I’ll never forget my first job in the financial advice industry. Having left school with mediocre exam results, I wasn’t sure what to do with my life.
But the owner of a local advice firm saw something in me and offered me a junior role that set me up for my whole career.
Illustration by Dan Murrell
Sadly, he’s no longer with us, but the lessons I learnt during those first four years have stayed with me. Chief among them was the importance of planning – not just with my finances, but in business, too.
That advice came back to me this summer when we launched our adviser exit consultancy.
By preparing for your exit from day one, you create a proposition that will serve your clients well into the future.
When advisers first strike out on their own, nearly all their energy goes into growing the business and looking after clients. That leaves little time to think about the future – especially how they will exit their business.
Why would they? That day may be decades away. But just like with retirement planning, starting early makes all the difference.
By preparing for your exit from day one, you not only maximise the value of your business, but also create a proposition that will serve your clients well into the future.
So how do you do that? Getting the right advice at the right time is crucial, but here are some of the practical steps that can help get your firm sale-ready and set you up for the best possible outcome when you’re ready to hand over the keys.
Review your fee structure
Buyers usually value firms as a multiple of recurring income, which makes predictable revenue streams arguably the single biggest driver of value. But it’s not just about growing your client bank – it’s also about getting your fee structure right.
If you are undercharging, you’re not just impacting the immediate profitability of your firm but also its future value. So, review your fee structure and benchmark it against peers regularly.
Check your client bank
While headline revenue is important, it’s only part of the story. When you come to sell your firm, potential buyers will scrutinise your client bank for any weaknesses.
Two common red flags are an over-reliance on a handful of high-value clients, or a long tail of unprofitable smaller ones. That’s not something that you can fix overnight.
So, to create long-term value, focus your efforts on building a diverse client bank across revenue segments and make sure your fee model is attracting the right profile of client to make your business profitable and sustainable.
Do a data quality check
Nothing raises buyer concerns more quickly than poor data. Using spreadsheets as makeshift CRMs, missing compliance documents and/or inconsistent reporting can derail a deal.
To avoid that, invest in a robust CRM system, cleanse your data and review your record-keeping process.
This should be an ongoing process, but it is especially important in the 12-24 months before you plan to sell. That gives you time to resolve any issues.
Get a compliance audit
Compliance standards can have a significant impact on how buyers perceive risk, and therefore on the price they are willing to pay.
Buyers typically apply discounts for unclear suitability letters, historic defined benefit transfer exposure or inconsistent processes across advisers.
Some of this you can fix in-house, but it may be worth commissioning an independent compliance audit and independent file checks.
This proves you’re serious about maintaining a strong culture of governance and will reassure buyers that your firm is less likely to carry hidden legacy risks.
Create a good culture
While the financials are critical, buyers also factor in integration risk. Cultural misalignment can undermine client retention and staff morale.
Therefore, think hard about what culture you want to cultivate, and how you can demonstrate those values as well as your commitment to good client outcomes.
When choosing a buyer, you’ll also want to choose a firm whose cultural values align with yours. That will give you peace of mind that your clients and staff will be looked
After.
Prepare from day one
Advisers who treat their business as an asset from the start achieve far stronger outcomes when they sell.
You don’t need to be an expert in all the details, but you do need to think about this early and call in outside support when the time is right.
Be careful who you instruct. Most consultancies in this market act for the buyer, not the seller, meaning you may not walk away with the best deal if you pick the wrong partner.
By seeking advice from a firm that represents you, the seller, you can take control of your exit and maximise the value of your firm.
But, most importantly, you’ll ensure that the clients you’ve supported for a lifetime are handed over to a business that will care for them as much as you have.
Richard Harrison is CEO of Sesame Bankhall Group
