Not a week goes by without yet another industry stat estimating that at least 25% of advisers will be leaving the industry over the next couple of years. This is somewhat concerning given the parlous state of succession planning in the advisory industry in Australia today, as confirmed by our own stats*;

  • 70% of advisers don’t have a written succession plan, and
  • Only one in eight advisers have what we believe to be an “effective” plan; one that is not only documented but reviewed regularly, covers all major contingencies (death, resignation, disablement and retirement), with a successor identified/agreed and funding in place.

There’s plenty of work ahead for many of those advisers who are planning to leave, but haven’t done much about it so far. So, if you’re one of those advisers – where do you start?

Perhaps somewhat ironically, I think the first area to address is knowing why you want to exit. Then identify your ‘go/no go’ areas, timeframe and what you will be looking to do, post-sale. Really hard issues to grapple with but best to do it upfront. You will need to clarify if you’re selling a business (could incorporate your office, furniture, customised software or an AFS license for example) or simply a ‘book’ of clients. Both are valid – but they are different and will require a different approach.

The following has been written for those selling a business;

Once your head is ‘sorted’, I strongly suggest that the next step before you begin talking to the market is to get the business ‘sale ready’. Like selling a house, it’s always wise to go the extra mile and present your house in its best possible light. This generally means doing stuff like putting a fresh coat of paint on those worn out areas or tidying up the garden for example.

In the context of an advice practice ‘sale ready’ can translate to; ensuring your processes are fully documented, staff have up to date job descriptions, clients have recently been surveyed (with their feedback positive and benchmarked against your peers), actions outstanding from the last compliance audit are addressed and the latest financial reports are in.

Before you begin to actively market your business or simply put the feelers out, we recommend that you put together a document which paints an accurate, timely picture of your business. As with a prospectus for any fund raising activity or PDS for a client’s investment, we strongly recommend a carefully and thoughtfully prepared document is put together, overviewing the practice. Its contents should at the very least cover;

  • Client demographics – age, occupation and average length of time as a client, for example. It is good to include the results of the most recent satisfaction survey (and if one hasn’t been done within the last 3 years – do it now). What % of your clients are on current service agreements?
  • Attributes of your people/staff – skills and qualifications, satisfaction/morale, are they looking to stay with the practice or leave with the owner? Are there any employment contracts in play? How about bonus expectations? Finally, are there any key dependencies?
  • Core features of the business (underlying software/systems, including the all important CRM), primary platform/s and supported product providers, fee structures and compliance history (results of the most recent audits, details of any claims made/in progress, complaints lodged). Details of any existing agreements with licensee, landlord, service providers will also be of interest to a potential buyer.
  • Positioning and profile within the market – its location, range of products and services, professional networks, centres of influence (commercial arrangements in place).
  • Financial metrics – recent history of revenue and expenses, leading to a profit/EBIT (not so important when selling a client book). Identification of any ‘grandfathered’ revenue will be appreciated, as will an explanation of any abnormal spikes (up or down). Key ratios include revenue per client, revenue per adviser and, for larger firms – revenue per staff member.
  • As part of your ‘sales pack’, include a confidentiality agreement, which you’ll require to be signed before handing over your document.

Putting together such a document can prove challenging and for some, onerous. Often the necessary objectivity to create this document is overtaken by personal views and subjectivity. It’s for this reason that we strongly recommend that you seek input from an external expert.

Next, consider how ‘sale aware’ you are. To continue with the real estate analogy – prospective sellers will generally talk to their friends/network as well as a number of real estate agents before deciding who to go with. Similarly for the owner of an advice business – talk to your peers and colleagues, trusted BDM and licensees. What’s been their experience of the latest trends in terms of prices, terms and conditions? Can they offer any ‘tips’ on the selling process? Finally, when ‘push comes to shove’, what does an experienced professional in this area value your business at?

So… with your head ‘sorted’, business fully prepped and your knowledge of the market current and up to date, you’re ready to go to the market. And to this end, we hope the following will be helpful to both sellers and buyers:

  • Be realistic in your expectations
  • Be flexible in your approach
  • Above all else, listen to what is being said
  • The whole process will take time – be prepared for it. In our experience, anywhere between 6 and 12 months is the norm from initial interest through to payment.

Best wishes for a successful transition!

For your consideration,

Terry Bell, Business Health

*All statistics have been derived from the latest analysis of the Business Health data warehouse.

Why Deals Don’t Happen
Lack of objectivity
Unrealistic expectations
Culture
Philosophy
Failing to prepare all relevant material prior to going to market
Geography
Terms
Compensation post deal
Integration plans
Poor communications

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