Advice for advisors retiring and selling their practice

If you are a financial advisor or financial planner planning to retire in the next ten years, you are not alone. According to the Certified Financial Planner Board, about 47% of its members are over 50 years old, which means that many of these advisors are likely to retire within the next two decades.
What does this mean for you? It means that you will probably face some competition if you want to sell your business. It is not too early to start thinking about business succession.
Given the responsibilities to customers and the nature of the business of financial planning, it will be a bit more complicated than selling a small business such as a pizzeria. It can take years to achieve a well-planned sale.

Creating a retirement plan

One of your obligations to your clients is to select a competent successor. If your customers do not trust the successor planner, they are likely to leave. They may even abandon you before the sale if they feel that you are not adequately preparing for your retirement.
This can decrease the value of your practice. Clients do not want to be unprepared when it comes to managing their finances.
To prevent this from happening, you need to plan for the transition in good time.
First question
Before you start looking for a buyer, you need to think carefully about what you want to do in retirement. The answer to these questions will help you decide what kind of sale you are planning for your firm.
Of course, if you dream of moving to Maui, you will need a well-defined plan. Otherwise, you might consider a gradual transition or a part-time relocation. You could opt for a lump sum payment for the studio or organise a staggered payment.

2 ways to sell your practice

There are two types of sale: internal and external. An internal sale means choosing a family member or employee willing to take over the business. An external sale involves transferring the business to another company or individual who has no personal or professional ties to you.
Transfer to a junior partner
In the case of an internal sale, it may be necessary to start planning even earlier. The new owner will probably be a junior partner, but will still need some training to manage all aspects of the business.
You must also make sure that the company has the right processes in place to continue operating without you. Many entrepreneurs have too much on their minds. Keep a record of business processes on paper.
You must also make sure that all your customers are satisfied with the future owner.
An inside sale is usually financed by the outgoing owner in the form of a loan and takes place over a longer period of time. It is also possible to structure the deal as a kind of annuity and receive payments after the exit.
Typically, the price is based on a multiple of the company’s profits and the subsequent owner retains all existing infrastructure.
Sale to an outsider
If selling to an external buyer, there are various ways to structure the transaction and its timing. Many advisors opt for a gradual transition and stay with the company for a certain period of time to ease the transition for the new owner and his clients.
They may sell the company but commit to overseeing the transition for six to twelve months. It is also possible to make a partial sale, transferring only some of the customers and keeping others.
A gradual transition is usually done if you and the buyer belong to the same broker-dealer network, if you want to try a transition to see how it works, or if you want to continue working part-time.
Another option is a merger with another company. You could stay with the company and receive a salary while someone else takes over.
In an external sale, the price is usually set on the basis of a 12-month revenue evaluation. Usually, these sales start with a down payment, while the balance is paid over several years.
Other payment options include lump sum payments, a promissory note financed by the seller or even an earn-out agreement.

Finding the right buyer

If you want to sell the practice internally, you probably already know which employee is willing and able to take care of it. If you assume that this person wants to buy the practice, you can agree on the price and other conditions.
Finding an external buyer requires a more thorough search. You could hire a business broker to handle the process for you, or contact other local planners who might be interested. Over time, you can meet a few candidates and choose the one that best suits your clients in terms of personality and investment style.
In the case of a merger, you will also have to assess whether the potential new owner is compatible with your current staff and business operations.
Finally, you can negotiate an agreement, complete the necessary paperwork and conclude the sale.

Managing the transition

A key component of a smooth transition is continuous communication with all stakeholders, including customers, employees and the new owner.
It is useful to put the transition strategy in writing and to review and modify it as needed. If something happens that is not in line with the original plan, people need to know where they stand and how they will be treated.
The more you communicate, the lower the risk that customers or employees will be dissatisfied and leave the organisation.

How long will it take to sell my personal consultancy business?

According to SCORE, an association of entrepreneurs, it generally takes six months to two years to sell a small business.
Much of this time will be spent searching for a suitable buyer for your personal consultancy business. Like any small business owner, you will probably have built up a strong social network of like-minded professionals over the years. The right buyer could be right in your network. Start spreading the word.
Or perhaps you have a family member or another colleague in mind. In this case, you will make good use of your time to prepare this person for the acquisition.

Should I buy my own consultancy business or start one myself?

Buying a personal counselling business can have advantages over starting one yourself, if done correctly. You already have an active client base, a functioning office and a good reputation.
But you have to choose carefully. Make sure that the company and its clients are a good fit for you. The personal advisor you want to replace should have a similar investment style to yours. A clientele of baby boomers might be suspicious of a newcomer dealing with their finances and vice versa.

How should I price the sale of my personal advisory business?

There are many ways to price a business, and all of them can be negotiated before they are set.
Some methods are:
Turnover multiples: the price is based on a multiple of the average turnover over a period of time, usually 12 months.
Cash flow multiples: This method is similar to the turnover multiple, but takes expenses into account.
Discounted cash flow: This method allows the buyer and seller to consider long-term growth potential and risks.

In conclusion

It is irresponsible to run a financial planning firm without having a plan for what to do after retirement. First, decide what you want out of retirement and then come up with a succession plan that realizes your retirement dream.
Make sure that your plan guarantees quality service and advice to your clients even after your retirement.

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