What will your client list and revenue stream look like next year? More and more advisors are thinking like asset managers these days, with their own practices as the asset in question. Would it be more productive to buy another firm and its clients, or merge with a practice of equal size? If you sold, would an outright purchase be better than an earnout? What price-revenue multiple could you expect?
Deciding whether to buy, sell, hold, or fold is more than just a numbers game. As David Drucker, an Albuquerque financial planner and editor of the online Virtual Office News, has pointed out, “A successful transition isn’t simply a matter of finding someone with the right amount of cash, consummating the deal and walking away. You need to spend at least as much time analyzing personalities as you do the numbers.”
As a psychotherapist and as a coach, I couldn’t agree more with Dave, who is also a principal in Practice Merger Consultants, Ltd. (www.practicemergers.com), an excellent resource for advisors contemplating a transition. Here are some of the people-centered dilemmas you may encounter in a buy-sell-merge situation.
After more than 15 years as a sole practitioner, I want to spend more time with my family and pursue other interests. Although hiring two part-time workers has eased some of the immediate pressure, I was intrigued by a recent seminar on selling a practice. I’d like to get more value from my business, but how can I make sure I’m not going off in the wrong direction? The first and most important thing to do is to sort out your goals and needs. I recommend that you perform this self-assessment in writing. Consider questions like these:
o What do I enjoy most about my work?
o In what part of my job do I feel most gifted?
o To what extent do I want to keep on working? How many hours a week? How much responsibility?
o To what extent am I ready to step down and pass along the business to others?
o What would I gain from this transition?
o What legacy from my firm, if any, would I like to see passed on?
At advisor meetings and conferences, look for colleagues who have sold a business, merged, or created a complementary relationship with another company, and find out the pros and cons of their transactions. I would also recommend FP Transitions (www.fptransitions.com), an online marketplace for buyers and sellers of financial practices, where you may find information that will clarify your thinking. There are other sources of information, too, including Schwab’s Advisor Transition Support service (www.schwabtransition.com). Mark Tibergien regularly writes on the topic for this magazine as well (see page 45).
It can take a while to identify what you want and don’t want, but the time will be well spent. The knowledge you glean yourself, and what you gain from others who have been through this experience, will simplify the decision process and make your ultimate choice more trustworthy.
After building a successful planning practice, my two partners and I are considering merging with an insurance firm. Our small staff is nervous about this, since the other company believes in individual accountability instead of our method of consensus decision-making. Is this anything to be concerned about? I’m glad you’ve found out at an early stage about this potentially disruptive difference in operating styles. It indicates that you and your insurance counterparts may need to make time for more due diligence on each other’s corporate personas. Is there good chemistry between you? If you have shared clients in the past, has it gone well?
If both parties agree that the answers are “Yes,” you might consider getting together at a facilitated retreat to brainstorm ways of working out the cultural differences between your two firms. Try to honor both companies’ basic values in this process. For example, maybe the post-merger compensation structure can be designed to reward both individual leadership and team effort.
In “work marriages,” as in personal relationships, the most important indicators of success may be good will and open communication. As therapists say, the degree of harmony in a marriage doesn’t depend on how dissimilar the two partners are, but on how they view these dissimilarities. The more empathetic and nonjudgmental each one is about the other’s differences, the better the relationship is likely to be.