If you have built your financial advisory practice up over the years and are now looking to sell it, you will most likely be handing off your clientele to a larger firm. You could also merge with another firm in some cases, but if you want to retire or otherwise exit the business, then selling your practice may be your only alternative, especially if you are unable to find an adequate successor among your own employees.

Selling any business can be fraught with risks and obstacles, and financial advisors who are looking to trade their firms for cash, equity or other compensation have their own special set of financial issues to consider.

Here are some tips to keep in mind if you decide to sell your practice to a large firm. (For more, see: How to Sell Your Small Business.)

Keep an Open Mind

One of the most important factors to remember is simply to have an open mind regarding your options when it comes to selling. There may be a large number of potential buyers, and each of them will have a different set of pluses and minuses when it comes to what they can do for your clients. Some firms may have much more sophisticated products and services that they can provide while others may be more geared towards spending a greater amount of time with their clients in face-to-face meetings and sponsored events. (For more, see: How to Ready Your Advisory Practice for Sale.)

Another key point is to check your ego at the door. While you of course are going to be very proud of the practice that you have built up over the years, you will have to accept that it will essentially just be a set of numbers and projections to any potential buyer, even if they are sincere about servicing your clients after you part with them. But you are likely going to have to accept that some of your clients may be unhappy with the changes that will come with the transfer of ownership.

Nailing Valuation

If you can keep an open mind about negotiations, then you may be able to get a better price for your practice. Insisting on all cash up front may limit your options in many cases; you may be able to get a much better deal by asking for a down payment plus a note and a share of equity in the purchasing firm. (For related reading, see: Valuing Private Companies.)

Don’t hesitate to enlist a CPA or other appraiser if you aren’t sure just exactly how you should value your practice; it will likely be set at a multiple of EBIDTA that is perhaps normalized for your expenses as the owner. And that multiple will depend in large part upon the possibility of clients leaving as a result of the sale. If you are the key advisor in the business and the majority of your clients are used to dealing directly with you, then it may be harder to convince a potential buyer that these clients will stick around for them.

Your cash flow statement should accurately reflect the real costs that a buyer will have to absorb when they take over your clientele; this may include the cost of hiring another key advisor, which will probably cost at least $250,000 or more, depending upon the type of work and licensure that is required. (For more, see: Tops Tips to Prep Your Advisory Practice for Sale.)

The age and demographics of your clients is another major factor to consider, as a large book of younger, affluent customers is obviously worth more than a book of older retired clients who are drawing down their savings. (Of course, the latter group does also provide estate planning opportunities.) (For more, see: FAs Should Factor Clients into Succession Plans.)

The Dilemma with Employees

Another key factor that can play a major role in selling your practice is employees. If your staff would like to continue serving your clientele after you are gone, then this may be a key selling point for a firm that is willing to take them on, as it could help with client retention and satisfaction. But in many cases, buyers will not want to take on your staff. (For related reading, see: Successful Entrepreneurs on the Worst Advice They've Ever Received.)

If your employees are not retained in the sale, then you need to negotiate a severance package on their behalf if at all possible. (For more, see: Tips on Selling Your Financial Services Business.)

The Bottom Line

Perhaps the most important point to remember when it comes to selling your practice is to give the whole process time. You need to start the sale process a few years before you make your final exit, because you will most likely be able to negotiate a much better deal if you are able to stay on with your clients at the new firm for a while in order to ensure a smooth transition. Careful planning and realistic expectations are also key factors in any successful sale. (For related reading, see: Succession Planning for Your Small Business.)

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