A business valuation expert unveils the five factors every financial planning practice must follow if the business is ever to meet its true valuation on sale.
Are you planning to sell your practice?
The key to maximising value when selling a small business such as a financial planning practice is to recognise what your intangible assets are, and then make sure the buyer is comfortable that those assets will be preserved, said Todd Fries, senior vice president at the BVA Group LLC, a business valuation firm.
Fries offered the following five tips to owners who are planning to sell their practices:
Have a transition plan
Your key assets are your relationships. In order for a practice to have any meaningful value, those relationships need to be transferred to the buyer. In order for the buyer to be willing to pay for them, it must be clear to them how to keep those relationships with the business. That transition plan may require you to stick around a while after the sale.
Keep clean books
Make sure your potential buyer can get comfortable with your records so they know what they are getting both on the top line and the bottom line.
Get employee buy-in
Key employees are just as important as key relationships. If the potential buyer sees your key employees as potential future competitors instead of business assets, they will value the business accordingly.
Be reasonable in your expectations
For many business owners, their business is worth whatever they think they need to retire. Unrealistic expectations will chase away potential buyers. Consider getting a professional to provide you with a realistic valuation for your business.
Create your own buyer – mentor a successor
The easiest way to transition relationships is over a period of years to an heir apparent, rather than in a compressed period after a sale. Having a junior partner with whom your key relationships are comfortable working will make it easy to maintain the value of the business through transition. Make sure, however, that this person is:
capable of replacing you one day;
bound by a covenant not to compete.
Also, negotiate a buy-sell agreement on the front end, so the plan you put in motion years ago doesn’t blow up when it’s time to exit.
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