The 3 common problems advisers create when they sell their practice

Selling a practice looks easy. It can start quite unexpectedly and seem relatively simple. There are more buyers than sellers right? How hard can it be?

Once you commence you set the framework for the perception of value. You commit yourself to the process and the results are determined by how well you are prepared and how you manage the buyers. Yet what many advisers find is that it often gets harder as you go along.

In most cases you only get one shot at doing this well. Doing it poorly will result in the process being emotionally draining and the final value less than what you had hoped for.

Many practices take more than a year to sell

When running webinars over the past 12 months we asked over 300 practice owners if they know of someone who has taken more than 12 months to conduct the sale of their business (or who are in the process themselves and it has been going for more than 12 months). On average 42% answer yes! That’s nearly half of all practice sale transactions.

We’ve also conducted an informal study over the last three years on vendors who call us with questions about selling a practice or valuation. We ask questions during the call and then follow up every couple of months to see how they have progressed. Here’s what we find:

  1. Most vendors are talking to a single buyer about their sale.
  2. Four to six months later 3 out of 4 of those discussions have ceased.
  3. Nearly all vendors go on to talk to another buyer.
  4. Most have not transacted within 12 months of their start date.

What we also find is that if the common problems practice owners face are not addressed, it is likely when they finally do sell, they accept a lesser price than other like-businesses – typically about 0.3 x RR. They are often suffering stress due to the time and mental impact of a long drawn out sale process and experience deal or transaction fatigue. Often the transaction they complete is not what they intended at the start of their process as they have compromised many things due to frustration and an urge to close the deal. And lastly, there are frequent confidentiality leaks as staff, clients and referral partners become aware that a sale is underway. This issue escalates when the sale process is greater than 12 months and will inevitably result in significant problems for both the buyer and the seller.

The 3 most common problems advisors create when selling a practice

If we correct the following three common problems, both practice owners and the successful buyers will benefit, transactions will be quicker, with less risk and personal impact for both parties.

  1. Practice owners simply take too long to conduct a sale, in some cases several years!
  2. Sellers and Buyers both procrastinate and delay instigating a discussion to reach agreement on price and terms for a transaction.
  3. A lot of practice owners don’t really know what their business is worth before they commence the selling process.

Simply being aware of what they are is first step towards avoiding them. Understanding the common mistakes practice owners make that create these problems is the next step, and I will cover this further in my next blog.

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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