Recent research suggests around 30% of advice firms will be for sale in the next three to five years. If this turns out to be correct, somewhere in the region of 1800 firms may change ownership, leading to somewhere in the region of 8,000 advisers working for new employers.
For most business owners the decision can be filled with uncertainty and emotion relating to concerns about what will happen to employees and clients. This is the first of a series of five articles looking at the sale process, from initial consideration to life under a new owner. The articles will provide high level guidance on key points to be considered at each stage.
There are a number of reasons why you as a business owner may decide to sell or merge, including:
The reason behind your decision to sell can determine how long you have to prepare. In certain situations, the timeline may be outwith your control. But if time allows, at least two years should be spent preparing employees and / or family members for the transition.
The first step is to define your objectives. If you have other shareholders in the business, it is likely that you will be discussing your thoughts with them as you will all have to be aligned on the following points:
By defining objectives early, you can establish the terms you are willing to accept. This saves time when engaging with potential buyers as you may have key requirements a buyer is unwilling to accept.
The second step is to understand where the value lies, and to what extent there are gaps between where the business is today and where you would like it to be. These gaps should be mapped against the objectives and used to form the basis of the transition plan which could include:
At this point you may also give consideration to who else should be involved in the process. This could involve employees, a mentor or an independent third party. Consideration should be given to how you communicate your plans internally. Do you want to keep your plans quiet, or do you decide to be open with your staff to avoid uncertainty? Hearing about your plans from external sources could be unsettling for the business.
It is also helpful to record the characteristics of the type of business you would like to sell to. Think about what you would like to preserve, but also what you are willing to change. Create a list that you can use as part of your discussion. Sellers often want to leave a legacy defined by the treatment of their clients and employees. In our experience, this often matters more to business owners than how much they receive for the value of their business.
Before entering into the sale process, there are a number of points worth considering and these are as follows:
So these are a few points to be considered during the early stages of exit planning. In the next article, we will look at how you can find the right buyer.
(This article also appeared in New Model Adviser, 8 September 2015).