As more financial advisors approach retirement age, one of their pressing concerns is what to do with their practices. After putting so much time and sweat equity into building their business, they want to know how they can get the best valuation for it.
But many advisory firms are undervalued because the owners never take the time to devise a succession plan, claims Allen Duck, co-founder of Eighty20 Advisors LLC. Most advisors agree that they need a plan, but few actually have one, Duck says. "They regard an exit strategy important, but not urgent."
Started in January, Fort Collins, Colo.-based Eighty20 Advisors LLC specializes in helping companies-including small financial advisor firms-receive their optimum value for either a succession or an outright sale to another company.
Currently a two-man operation, the outfit is the marriage of two companies: Next Generation Succession LLC, owned by Duck, and the Damer Group LLC, owned by David A. Cunningham. The firm created its "Eighty20Exit" program with a suite of tools and templates that allow business owners to prepare for their eventual exit from the companies they've built. Also, Cunningham and Duck have written a book, Get Out Alive! A Guide To Extracting Full Value From Your Business, with an abridged version available on Kindle.
Duck came up with the concept for Eighty20 Advisors while serving as a business consultant for advisors. His job was to help them locate, negotiate and secure debt in order to buy retiring advisors' books of business. He quickly realized that only a few small financial advisories had an exit strategy in place.
"Retiring baby boomers will put a wave of businesses up for sale at a time when the next generation of buyers lack capital and are hobbled by debt," Duck says. "Only those well-prepared companies will secure a fair price."
Eighty20 Advisors is not the first firm to tap this market. Among them is Portland, Ore.-based FP Transitions, which started in 1999 and provides equity management, valuation, private consulting and succession planning services. Its principals say they have completed more financial service transactions and mergers than any investment banker or business broker in the country.
Eighty20 has signed on a handful of clients, mainly by word of mouth. The firm's client base has been evenly split between financial services firms and general business enterprises.
In pitching clients, Duck and Cunningham brandish long resumes with their history of developing and acquiring companies. They have worked in fields ranging from medical devices to financial planning with companies valued between $1 million and $30 million.
But they acknowledge that persuading a firm owner to rigorously prepare for retirement isn't always easy. "With small business owners, there's often a reluctance to acknowledge the opinions of a third party, even if you pay for that opinion," Duck says. "People don't want to hear that they're not quite as valuable or not quite as prepared [for sale or succession] as they thought."