TRANSITION TALK

Structure, Sustainability, & Acquisition Strategy

Posted by Christine Sjölin on Feb 6, 2019 12:03:31 PM

Structure, Sustainability, and Acquisition

If you’ve spent much time around Portland, Oregon, you know tap houses, microbreweries, and brewpubs are about as prolific as coffee shops. The Pacific Northwest takes their food very seriously, and beer and wine are an integral part of that. In the early days, first-generation craft brewers (and their counterparts in the wine industry) were entrepreneurs or career changers who wanted to break free from the corporate world and be their own bosses. Businesses began in garages and strip malls—small spaces that provided just enough room to get the businesses off the ground. Small brewers, looking to increase scale and reduce their individual costs, collaborated to share expenses for equipment or to piggy-back on each other’s licenses. Founders have shown grit, resourcefulness, and thrift to further their businesses through the first stages. Now, the most successful operations are evolving and acquiring, and the next generation of professionals are entering the industry with specialized degrees and focus on their careers. Meanwhile, boutique and even once “cult” brands struggle to maintain their position amidst stronger competition and a consolidating industry.

Does this sound familiar? The issues of scale, expense management, and growth planning are not unique to financial services. Other professionals begin their businesses with similar limitations, which they must address and overcome in order to reach a baseline of success. Passion and perseverance are powerful fuel, but the challenge comes—for financial advisors as well as craft brewers—in creating a business that can support sustainable growth. Oftentimes, the skills necessary to make this transformation are not innate to the business owner and reluctance to seek help is precisely what hinders their growth or even survival. As entrepreneurs who are passionate about their field, getting outside guidance is necessary to overcome their limitations and see the business into the next stage.

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Topics: Sustainability, Business Growth, Acquisition, Organizational Structure

Harnessing the Power of Mergers

Posted by David Grau Sr., JD on Jan 30, 2019 9:37:06 AM

Harnessing the Power of Mergers

Mergers are transactions that can take on many shapes, apply to almost any size advisory enterprise, and are infinitely customizable depending on the unique details and situations of the participating advisors.  

Advisors commonly think of a merger as the statutory combination of two practices into one in a tax efficient manner, but it’s better to think of the merger process as the combination of two or more advisors’ strengths, client bases, and cash flow streams, while reducing or eliminating weaknesses and inefficiencies – lofty goals to be sure, but readily achievable.

The reality is that mergers can be used to address a much wider set of challenges and opportunities including:

  1. Growth through acquisition (i.e., by merging a small practice into a larger practice, and then setting up an internal succession/continuity plan);
  2. Finding a successor, or becoming a successor (by first creating an internal, minority equity partner who later completes the buy-out of the founder’s S-corporation or LLC);
  3. Establishing a practical and reliable Continuity Plan and protecting the value of your practice against your sudden death, disability or retirement is best accomplished by having an equity partner such as may be created through a merger;
  4. Improving Enterprise or Revenue Strength through increased efficiencies and the added strengths of other advisory owners;
  5. Expanding market territory, expertise, and services;
  6. Building a strong, enduring business by combining the diverse strengths of multiple contributors.

To help illustrate these benefits, consider the following three examples as discussed in our recent Roundtable Talk, “Every Merger Is Unique,” below, each representing an actual merger between independent advisors that we helped orchestrate in 2018: 

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Topics: Mergers, Continuity, Business Growth, Succession Planning, Acquisition

10 Reasons to Professionally Value Your Business

Posted by FP Transitions on Nov 28, 2018 2:08:05 PM

10 Reasons to Professional Value Your Practice

Experienced business owners recognize the importance of tracking and monitoring the value of their practice over time. They know their practice is their most valuable asset, and by valuing it, they are empowered to grow, protect, and realize the value they have built.

Following are ten situations where it’s essential to have a current value and accurate understanding of your business.   

1. Increase Value

To cultivate growth and increase the value of your business, you need to have a starting point—a place to grow from. An accurate and comprehensive valuation will identify value drivers and growth opportunities, allowing you to create an informed growth strategy and make changes that will improve performance. The ability to track those changes and the value of the practice year after year enables you to see your progress and ensure your growth is on target

2. Benchmark Your Business

Tracking your value year after year allows for accurate benchmarking of the business. A thorough benchmarking report will look at your business and compare it to similar-sized businesses in the market, evaluating your company’s standing against the competition. Benchmarking reports reveal how your business stacks up against your peers as well as against leaders in the industry.

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Topics: Valuation & Appraisal, Business Value, Business Growth, Acquisition, Succession Planning, Benchmarking

Which Exit Path is Right For You?

Posted by FP Transitions on Sep 20, 2018 11:53:53 AM

Which Exit Path is Right for You?

