Among all the discussions i have in coaching advisors, no topic is more popular than succession planning. Often, however, those conversations take on a somewhat sombre tone for either, or both, of two reasons: the advisor has waited too long to begin the process of finding and installing someone to carry on his or her life’s work; or the advisor has unrealistic expectations about what his or her practice is worth.
That’s why I was eager to read Fast-Track Secrets for Making Your Business Saleable, co-authored by the husband-and-wife team of Lorraine and Rob McGregor, which appeared could address both of these pitfalls.
Although not directed specifically at the financial advisory business, the lessons in this book are both applicable and timely for any advisor who recognizes that he or she is building a business as well as a practice.
I have long encouraged advisors to work consistently on preparing their practices for sale, even if a sale is not in their short-term plans, because you never know when events or circumstances might trigger the desire or the need to move all or part of your practice to someone else.
To demonstrate what it takes to make any business saleable – for the highest price, to the most qualified buyer, at any time – the authors provide a list of readiness requirements. Applying these to the world of a financial advisor, they would be:
1. The practice has a written plan for continued growth, so that a prospective purchaser can predict future revenue, which, ultimately, determines value. In addition, in most cases, future revenue will be used to fund the “earnout” provision we typically see in purchase agreements today.
2. All internal processes and systems are designed and documented to support that growth plan. For example, if the growth plan relies to some extent on marketing through seminars, proof of past success with seminars and a written procedure for organizing such seminars will enable a buyer to continue that marketing activity.
3. The selling advisor has demonstrated leadership and has aligned people, resources and actions to achieve results. This requirement would be demonstrated through a written strategic plan, a method for measuring progress and evidence of having met stated targets.
4. Profitability is somewhat predictable, in that costs are well managed and a significant portion of revenue is recurring annually. Many financial advisors do not have financial statements sufficiently detailed to illustrate prudent fiscal management of their practice.
5. The business is focused on either a segment of the industry that is growing or a need that is expanding rather than based on commodity- and price-driven products. For example, a practice built around wealth management and retirement income planning for aging baby boomers is likely to be more appealing than a practice that relies on high-volume stock trading.
6. The departing advisor has a “secret sauce” that sets him or her apart from other advisors and creates a market advantage. In today’s world, in which consumers have largely commoditized financial products (and advisors, for that matter), perceiving them to be all the same, a practice with a proprietary process, a unique marketing capability or specialized knowledge will be more valuable – provided that distinctive characteristic can be transferred.
The process outlined in Fast-Track Secrets is built around a four-part “blueprint” that you can complete as you progress through the book:
– handle reality: Conduct an objective, candid analysis of the current situation.
– hone goals: Set personal objectives for yourself as the departing owner, as well as for the business.
– hunt acquirer: Determine the best type of buyer and how to engage him or her.
– helm transition: Prepare for and manage the transfer from seller to buyer.
There are numerous checklists and thought-provoking questions for would-be vendors to consider. Most valuable is the “Game Plan” at the end, wherein you can challenge yourself with a couple of dozen questions to determine whether your business is really in saleable shape.
Although the title of the book suggests the exercise of preparing a business for sale can be done quickly, the authors are clear that this is a two- to four-year process. In my experience in dealing with advisors, that would be the minimum period for a successful transition of an advisory practice. The relationship an advisor enjoys with his or her clients is far more intimate than, for example, a manufacturer would typically have with its customers. Consequently, it requires more time to find the right successor. IE
Fast-Track Secrets for Making Your Business Saleable
by Lorraine & Rob McGregor,
self-published; 250 pages, US$24.99
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