Preparing to sell your practice is a bit like preparing for retirement: The earlier you start, the better off you’ll be — and exponentially, so. “Advisors should start to prepare their firms for sale the day they set up shop,” according to Michael Wunderli, a managing director of Echelon Partners. “Advisors must begin with a vision of the kind of firm that they intend to build.”
This means doing the long-term planning and creating the kind of firm culture that will enable them to build a truly prized, valued organization. “This process instills discipline, accountability and stewardship,” he adds.
Other experts, like Advice Dynamics Partners CEO David Selig, agree that it’s never too early to plan for the future sale, as this will give owners more options. It’s especially important to start early if you are thinking about setting up an internal succession program.
Many advisors prefer internal succession programs. This process assures them that their firm will maintain its independence and continue into the next generation without them. Selig says he gets calls from advisors in their 60s, who don’t have enough time to find the right advisors to become successors. This process isn’t easy. Not all employee advisors are capable of running a firm, and many don’t want to be owners. He typically proposes other options to these late-to-the-party owners — such as an outright sale of their firm or a search for an outside investor.
Maintaining momentum in the sales process is crucial for a successful sale, according to Wunderli. “Anything that slows or disrupts momentum can hurt firm valuation and even the chances of the deal going through,” he says.
If possible, Wunderli recommends firms should put themselves on the market after they’ve had two good years and still expect strong results in the coming year. And not all the firm’s positives should be shared with prospective buyers upfront.
Designating a deal team that has all the updated firm documentation and can answer questions about the firm’s finances, operations and compliance can help too. Along with all pertinent financial docs, the deal team needs to have copies of client contracts and custodial agreements, for instance.