When benchmarked against the average family home, a financial planning business is a valuable asset. Yet, when it comes time to sell this valuable asset most financial planners are underprepared and inexperienced. Poor preparation, lack of knowledge and lack of experience in selling, often equates to poor results at the time of sale compared to the alternative.
For many, selling a financial planning business is not about retiring. It is about reducing workload, changing careers, pursuing other interests, or the desire to reap financial rewards for hard work. Whatever the reasons are, there is a lot to consider when the time comes to sell.
In my experience, avoiding the following common mistakes will make the sales process easier and more successful:
- Poor preparation that leads to significant time wasted or disappointment
- Poor understanding of the transaction terms for other transactions that have occurred in the market place usually the price or multiple becomes public however not the payment terms or risks in the transaction.
- Poor awareness of the cash flow and debt funding implications for buyers when using debt to fund the acquisition. Most buyers will seek to utilise their existing resources to run your business and will not require all the staff – and even possibly you!
- Engaging with only one prospective buyer can lead to significant time wasted and or disappointment.
- Focusing on the headline multiple offered rather than the 15 terms that will impact the final price in dollars that you will bank.
- Failing to understand likely valuation range for their business.
- Confusing “buyer of last resort” valuation with other valuation methodologies without assessing the differing risk profile of each.
- Selling to an institution or large AFSL group without assistance of an adviser.
- Inadequate commercial terms and detailed contracts, where in the event that the integration does not go to plan from the buyer’s perspective, the deferred or final payments to the vendor are a lot less than expected or withheld.
Do these situations sound familiar?
Chris Wrightson. Founder and CEO at Centurion Market Makers, the industry experts in the sale, acquisition and management of financial planning firms. If you’re planning on selling your firm in 2017, we’d love you to call us for a confidential discussion, or continue browsing our website for more tips, tools and info on the steps to take when buying or selling your financial planning firm.
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