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Preparing an adviser business for sale

Stuart Dyer, chairman, Soprano, outlines a sensible approach for business owners looking to exit their business smoothly

Why bother? I have a good business, I’m proud of it and any buyer would be lucky to have it.

Well, that is an approach that we come across from time to time, but it isn’t smart. There are two very good reasons why getting in shape is a prerequisite to a successful transaction and this applies to firms of all sizes: a business that presents well is highly likely to attract a wider range of interested buyers and a higher price; secondly, the sale process itself will be easier—this latter point is not to be underestimated, and we return to it later.

Let’s go through some issues we come across in the transaction process—addressing them in advance will avoid problems further down the line:

•          Who owns the shares? This seems a nonsensical question. However, we find cases where shares have changed hands and the paperwork has either not been completed properly or has not been registered at Companies House. Further, shares may have been promised to employees at some point, but the formalities have never been followed through. Making good on the promise late in the day can have unfortunate tax consequences and spook the buyer.

•          Client data incomplete and difficult to access. This is a key  issue for a buyer. We have seen cases where back office systems are not updated regularly, and client portfolio values are out of date—sometimes by as much as six months. Our advice is to start a data clean-up exercise now and rather than have to rush around during the due diligence process, get into the habit of keeping back office systems current.

•          Historic financial performance unclear. Many IFAs do not prepare regular management accounts. This may cause headaches for buyers—they will usually seek to understand performance trends, including normal levels of working capital. Although this issue is normally relevant only to larger transactions, providing buyers with an understandable picture of financial history is a definite plus in all cases—we advise all but the very smallest businesses to prepare management accounts, even if only on a quarterly basis.

•          No deal team in place. In all too many cases we find principals attempting to run the business on a day-to-day basis whilst, at the same time, trying to manage the transaction process. It should be borne in mind that buyers take due diligence seriously—it will cover legal, compliance, financial, investment, proposition and commercial matters. We have seen information request lists extending to hundreds of questions. Without a dedicated, experienced resource in place to prepare for and respond to the demands of this process, transactions may drag on interminably and, in extremis, fail to complete. Further, relying on external accountants and usual lawyers is unlikely to provide  the support needed. Specialist external help is money well spent.

From the point at which a decision is made to exit, it can take twelve months to address some of the issues dealt with above—some of these tasks require dedicated resource and prioritisation. However, selling a business is usually a once in a lifetime event and is probably the largest single asset an IFA will ever sell. As such, it is well worth doing everything possible to optimise the value of the business and to make the process as painless as possible.

Finally, although we have dealt with some of the “hard” issues, we always challenge sellers to consider whether they are emotionally ready to sell—after all, these businesses have often been a life’s work and to walk away can be tough. 

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