One could argue that the open market acquisition process is a bit like online dating. Using a finite amount of fields and characters you must convey to someone–whom you’ve never met and know a limited amount of information about–that you are worth their time. That you are worth their time conversing with, spending time together, and potentially making a binding commitment with.
And like dating, finding the right match isn’t about how much someone is willing to spend on dinner, but how many of your attributes complement each other, how well you get along, and how much you trust each other. These matters are paramount to making a relationship work–whether it’s friendship, love, or business acquisition.
Buyer and Seller – Finding the Perfect Match
Topics: Selling Your Practice, Acquisition, M&A, Deal Structure, Buying & Selling
Preparing for the Next Tranche in Your Succession Plan
Your firm’s succession plan is designed to gradually transition ownership, leadership, and growth responsibilities to the next generation of advisors. The goal is sustainability of the firm, and it is accomplished through a plan that coordinates the changing roles of the founder(s) and the successor team over many years.
Selling equity in the business in a series of steps or “Tranches” gives both the founder and the next generation of owners the time to wisely manage the transition and to prepare for the changes to come. The transfer of ownership from the founders (G1s), to the second and third generation of owners (G2s and G3s), starts with Tranche 1. Tranche 1 is usually a sale of 10% to 20% of ownership to the next generation. Tranche 1 is often called the incubator stage and allows for all parties to test the waters and to prepare the business structure for the journey ahead.
Topics: Succession Planning, Business Growth, Next Generation, Building Your Team
Building the Right Team to Support Your Business Priorities
One of the most difficult challenges for independent advisory businesses is finding and retaining the professionals they need to service a growing client base and perpetuate sustainability. The talent pool is extremely competitive, especially in the financial services industry. The value of a strong team and integrated business is ever increasing, and the number of new advisors coming into the profession is still relatively low. To be successful in building the right team, you’ll need to be strategic in your efforts and focus on the people that best align with your business priorities and your plans for growth.
Topics: Compensation, Organizational Structure, Business Growth, Next Generation, Talent Recruitment, Sustainability, Wealth Management, Business Operations
The Dangers of Napkin Negotiations
The financial services industry is a personable one. Professional networking and client prospecting depend on your charisma and ability to connect beyond surface pleasantries. But when it comes to selling your business, it’s important to keep your cards close to your chest.
It’s very easy to get excited about the prospect of transitioning your business and moving forward in life–especially, when you’re talking with a colleague you’ve known for years. However, the excitement can cloud your ability to think through details and maintain a healthy level of confidentiality. It’s important to avoid casual negotiations and hashing out deals without proper documentation.
These casual conversations–also referred to as handshake agreements, or napkin negotiations–can lead to a lot of problems, including a loss of realized value.
SHARKS IN THE WATER
The first issue that could arise from the casual mention that you’re even thinking about selling your business is the influx of phone calls or visits from people who want to buy. It’s like blood in the water. And while buyers flocking to you may seem like a boon, it can quickly become overwhelming. Without an efficient screening system, it becomes time consuming and difficult to sift through the phone calls to find serious and qualified candidates, let alone the person who fits your ideal criteria to take over your business. You also make yourself vulnerable to predatory buyers.
Topics: Selling Your Practice, Acquisition, M&A, Deal Structure, Buying & Selling
Mergers - A Nontraditional Growth & Acquisition Strategy
Mergers & Acquisitions – everyone’s favorite topic. Understandably so when one of the fastest ways to grow is to acquire and as such, add exponentially more clients (and assets) to your business in one fell swoop.
But what about mergers? Mergers are often lumped in with conversations and statistics about acquisitions, but their role and effect on an advisor’s future is much different than an outright sale or purchase. In our book, “Buying, Selling, and Valuing Practices – The M&A Guide,” FP Transitions’ president, David Grau Sr., JD, clarifies that mergers are, legally speaking, “the joining together of previously separate companies into a single entity.” Unlike an acquisition or sale, a merger means that some or all of the owners of the previously separate companies become owners of the post-merger entity.
Topics: Selling Your Practice, Acquisition, Business Growth, M&A, Buying & Selling, Mergers
The Three Pillars of a Successful Advisory Business
In my work in years past, I became a professional traveler. I spent a lot of time in airports, and I got to talk to many of the pilots. Airline pilots are adventurous souls who enjoy finding ways to go faster, fly higher, and see things from a level that others cannot. They are also very methodical and go about everything with a checklist mentality, a clear purpose, and as much knowledge on the subject matter as they can muster. I find a lot of our entrepreneurial advisors to be cut from the same cloth. The goal of building something bigger, stronger, and better, helping clients better understand the financial world, and then sharing what they’ve built with others is woven into the very fabric of their being. Entrepreneurs like to improve and grow, and they like to do things right.
