Acquiring a book of business can be an excellent way to grow your business quickly. It can also be a complete disaster.
“[Buying a book] can make or break a practice,” says George Hartman, president of Market Logics Inc. in Toronto. “I’ve seen practices that blew up because they tried to grow too quickly through acquisition.”
To avoid blow-ups, ask yourself these five questions before you buy a book:
1. How fast do I want to grow?
Consider the size of practice you want to have, and how quickly you want to get there.
If you plan to grow quickly to a significantly sized book, it’s hard to do so organically through referrals, says Hartman. “If you want to become big in a hurry, then buying a book is probably not a bad strategy.”
2. How strong is my practice?
Analyze your practice to make sure it can handle the extra workload of more clients.
“Many advisors don’t have their existing book in working order,” says Lloyd Williams, president of the Exponential Business Ltd. in Lunenburg, N.S. “Adding something new to it does nothing more than create a bigger mess.”
Consider bringing on additional households only if your business is already running smoothly and you feel the practice well below its full capacity.
Buying a book before you’re ready can result in a deterioration of your service levels and upset both new clients and old clients.
3. Can my team handle more clients?
Make sure your staff is comfortable with the possibility of additional clients.
If team members already feel overworked and stressed, you may need to hire additional staff or bring people over from the acquired business, says Hartman.
Use caution when hiring employees of the acquired business, Hartman warns. While that team’s existing relationships with the incoming clients is a definite asset, he says, their ideas about how the business should be run might not be in line with yours.
4. What kind of culture am I looking for?
Compare your business culture and client experience with those of the potential seller.
Consider the expectations of the new clients, says Hartman. If you run an informal practice and you buy a book from someone who took a formal approach to his or her business, you must be certain you can still make the new clients comfortable.
If the difference between cultures is too pronounced and clients don’t like the feel of your practice, they might leave.
5. What level of support will I receive from the selling advisor?
Before getting into any serious negotiations, make sure the selling advisor is willing to offer you some support as a successor.
Arrange for the exiting advisor to introduce you to his or clients and endorse you as a successor, Williams says. The introduction can take place either in a face-to-face meeting or through a conference call.
“It’s the strongest referral you’ll ever get on behalf of these clients,” Williams says. “If it’s done well, it basically guarantees retention.”
IE