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Practice Management > Building Your Business > Dealmaking

6 Questions to Ask Before You Sell Your Business

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If you’ve built a successful financial advisory business, it’s never too early to start thinking about succession planning, regardless of whether the sale of your business is years away or next month.

Your business, and the value you can derive from it, may play a critical role in determining your long-term financial security. More preparedness ensures a smoother transition — both for you and your clients.

Here are a few things to keep in mind as you begin thinking about selling your financial advisory business:

1. Are you really ready to sell?

Like many business owners, your daily life is probably closely intertwined with the operation of your business. You may have started the business from scratch and spent years growing it into today’s successful enterprise. Letting go can be difficult, both emotionally and logistically. It may help to have a clear understanding of your motivations for selling.

Be honest with yourself — are you ready to sell? If you’re not sure, ask yourself these additional questions.

2. Are you happy and satisfied with all you’ve acccomplished?

If you still enjoy running the business and feel passionate about it, you’re probably not ready to sell your financial advisory business.

3. Are you financially ready?

Take your time and analyze your financial situation. Do you have enough saved up for retirement? Are you carrying any debt that will need to be paid off?

4. Are you retiring to do something specific?

For many business owners, the decision to sell is driven by a desire to retire. But it’s important to make sure you have a plan for what you’ll do with your time after you retire. Otherwise, this move could end up feeling like a step backward.

Whatever your reasons for considering a sale, it’s important to be thoughtful and deliberate in your decision-making process. This approach will ensure a great outcome for you, your business, and your clients.

5. What is your business worth?

You’ve built your financial advisory business from scratch and watched it grow. You might think that you can’t bring the value of your entire business to an exact number — and sure, it’s more of a ballpark figure.

But you have to put a price on your business, especially if you want to be compensated for what you’ve built, considering all kinds of equity.

To come up with your business valuation, you first need to understand your assets. These could include AUM (assets under management), annuity assets under management, life insurance, etc.

Another important consideration is your company’s annual recurring revenue. If you’re fee-based, commission-based, or a combination of the two, this will look different.

It’s crucial to consider whether your business can function without you. This consideration is especially important if you’re selling to a third party, as they’ll want to know that the company can still operate and generate income without you.

If you have key employees or contractors who are integral to the operation of your business, it’s important to find out whether they would be willing to stay on after a sale.

Another factor to consider is whether your current business relationships will continue after a sale. These relationships could be things like vendor contracts, referral agreements, etc.

You’ll want to think about the infrastructure you currently have in place and whether it would be usable by a new owner. This infrastructure includes your website, marketing materials, and any other tools you use to run your business.

In addition, you should be prepared to provide financial statements and tax returns, as well as any other documentation that would be relevant to a potential buyer. They will want to see proof of the company’s profitability and growth potential.

Finally, you’ll want to consider your distribution channels and ways of gathering assets. Unique distribution channels are valuable to a potential buyer as they provide a built-in customer base and a way to reach new customers.

Repeatable and scalable procedures are also beneficial, as they show that the business can be run profitably on a larger scale.

Selling your financial advisory business can be a big decision. Still, if you’re honest about your motivations and carry out due diligence on what your business is worth, you’ll get the best possible deal.

6. What makes your business attractive to a buyer?

The most important factor in selling your business is finding a buyer willing to pay what you think it’s worth. But several other factors can make your business more attractive to potential buyers.

One of these is having standardized operating procedures in place. This setup shows that the business can be run efficiently and profitably without constant supervision. Relationships with key clients, vendors, and referral sources are also valuable, as they provide a ready-made customer base and a way to reach new customers.

Another important factor is having organized files, both digital and physical. This consideration includes maintaining an up-to-date customer database, having current and accurate financial records, and being compliant with all relevant regulations.

If you can show potential buyers that your business is attractive on these fronts, you’ll be in a better position to negotiate a sale price that reflects the true value of your financial advisory business.

Also, keep in mind that the purchase or sale of any “business” or “book of business” in the securities or insurance industry is subject to the laws and regulations of the state where the business and clients may reside, and any other regulatory oversight which may apply.


Ty Young is the CEO of Ty J. Young Wealth Management.

(Image: Shutterstock)


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