September 2, 2022 – Like other business owners, financial advisors have worked hard over the years to build their business into the success it is today. Throughout those years, investments were made to grow your business into one of your most significant personal assets, if not the largest. That means selling your firm to new ownership or the next in line is a big decision and one that you want to do the right way. 

As a seller, unlike buying another practice, there’s a different process to follow. There are questions to ask yourself to ensure you make the best decision while making the path to succession as easy as possible. Here are the 5 questions to answer:

Question #1: Did you assess your readiness to sell?

This is the first and most critical question to answer before putting any plan into place. You need to determine if you are ready to move into a new phase of your business and life. There are three areas to think about: Financial, Social, and Emotional/Psychological. 

After you feel good about your readiness to sell these, you are ready to move forward. All other parts of a transition should fall into place.

Question #2 – How do I find a Buyer?

As you start your search, you’ll want to list out key buyer characteristics that will be important to you for the transition to be a success. For each prospective buyer, think about the following of the individual or firm: Experience, Personality, Compatibility with your business model, Service and Culture.

Start with your personal and business network to start a list. It is the easiest and most worthwhile group of people to start talking to. For example, talk to other financial advisors who have sold their practice or ask your custodian for buyers they may know. 

Question #3 – What due diligence should I conduct?

Once you’ve identified a short list of potential buyers, both parties should perform due diligence to ensure it’s a good match.

Potential buyers will look for the following information from you to help them decide whether purchasing your firm is in their best interest. Topics they may ask about include: anonymized client information and operations, licensing and regulatory information, financial and tax information and existing agreements. 

Since the buyers will have their list of questions and requests, it’s important that you review your firm from their perspective and ensure that everything is in order. Start with a summary document answering all these questions, knowing they will ask. Being prepared with this kind of information will help you maintain control over how your business is portrayed and ensures the buyer sees that you know your business, you are serious about selling, and sets up both parties for a smooth transition.

Question #4 – How do I value my practice?

There are different ways to put a value on your practice. A couple of different approaches to think about include the multiples of revenue method and the income approach. Find out what is best for your practice based on your business mix. Think about hiring an independent consultant to review your finances and business to help you estimate a value. 

Question #5 – What documentation should I prepare?

Once you have decided on the final buyer, documenting the result of due diligence and negotiations is critical. The documentation will ensure that both parties are clear about what to expect in the transition. A buy-sell agreement can be used to formalize the specifications of transitioning your firm to your successor. This agreement should include the details of the business valuation, the terms of payment, and signatures from both you and the buyer.

In addition to answering these questions, keep in mind the intentions of your associates, especially those who will continue to work at the firm after you’ve handed over the reins. Lastly, there’s one other group that’s owed a seamless transition—your clients. Keeping them informed throughout the process is the best way to secure their loyalty to the incoming team.

By answering these questions and preparing to sell, you will have a plan with clarity and purpose, and will help ensure that your business and your clients end up in the best hands possible. 

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