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Industry Spotlight > Mergers and Acquisitions

6 Questions to Ask Yourself Before You Sell Your Advisory Firm

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What You Need to Know

  • A standard formula to value a company is 2½ or three times recurring revenue, and one-time nonrecurring assets.
  • Learning new technology will likely be a major part of this transition.
  • You should weigh your business partner's and significant other's thoughts regarding the sale.

There are two things that are usually true about transitions: They are not easy, and they never go off without a hitch. And like a round of golf, you need to be ready to scramble, since things often don’t go the way you planned. Selling your advisory practice is one of the biggest transitions you may ever make in your career — but for me, it was also one of the best decisions of my life. 

The sale of my practice was 20 years and six weeks in the making, and though there were hurdles to overcome, I couldn’t have asked for a better outcome. Below are six questions I encourage any advisor to ask themselves before they start the sale process. 

1. What is my practice worth, and how will it be valued?

Your practice’s value is based on its size and profitability. A one-person shop is valued far differently than a self-sufficient business with employees and systems in place. Typically, an advisory practice is valued based either on revenue or EBITDA (earnings before interest, taxes, depreciation and amortization). 

A standard formula to use to value your company is 2½ or three times recurring revenue, and one-time nonrecurring assets. Larger RIA firms and other acquirers typically value firms based on EBITDA, and the valuation multiples vary greatly based on the talent and leadership, growth performance, geography, client base, and any “secret sauce” the firm is bringing to the table. 

2. Is the purchasing firm and service advisor a good fit for my clients and my staff?

This one is key. Being from the South, I felt it was important to merge with a firm that also had Southern values. Because I was also focused on building a company and team to last for generations, I wanted to ensure that my clients and my staff would be well taken care of after my departure. Both clients and employees will stick around if they feel like there’s something in it for them. 

Employees want to feel like they have a clear career path, opportunities for growth and mentors to learn from. Clients want to understand how the transition affects them and what the benefits are. They’ll want to make sure that they are not being left in the lurch, that they gel with their new advisor, or their existing team is staying intact. When interviewing prospective buyers, make sure you understand their growth objectives, how they plan to achieve them, who the key players are, and what their endgame is. 

3. What new systems, practices and technologies will my team and I be learning?

A large part of our transition was learning new technology. Prior to the acquisition, our firm used Redtail as our CRM, but Merit uses Salesforce. So, with Merit’s help and guidance, we transitioned all our files over and learned how to use a new platform. Merit also provided us with hands-on support, in addition to multiple team and one-on-one training, which made the process incredibly seamless. 

It’s critical to ask not only what systems the acquiring firm uses, but also how they plan to get you and your team up to speed. Make sure to understand what type of transition team is in place so you can also get access to a superior level of support. 

4.  How long will the process take?

If you want the maximum value for your life’s work, make sure you have more than enough time to work through the sale and the transition. My recommendation is to give yourself time to figure out the right path for you. A number of factors go into how quickly the process will go, including your motivation level and the acquisition model of the buyer. A typical deal timeline is six to 12 months, which includes interviews and conversations with prospective buyers, deal negotiation with the selected buyer, transaction closing, and the transition process.

Because I had already been familiar with Merit as my RIA and had gotten to know Merit CEO Rick Kent through industry events, I had the ability to get to know the team, experience their culture, and understand their values well in advance of the acquisition. Because of that, the entire process took just six months.

5. Ask yourself what you want out of the deal.

You may have to do some soul-searching here to really understand what you are hoping to achieve by selling your practice. Do you want more cash upfront, or are you open to more stock? Will you be available during the transition to assist your clients and team? How long are you willing to work after the sale? The answers to these questions will help you determine the ideal structure of the deal and your transition plan. 

If you have a business partner, this conversation may be more challenging, as you may each have different requirements. If you have a significant other, you should also heavily weigh their thoughts on the transition, as they may have different expectations than you do.

6. What other resources do I have at my disposal?

My industry connections proved invaluable during this time. Perceived competitors that I met at conferences or at industry meetings became close confidants who helped me navigate the process. If you are not a member of any study groups, I highly recommend joining one. I was a part of ClientWise, and their members, community and resources were incredibly helpful to me. 

I also devoured industry news to ensure I understood the landscape and had a good grasp of the process. And don’t forget your broker-dealer — LPL proved immensely helpful to me during this time.

Figuring out the answers to the questions above helped me navigate this process with ease, and I encourage any advisor looking to sell their business to strongly consider the above before they get started. As someone who had no client or team attrition, I couldn’t have asked for a better transition. The only thing I might have changed would have been to sell my practice sooner!


Kelly Straub is senior managing partner of Merit Financial Advisors.