SELLING YOUR FINANCIAL ADVISORY
If you are considering selling your IFA company, read through our comprehensive guide on this page to the important steps along the journey and how we can help you to navigate them.
We will discuss the reasons for selling a financial advisory, the importance of obtaining an accurate valuation of your company and how you can thoroughly prepare for your exit.
Let’s firstly touch upon why IFA business owners decide the time has come to sell their company. This can encompass a readiness to retire, regulatory changes that may render their work more complicated and financial difficulties potentially caused by decreasing revenue streams. We will discuss this in more detail below.
When the decision to exit your company has been finalised, what type of sale do you want to achieve? You could include all the company’s shares, assets and goodwill in the valuation or simply sell the client bank. And do you want a clean break or a phased exit whereby you could continue to work with a reduced number of clients, perhaps for a limited amount of time?
Joining forces with KBS when selling your IFA company can help you to clarify these decisions, putting the groundwork in place to accomplish all your objectives.
SELLING YOUR FINANCIAL ADVISORY
HOW CAN I SELL MY IFA COMPANY?
Several different options are available to company owners who are looking to sell their financial planning business:
Trade buyers: Companies operating within the financial advisory sector may identify your business as a worthy acquisition which can complement their existing operations, perhaps by way of a different service offering or a new geographical market.
Private equity: In recent years, an increasing number of private equity houses, especially those based in the USA, have been buying UK financial advisories and we have strong connections with these types of investors.
Management Buy-Ins/Buy-Outs: If you have senior staff ready and able to take on greater responsibility after your exit, an MBO could be an appealing option. An MBI, meanwhile, is when the acquirer brings in its own leadership team to oversee the company’s operations.
Employee Ownership Trusts: An EOT is established on behalf of, and for the long-term benefit of, the company’s employees. The staff will be incentivised to contribute to the future success of the business – and EOT sales are completely tax-free.
Other alternative routes: These include institutional investors such as pension funds, investment banks, mutual funds, family offices and initial public offerings. Our ability to think outside the box enables us to target these additional buyer types.
It is possible to go it alone with a company sale and/or hire a solicitor/accountant to help you, but there are many factors to consider and the benefits of having expert advisers such as KBS on your side are sizeable.
CONSIDERATIONS FOR SELLING A FINANCIAL ADVISORY
Selling an IFA company can be a lengthy process, but the rewards will be tangible once it has all been signed, sealed and delivered. It will require thorough preparation, an accurate valuation, auditing due diligence and strong negotiation techniques on the way to a successful completion.
The following steps are of particular importance:
Have a clear goal in mind: What do you specifically want to achieve from selling your company? Whether it’s enough to fund a comfortable retirement, relocation or a new business venture, be sure to know your exact objectives – it will sharpen your focus to strike the ideal transaction for you.
Prepare for the sale: There is no such thing as starting too early when you are preparing to sell your financial planning company. Act upon the advice you would give a client – get all your accounts up to date, streamline processes, minimise costs and ensure the right staff are in the right roles.
Defined revenue streams: Recurring revenue streams are a key attraction when it comes to selling your IFA company. If you have a consistent cashflow, acquirers will view that as a solid basis on which to scale up the business, perhaps by combining client banks.
Value your company: Setting a realistic valuation is critical to your chances of achieving a successful sale. We can help you to decide on a target figure that meets your specific requirements for the plans you have in mind and does not price you out of the market.
Evaluate potential buyers: Who is the right fit to drive your company forwards? With our extensive buyer reach, we are perfectly positioned to identify the ideal acquirer who has the financial means and experience to ensure your company remains in good hands.
Negotiate the final settlement: Again, this is something at which we are proven experts in helping company owners. An acquirer is sure to have their own ideas about how they want the final deal to look and having us in your corner will boost your negotiating power.
WHY SELL YOUR IFA COMPANY
As mentioned above, there are various reasons why business owners choose to sell their financial advisory.
Although personal circumstances often drive the decision, it can also be influenced by professional factors such as rising insurance costs, increased regulation, compliance, expenditure associated with the Financial Services Compensation Scheme and increased administrative overheads.
However, the decision to sell your company does not have to be a reactive one in response to financial or legislative pressures. You can be proactive by weighing up the prevailing demand for companies offering sound financial advice as market conditions may be indicating this is the perfect moment to sell.
Should you establish it is the right time to proceed, you will need to ensure that when the sale goes through, the transition is seamless. Your clients will not countenance any drop-off in the service your company provides and once the handover is publicly disclosed upon completion, it will naturally need to be presented as a positive piece of business for all parties.
VALUING YOUR FINANCIAL ADVISORY
We referred above to striking the right balance for the valuation of your IFA company, but how should that be calculated? It is not a matter of guesswork or plucking a figure out of the air.
The valuation could be based on your recurring revenue or the profitability of your company, known as the EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation).
Other factors that can influence the valuation are the company’s location, reputation, client profile, fee structure and retention levels.
PAYMENT TERMS WHEN SELLING A FINANCIAL ADVISORY
In recent years, due to the increasing market interest in acquiring IFA companies, the trend has become for business buyers to pay a greater proportion of the purchase price up front. Typically, anywhere between 50% and 75% of the agreed sale price will be paid up front in cash.
The remainder would be deferred, paid at a later date and unconditional – although, unless some form of security was put in place, it would be at risk if the business became insolvent.
Another option is an earnout, which is related to the company’s performance and usually applies when the seller continues to run the business on the buyer’s behalf for a certain length of time.
COMMON LEGAL ISSUES WHEN SELLING A FINANCIAL ADVISORY
Legal issues when selling an IFA company are generally in line with those encountered in any other type of business, namely:
- Due diligence – read our detailed guide to understand more about due diligence
- Negotiating and drafting the Heads of Terms and final sale agreement
- Warranties and indemnities
- Property law matters, in relation to whether the company premises are owned or commercially leased
- Employment law matters, such as TUPE which stands for Transfer of Undertakings (Protection of Employment) for staff being switched from one employer to another
- Data protection and intellectual property
- Tax-related aspects – read our detailed guide to tax on selling a company.
Should you require help with any of these matters, we can put you in touch with one of our designated legal partners as part of the complete company sales service we provide.
EXPERT SUPPORT SELLING A FINANCIAL ADVISORY
KBS has succeeded in selling financial planning companies for over 25 years. Providing a bespoke, tailored service for every individual transaction, our team of experts utilise their experience, technical knowledge and network of contacts to negotiate the best possible deal for you.
Contact us to find out more about how we can deliver the sale of your IFA company and fulfil all your objectives.
SALES WE HAVE COMPLETED
IN THE FINANCIAL ADVISORY SECTOR
acquired by
acquired by
acquired by
acquired by
acquired by
RDS
Sector: Research and Development Tax Credits
Location: Greater Manchester
Buyer: Business Growth Fund
acquired by
acquired by
Boomerang Support Services
Sector: Funding Solutions Provider
Location: Worcestershire
Buyer: Brookson Group
acquired by
