If you have children, you’ve likely had to negotiate between them when they want different things.
I have three kids, and there are times when I want to take my family to dinner, but every one of them wants something different.
We end up in a stalemate, and sooner or later I must make a choice – and none of them end up getting what they wanted.
Advisors can find themselves in a much more serious stalemate than this if they are partial owners in their RIA firm with another advisor.
While we read about all the successful M&A deals in the trade publications, what we don’t see are the times when one advisor wants to sell, and the other partner doesn’t.
In this article, I’ll cover the ground rules you should live by if you’re a partial owner in a firm so you can avoid finding yourself in a stalemate that leads to no one getting what they want from a sale.
The Best Time to Talk About Selling Your Firm
Much like the old saying that “The best time to plant a tree is ten years ago” the best time for firm partners to talk about when they want to sell, what they want to sell for, and who they might want to sell to is before they ever sign a legal contract to become business partners in the first place.
Depending on the equity each partner owns, this may not always be an issue. For example, if one has controlling interest with over fifty percent stake, then they obviously get to have the final word.
However, if you’re 50/50 partners then understanding all the finer nuances of what a sale could mean for your life and professional career is absolutely a must before your RIA firm gets off the ground.
Assuming you didn’t map out all the contingencies, though, you can still have a meeting of the minds to work together and establish ground rules for how each partner could sell their part of the firm – or the firm entirely – to make sure everyone is happy with the results.
Ground Rules for Selling Your Stake
All acquisitions start with a simple conversation, and you or your partner may even be caught completely off guard by an offer. You might find yourself on the golf course one Sunday afternoon where you share your revenue and valuation numbers with another RIA owner, and you excite them enough to make you an offer.
Now, you have a decision to make. Do you take it? What if you want to take it and your partner doesn’t?
That’s where the ground rules come into play. As soon as one partner is motivated enough to consider selling their equity in your firm, you can’t delay any further. The conversation between partners (and even your board if you have one) needs to take place immediately.