Tips on Selling Your Financial Services Business

Business Brokers

Tips on Selling Your Financial Services Business

As a financial services professional, when it comes to sales you’re probably a master at selling your services, whether it’s online, over the phone or in person.  You probably also know that selling your services over the phone is very different than selling those same services face to face, and depending on how you’re interacting with potential or existing clients, how you conduct your sales pitch will also differ accordingly.

Similarly to how you know how to best sell your financial services to clients, a certified business broker will know best how to sell your business when it’s time to retire and move on to bigger, better and more fun times. Certified Business Broker Moche Hazout and the Transworld Business Brokers team have the qualifications and expertise to assist you throughout the entire business transaction process. Our Transworld team of professional business brokers are the best in the business and put our clients first.

Here are a few important concepts to understand when valuing and positioning your financial services business for sale:

  • Long-standing customer relationships, an identifiable brand, and well-respected leadership are the foundations of a small financial advisory. 
  • However, as with any personal service business, selling a company that is inextricably linked to its leader can be difficult.
  • Plan the sale or transfer of power overtime to help your clients accept the prospect of new management. 
  • Assign value by finding the sweet spot between the floor (the liquidation value of hard assets) and the ceiling (your annual revenues). 
  • Give your clients proper and thoughtful advance notice and find out what their needs are.  Before you leave, see what you can do to help them with big-picture issues.
  • Make sure your departure coincides with the new management coming in, so that you can work together for a period of time, including meetings with larger clients.

How to Assign a Value to Your Business:

Valuing any business is difficult, but it is especially difficult in the case of a service business where the main asset is the client list. There is no such thing as a magic valuation that you can calculate, but you can come up with a range of values in which your sale price should fall.

  1. Calculate the Floor

The liquidation value of any hard assets should be the bottom end of the range (or the floor). Computers, desks, chairs, and other office furniture and equipment may be present. The business may even own a car. Liquidation value is the amount of money you could reasonably make from the sale of all of these used assets, minus any loans associated with them. Your company’s worth cannot be less than that.

  • Calculate the Ceiling

You must examine your annual revenues in order to calculate the upper end of the range. This tells you how much money a new owner could bring in each year if all of your current customers stay with you after the sale. One year’s revenue is a common valuation standard. For example, if your average annual revenue before expenses was $210,000, then the top end of what a new owner would pay for it would be $210,000.

  • Find the Middle

Once you’ve established the floor and ceiling, your practice is worth something in the middle. Conduct some research to see how much other similar practices are selling for in your area. In order to get a sense of what the going value is in your community, talk to other advisors about what they pay for blocks of business.

Special Considerations

However, if you have a complex and large advisory practice, you should consider hiring a business valuator or an experienced accountant to assist you in valuing your business. Selling your practice for less than it is worth can have a significant negative impact on your retirement income.

Completing the Sale

To keep the greatest number of clients in the practice after it is sold, you must carefully manage the transition. There should be some overlap in client service between you and the new owner. It may be beneficial for both of you to meet with large clients to discuss the transition and their portfolios. This may reassure them that the new advisor will look after them in the same manner as you did.

Inform all of your clients about the upcoming transition in a timely manner and thoroughly explain what they can expect from it.  You certainly don’t want them to compromise your trust and hear about it through a third-hand source. Most importantly, make yourself available to the new owner for a period of time after the sale to answer questions and assist with problems. Clients are more likely to stay when the transition is as smooth and transparent as possible.

The Bottom Line

Retiring or leaving your advisory practice can be difficult, but by planning ahead of time and properly managing your client relationships, you can make the most of it for both you and your clients. Most importantly, know the value of your company and make sure you capitalize on it.

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