Buying or selling a business, the same rules apply

Speaking at a recent industry workshop, Peter Fysh, Principal of Financial Planning & Succession, made some compelling comments about buying or selling a planning business.

“My involvement in recent transactions with business owners, highlighted some of the key issues that need to be addressed when looking to either buy or sell a planning business. Such transactions are costly, require time and effort, and can be distracting to key staff in the business. It is essential that there is some preliminary work done, including ensuring suitable sources of funding are available. Determine what type of business is a good cultural fit. All too often problems occur when there is not a good fit for the businesses being merged. As tempting as a business may be, sometimes it is better to walk away and look for another opportunity.”

Issues that need to be addressed as part of the due diligence for any acquisition include review of client mix, compliance, financials and systems. Beware of distressed sales, that whilst maybe appealing at first look, have issues that may well not be resolved easily. Should everything checkout to your satisfaction, and you agree to purchase the business, it will be critical to ensure a smooth transition of clients into your business. It may even pay to have the assistance from external parties who are experienced in this area.

“The integration phase is where it can all end in tears if it is not done smoothly. Key advisory staff ideally should not be involved, as it takes them away from their normal advisory (fee generating) work” said Peter. “If you have not been involved in the acquisition of a business before, it will be a new experience. It is essential that key staff from the business being acquired, are retained for a period of time, as they will know the clients. The terms of the deal will normally involve say 80% payment up-front and the balance after 12 months, based on the clients having been successfully transitioned”.

“It is critical that there is the right cultural fit between the parties involved. All too often this is ignored and it then becomes a real challenge to integrate and then extract synergies from the combined businesses, distracting key staff in the process”.

With businesses that are selling as part of a succession plan, it is critical to ensure that key staff have buy-in on what is planned.

“All too often, key staff, who may well have a stronger relationship with clients, are ignored, and the business risks losing them once the business is sold. Ask yourself the question “What value do your clients place on your staff?”. Could you have built the business without the support of your key staff over many years?”.

For many businesses, the acquisition of additional businesses is a key part to the future growth of the business. However, acquisitions can be time consuming, costly and not provide the desired outcome. The key to success is to ensure that there is the required cultural fit, including such things as advice model, business process and client segmentation.

“There are a number of areas to address, including analysis of client base, financials, staff, systems and negotiations on suitable terms. Once these are addressed then it is essential to get good legal advice in respect to contracts. A good tip is to only bring the lawyers in once you have agreed on the terms of the transaction, as this will mean legal fees are minimised. Seek advice from lawyers who are experienced in regards to financial planning, your suburban practice that does conveyancing will not be suitable.”

With contracts exchanged, now the focus is the successful integration of the newly acquired business. “Ensure that the terms include provision for the vendor to be actively involved with the transitioning of clients, including participating in all initial client meetings to do the introductions. Whilst this a sensitive issue, if you have ensured that there is the right cultural fit, then majority of clients will be understanding. Better still if the vendor remains with the business for 6 months or more” said Peter. “The fact is many others have enjoyed success with acquisitions, so there is no reason that you won’t also have a good experience.”

For many business owners, buying or selling a business is a new experience, but if you follow a process, and tick all the boxes, then there is no reason that it can’t be a success, and you will benefit as a result.