Five questions to ask before you sell your book

Finding the right candidate to take over your business is the most important step in your succession plan.

Here are five questions to ask potential buyers:

1. Why do you want to buy my business?
Ask the candidate what his or her intentions are for the business, says Joanne Ferguson, president of Advisor Pathways Inc. in Toronto. Is he or she planning to grow the practice over time, or to sell the book again in the near future?

You need to feel comfortable with the chosen candidate’s plans and how they will affect your clients in order for the process to be a success.

2. What are your values and investment philosophy?
It is important that your successor shares your approach to investing and to business in general. To ensure client retention, you should make sure your clients’ experience with your successor will be similar to their experience with you.

Ask the candidate about licensing, investment style and fee structure, Foster says. If you run a fee-based business, many clients will become unhappy and leave if you sell it to a commission-based advisor.

When discussing investment philosophies, dig a little deeper than simply asking whether the candidates uses a “holistic” strategy or believes in “aggressive” portfolios, Foster says. People interpret such terms differently, so make sure you are talking about the same things. For example, you and the candidate may have different ideas about what an aggressive portfolio means, so you should get as specific as possible.

Discuss real client experiences and ask how the candidate would handle them, she says. Or ask the candidate to provide examples of his or her own. Remember to keep all examples anonymous.

3. Can I trust you?
Ask yourself if the candidate is a person you can trust with your business.

For the transition to go smoothly, you will need a successor in whom you have complete confidence, according to Ferguson. And without a smooth transition, you risk losing clients and reducing the value of your business.

The process will probably take longer than you anticipate, Foster says. It is therefore important that you and the successor get along.

Even if you want to retire immediately, your successor will have questions regarding clients and your business, she says. You have to be present and able to work with the new person.

4. Do you offer something new?
When interviewing candidates, don’t look for your double.

While it’s important to find someone who shares your approach to business and will offer the same range and level of services, Foster says, you will never find a clone of yourself.

Instead, look for a candidate who is similar to you, but brings something new to the business, she says. Maybe the candidate has a lot of energy or a different skill set.

5. How will the transition work?
If you think you’ve found a successor, talk about how you will manage the transfer of the business.

“Before you go too far down the road with a potential buyer,” says Foster, “make sure both parties understand what you are trying to accomplish.”

Sometimes, a successor will keep attempting to alter the original deal, which can make the process frustrating, she says. To avoid unwanted changes, write a letter of understanding, outlining what you both expect and how you will put any plan into action.

IE