You’ve built a business providing financial insight to a growing community of clients. You’ve fostered this relationship over the years and established a trusted role in their lives. As your clients have moved along their journey as professionals, entrepreneurs, investors, or heirs, they’ve turned to you for advice at each step; and now they are counting on your business to be there and to see the process through to the end. This means that as your clients transition into their own retirement, they will depend on your services more, not less. Regardless of the plan you choose, it is your duty as an independent financial professional to have a plan for client service and support that extends beyond your own career.

One way or another, your path as a financial planner will come to an end. The question is whether or not you’re going to exit on your own terms and in your own way. Are you going to create a plan for your exit that preserves the value and growth of the business you’ve spent your career building? Are you going to make sure your clients’ assets are in good hands for the length of their lifetimes, not just for the length of your career?

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Topics: Business Growth, Business Value, Enterprise, Sustainability, Benchmarking

Maximizing Business Growth Through Benchmarking

Posted by Marcus Hagood on Sep 14, 2018 8:48:16 AM

Maximizing Business Growth Through Benchmarking

The average advisor faces a difficult and increasingly competitive industry. With industry consolidation, technological advances, increased competition, more regulatory oversight, and the need to recruit and retain talent, it has never been more critical that financial advisors use benchmarking as part of their ongoing strategic planning process. With benchmarking, a business owner can improve their relative revenue and expense performance, organizational structure, and marketing results to support growth and achieve short-term and long-term goals. Used in conjunction with your business planning process, benchmarking is a powerful tool to track and build additional enterprise value.

What is Benchmarking and Why it is Critical?

Benchmarking is defined as a measurement of the quality of an organization's policies, products, programs, and strategies as compared against standard measurements of their peers and “best-in-class” providers. An effective benchmarking program provides insight into the connection between your business decisions and the resulting outcomes.

Benchmarking improves performance by identifying and applying demonstrated best practices to sales, operations, and procedures. Comparing the relative performance of their products, services, and sales both externally (against competitors) and internally (with ongoing operations and business decisions) ensures that performance meets or exceeds the competition. The objective of benchmarking is to find examples of superior performance and understand the business practices driving it. Effective business owners utilize benchmarking insights to improve by incorporating these best practices, not through imitation, but through innovation.

The Four “M's” for Incorporating Benchmarking into Business Planning

Every firm has unique needs for benchmarking. For example, the goals of a mature firm versus that of a start-up practice may differ greatly. More established business and solo advisors might be more likely to utilize benchmarks to implement changes that result in increased efficiency and profitability. By contrast, a young developing practice may be more focused on driving and managing growth in clients and revenue.

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Topics: Business Growth, Business Value, Enterprise, Sustainability, Benchmarking

Reminiscing About the Future : 20 Years in the Making

Posted by David Grau Sr., JD on Aug 27, 2018 7:00:00 PM

Reminiscing About the Future

The foundations for FP Transitions were laid in 1999, and that makes our company officially 20 years old this year. I founded this company thinking that I knew a lot more about running a business than I actually did at the time. Armed with a law school diploma and a lot of energy and drive, I thought I was ready to conquer at least a small corner of the business world. Turns out that running a business takes experience and business knowledge.

Along the way, I picked up an important axiom from a local legend who said, “Don’t confuse activity with achievement.” He was right, but it took me a long time to understand the difference. In retrospect, the first ten years of our company were characterized with a lot of activity; the last ten years is where the achievement took place. The difference maker for us was hiring an outside CEO, Brad Bueermann, to come in and help us turn our activities into achievement on a national scale. Until then, I confused being very busy with being very successful, or at least constantly being on the verge of success. Everything revolved around me and the lawyer in me silently rejoiced. But this wasn’t a good, long-term model because eventually I ran out of time and energy. And I got older!

Advisors often mistake activity for achievement too, thinking that their one-owner practice that is 90% or more fee-based and that grows steadily at 10% or more every year is proof that they have built a business and that success has been achieved. I see a lot of independent advisors building what I call “books” and “practices,” but not very many building sustainable businesses. What I’ve learned over the past twenty years is that, while it is incredibly satisfying to have a practice that revolves around the founder, that isn’t a durable model, and it is not “a business.” At some point, if a practice is to outlive its founder and provide services to the clients for their lifetimes, and not just for the length of the founder’s career, significant changes need to be implemented, and the sooner the better.  

Early on, we grew fast and I became totally focused on our top-line success and growth rate. But there came a time when it was clear that without strengthening the foundational aspects of our business, it would never grow past a certain point. I had to move myself out of the center of operations and learn to build and run a business like a shareholder, not like the star attraction. Making myself a part of a stronger, more diverse, and younger team of professionals was hard, but very necessary – more than just changing my leadership style, we had to change the culture of our operation and, frankly, that was beyond my skill set. So, we brought in outside help – people who knew things that I didn’t – and that made all the difference. 

