No matter which door financial advisors eventually use to exit the firms they own or co-own, they’re more likely to maximize their options and achieve better outcomes if they plan early, determine their priorities, develop checklists, understand the value of their businesses and create sustainable growth.
That’s the message from Lynn Ballou, a regional director with EP Wealth Advisors in Lafayette, Calif., and David Selig, CEO and founder of Advice Dynamics Partners, a San Francisco-area firm that advises wealth managers and asset managers on mergers and acquisitions, valuations, transition planning and capital.
“You want to start with, what is your vision for yourself, your clients and your team,” said Ballou. “Do you as the business owner, or one of the business owners, want to continue to work after the succession plan execution or do you want to use that as the catalyst to walk away?”
When she and her partner sold their firm to EP Wealth Advisors three years ago, her partner was ready to retire but Ballou decided to stay on. Prior to vetting potential buyers, they spent ten years building a better, more attractive business, said Ballou.
According to Selig (who aided the women in their search), “If you have ten or more years, you have no shortage of options.” This should give advisors enough time to improve their business to sell to an outside buyer, he said, or to put in place internal people and develop a plan for them to eventually purchase the business.
“There is an expression in our industry that says you need three successors for every one founder who’s leaving,” he added, because some people being groomed for succession may not stick around and others may be flattered but reluctant to own the firm.
To increase the value of a practice for outside buyers or internal successors, Selig suggests advisors professionalize their operations long before they plan to exit. This includes creating processes, using technology well and hiring specialists in planning, investment management, operations and service. “The ultimate goal if you want to create value is to transform the business into a sustainable enterprise,” he said.
(You can meet and hear more from Ballou and Selig at the “Exit Strategy Workshop: Planning for a Sale” on April 29, just before FA’s Invest in Women conference. Register for the conference and the workshop by clicking here.)
Outside buyers “usually come in two flavors,” said Selig— financial and strategic. Financial buyers focus on assets and cash flow. They may want the seller to simply hand over the keys and the book of business, or they may want a team to stay in place, he said.
Strategic buyers typically offer operational platforms, technology platforms, and marketing and sales programs that sellers can plug into, said Selig. This frees up sellers, to continue to focus on helping their clients. In theory, strategic buyers should present a higher offer than financial buyers because the acquired business will continue, he said.