlights key features and so forth. In fact, the real estate industry has created a whole sub-industry for staging, complete with trained and certified consultants.

What can an advisor do to "stage" a business to be attractive in the marketplace?

Since it can take years to get the practice ready to sell, why not build your business so that it is always ready for sale? One way is to prepare a practice management manual, which would not only include critical data invaluable to a potential buyer but also serve as an important document for you and your staff to find all the key records of the company in one location.

Imagine that an advisor has met with two other owners selling their practices to see if there is chemistry with them. Both sellers know that the buyer will want to do due diligence. But then let's say in one practice, the seller offers such responses to the buyer's questions as "I'm not sure," "I have that data here somewhere," and "I can probably get that information. Is it critical to you?" The other seller, meanwhile, hands the buyer a practice management manual (after a confidentiality agreement is signed). Clearly, the latter scenario is more business-like. Not only does it make for a better impression, but it also makes the buyer's job a lot easier.

So what would this practice management manual include? A good rule of thumb is to share three years of data or documents-or at least a three-year history of change. More specifically, the practice management manual would include:

1. Client description and data.
The definition of an ideal client and the number of clients.
The total number of households and accounts.
A client categorization system and services applicable to each category.
The approximate age and state where each top client lives.
The percentage of revenue from each category of clients and from each client in the top category.


2. Three years of business plan documents, complete with the results achieved for specific goals.

3. Human resource documents.
An organization chart.
Job descriptions.
An employee handbook.
A sample staff meeting agenda.
A chart demonstrating that written performance reviews have been com-pleted at least annually.

4. Operational efficiency policies and documents, including three to ten key procedures for each of these groups: the support staff, the advisors and the analytical staff.

5. Branding and marketing collateral, such as positioning statements and current collateral Web sites, brochures, invitations and newsletters.

6. The financial performance of the firm.
Revenue broken down by source.
P&L statements with gross operat-ing margin and gross profit margin.
Fee structure.

7. Risk management documentation.
Compliance audits.
Continuity instructions.
Insurance policies.
Disaster recovery plans.

8. Other important documents (e.g., benchmark study participation, client loyalty surveys).

As practices continue to change hands, both buyers and sellers will become more sophisticated. Given that buyers are likely to conduct more thorough due diligence, sellers should best be prepared. But the preparation process can double as good business-as management principles are implemented and followed throughout the business's life cycle. Investing time up front in these critical activities will save time in the long run, likely increase the value of the firm and even enhance the industry.

But getting the business ready for transition is only half the story. The advisor also needs to get ready personally. This is sometimes an even bigger challenge and what we will explore in the online retirement e-newsletter in May.

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