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Topics: Business Growth, Building Your Team, Business Value, Next Generation, Enterprise, Sustainability

The Importance of Human Capital – A Founder's Perspective

Posted by David Grau Sr., JD on Aug 1, 2018 10:46:31 AM

Cultivating A Strong Team

Looking back over the past few decades, you can easily spot the trends and physical changes in our industry. Since 2000, when FP Transitions formally opened its doors, I’ve seen our profession, especially in those working under an independent broker-dealer or hybrid model, steadily shift to fee and advice-based solutions. Early on, most practices that we represented were made up primarily of transaction or non-recurring revenue; today advisors build businesses with a focus on fee-based income streams. Independent insurance companies are evolving as well with a sophisticated and wide array of recurring revenue.

Along the way, these practices have become not just more valuable, they are also physically larger and stronger. This requires more qualified people to analyze, give advice, produce revenue, as well as the adjunct talent to support these professionals. Looking forward, we see an ever increasing need to recruit and retain the best talent in the industry to support not just where your practice is today, but where that growing business will be ten years from now. Everyone has read about the need for recruiting; but the story has shifted in the past few years and will continue to do so going forward. Rather than simply hiring next gen talent as the need arises, this could well turn into a fierce competition to adequately reward and retain that talent as more and more advisory businesses reach the next level of success and draw upon a talent pool that has scarcity written all over it. 

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Topics: Building Your Team, Business Growth, Enterprise Strength, Equity Pathways, Next Generation

Defining Your Enterprise: Taking Stock & Moving Forward

Posted by David Grau Sr., JD on Jun 26, 2018 10:30:00 AM

Taking Stock and Moving Forward

In the work that we do, our clients want to build something bigger and stronger, for one reason or another. The goal may be to grow and then sell it to a third party or a consolidator for maximum value. Sometimes the goal is to create a sustainable enterprise capable of supporting a gradual transfer ownership, leadership, and responsibility to an internal successor. 

Many advisors arrive on our doorstep using terms like “silo” and “ensemble” to describe to us what they believe they have built. However, these terms merely describe the organizational structure, which is just one facet of the strength of an independent advisory enterprise. They are not sufficient for diagnosing ALL structural elements needed to support a sustainable, profitable, valuable enterprise in this highly-regulated and sometimes complex industry. When we start a growth path with limited terminology, we inevitably have to ask a lot more questions of our clients to figure out exactly what they mean, what they really want to accomplish, and how to help them get there. 

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Topics: Business Growth, Enterprise, Sustainability

The Three Pillars of a Successful Advisory Business

Posted by David Grau Sr., JD on May 24, 2018 2:26:19 PM

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In my work, I’ve become a “professional traveler,” so I spend a lot of time in airports, and I get 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 with a different view of the financial world, and then sharing what they’ve built with others is woven into the very fabric of their being. Entrepreneurs like to 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 client experiences. 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 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 is there, and recurring, fee-based revenue certainly helps, but the skill-sets that prompt most of you to hang out your own shingle and start gathering clients who entrust 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.

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Topics: Business Growth, Organizational Structure, Entity Structure, Compensation, Building Your Team, Succession Planning, Sustainability

8 Considerations for Your Merger Strategy

Posted by FP Transitions on May 18, 2018 7:06:12 AM

“Mergers & Acquisitions” is a phrase that gets used off-handedly, but those are substantially different transactions. An acquisition itself is a complicated enough process. But in a merger there are the additional components required to wholly integrate two separate businesses into one surviving entity.  Those complexities are why each merger engagement presents circumstances and challenges unique to the companies, and individuals, involved. Those complexities can be solved, but the path to the solution is often not apparent to the inexperienced or unwary. 

There are threshold issues a business owner should consider before jumping into the process of merging his or her business with another business. In the video below, two of our transactions experts, General Counsel, Rod Boutin, J.D. and Assistant General Counsel, Ericka Langone, J.D., discuss some of these important considerations.

 

You and the rest of the ownership team have decisions to make about the merger process itself, as well as decisions to make about the business you’ll create. These details should not be left for discovery and sorted out mid-process, but should be understood and planned for before implementing your merger strategy.

FIT The importance of finding the right merger partner(s) might seem like a given. But, before you make the decision, really consider what makes a good fit. After all, you’re going to have to work with these partners for many years to come. A particular merger combination might make sense financially, but it has to make sense culturally if it’s going to work–and if the business is going to thrive.

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Topics: Mergers, Continuity, Business Growth, Succession Planning

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