Growth, of course, can mean many things. You might want to grow your top line revenue and assets under management. Maybe you’re looking to hire and build your team in order to improve the client experience. Perhaps you want to acquire a practice, or two, to quickly grow revenue, assets, the client base, and your own income. But, just like a pilot who wants to go faster and fly higher, eventually you’re going to need a larger plane, a stronger engine and airframe, even additional skills that maybe you don’t currently have–or don’t necessarily have a passion for developing.
Over time, we’ve seen that independent advisors don’t naturally build large, profitable, sustainable businesses. The ambition might be there, and recurring, fee-based revenue certainly helps the cause, but the skill sets that prompt most independent advisors to hang out their own shingle and start gathering clients who trust you with their financial goals and assets are different than what it takes to run an organization of professionals and create scale. For these reasons and others, this is still more an industry of book builders than it is of business builders.
Topics: Compensation, Succession Planning, Organizational Structure, Business Growth, Entity Structure, Sustainability, Building Your Team
Purpose, Perspective, Premise — the Three Ps of Business Valuation
Purpose, perspective, and premise are the foundations of business value. With these three key aspects we can weigh an incredible amount of detail and data to determine the most accurate value of the business–for any circumstance. The more accurate the value, the better the outcome of your situation, and the better your ability to plan ahead for future growth and higher profits.
Everything starts with “why.” What is the purpose for the valuation? As we like to say, “value is in the eye of the beholder,” and purpose allows us to pinpoint that perspective to know what makes a business valuable to them. And when we drill down into situational specifics and the nuances of perspective, we can understand the future-state of the business and the premise of the valuation to fine tune its accuracy.
Topics: Succession Planning, Business Growth, Business Value, Benchmarking, Valuation & Appraisal
Business Insights Solving for Growth & Capacity Constraints
Sparking that next phase of growth might be harder than expected. For firms moving from sole proprietor to a practice, growth may come easy – but only to a certain point. When a plateau hits, where should advisors look to dig in and overcome? Benchmarking, alongside a deep understanding of business growth and value drivers, is where firms can stand apart from the pack.
If you are ready to grow your financial advisory business and wondering, “Why haven’t I grown faster?” this may be the blog post for you.
Read on for our best tips on diagnosing and overcoming growth inhibitors.
Topics: Business Growth, Building Your Team, Client Relationships, Business Operations, Key Insights
Our Dealmaking Framework
Here's what's different in the wealth management industry, the value of what is being traded are client relationships. Sometimes that gets lost in the entire equation. What we're trying to do is take care of those clients and make sure that they have been transferred in the best way possible. So why does an M&A deal get in the way of that?
What most are trying to do instead is to maximize dollars or be the one that has the best advantage on a contract. What gets lost in that is the partnership that is needed between buyer and seller when this transaction is done. Unlike traditional M&A, buyer and seller need to leave the table, if not as friends, at least as good working partners. This is a place where you can totally win the battle and lose the war if they don't depart that way. And that's where we have a problem.
Oftentimes it's the advocates themselves fighting for the best interest of their particular client. But those interests oftentimes get muddied with contract negotiations. Then who wins? We take a different approach.
Our approach is to act in the fairness of the transaction, helping both buyer and seller. Does that mean that we don't advocate for the seller? Not at all. We absolutely advocate for our seller clients and we help our buyer client as well. We help them reach the perfect deal by starting out with the best match possible. If we have the fit right, the rest of the transaction goes together.
We do something unique in that we mediate our deals and put them together with lawyer dealmakers. That's helpful because our lawyer dealmakers are able to talk to the other advocates in the transaction: seller, lawyer, buyer lawyer to help them understand what the overall objective is and to get to a better solution.
Not only does this result in better deals, but important to both buyer and seller.
We close 80% of the transactions we embark on. So in the end, this is less expensive, less grueling, and people leave having understood that, the most important thing is the transfer of the client relationship.
Topics: Acquisition, M&A
The Invaluable Role of Mediator in M&A
Whether you’re buying or selling a business, there are a few players that are “must-haves” on your transaction team: personal lawyer, CPA/Tax professional, representative of your IBD/Custodian, personal stakeholders, and a non-advocate, industry-experienced mediator.
The role of each of these players is important to the overall success of your deal, however, the mediator can sometimes be overlooked–often to the disadvantage of your deal. So, why are they so important?
Topics: Selling Your Practice, Acquisition, Buying & Selling, Trends in Transactions Study, Transactions