If you’ve built a successful financial advisory business, it’s never too early to start thinking about succession planning, whether the sale of your business is years away or next month.
Your business and the value you can derive from it can play a vital role in determining your long-term financial security. Better preparation ensures a smoother transition for both you and your clients.
Here are some things to keep in mind when considering selling your financial advisory business:
1. Are you really ready to sell?
Like many business owners, your day-to-day life is likely closely tied to running your business. You may have started the business from scratch and spent years building it into the successful business of today. Letting go can be difficult, both emotionally and logistically. It can help to fully understand your motivations for selling.
Be honest with yourself: are you ready to sell? If you’re not sure, ask yourself these additional questions.
2. Are you happy and satisfied with everything you have accomplished?
If you still enjoy running the business and are passionate about it, you’re probably not ready to sell your financial advisory business.
3. Are you financially ready?
Take your time and analyze your financial situation. Have you saved enough for your retirement? Do you have any debts that will need to be repaid?
4. Are you retiring to do anything specific?
For many business owners, the decision to sell is driven by the desire to retire. But it’s important to make sure you have a plan for what you’ll do with your time after you retire. Otherwise, this move might end up looking like a step back.
Whatever your reasons for considering a sale, it’s important to be thoughtful and deliberate in your decision-making process. This approach will guarantee a great outcome for you, your business and your customers.
5. What is your business worth?
You started your financial advisory business from scratch and watched it grow. You may think that you can’t bring the value of your entire business down to an exact figure – and of course, it’s more of a ballpark figure.
But you have to put a price on your business, especially if you want to get paid for what you’ve built, considering all kinds of equity.
To establish your business valuation, you must first understand your assets. These can be AUM (assets under management), annuity assets under management, life insurance, etc.
Another important consideration is your business’ annual recurring revenue. If you are paid, commission or a combination of the two, it will be different.
Determining if your business can function without you is crucial. This consideration is especially important if you are selling to a third party, as they will want to know that the business can still operate and generate revenue without you.
If you have key employees or contractors who are integral to the operation of your business, it is important to know if they would be willing to stay after a sale.