How to plan your business exit strategy

Stephen Hagues Retiring IFA

As a business owner it is natural to be focused on survival and growth, especially in the advice industry, where adapting to the changing regulatory landscape is a big challenge. However, when the time comes, deciding how to exit your business is one of the most critical decisions you will ever make.

Stepping back from a firm you helped create, balancing competing interests and making sure you get the best deal are difficult decisions that need to be planned with great care.

Are you a good adviser or, more than that, a good adviser business? Perception of your firm will determine its value. This is not just in your proposition but also in the efficiency of processes, back-office systems and platform use.

Provide an in-depth, presentable analysis of your business, including where all the client monies are, the nature of your propositions and the value of segmenting your client base. Most of the value in a business is in the investments and pensions expertise and service.

Meanwhile, it is important to keep the momentum going with a potential sale. To be frank, time kills deals so having the documentation ready to go will be a great advantage. There are 10 buyers to every seller, so potential purchasers will be constantly looking around, especially in an industry where growth by acquisition is a popular strategy.

Stepping back but staying available is an important, albeit inherently difficult, move to make at such a crucial time. Indeed, the best course of action for exiting a business is for the existing team to deal with the day-to-day operations of the business. This may mean not actually going into work as often as you currently do. An owner exiting the business tends to result in a higher valuation for the acquisition than if they were staying on.

A buyer can sense when an owner is too hands on. Ensuring messages, priorities and communications are consistent and a well thought-out succession plan is in place will reassure a buyer there is sustainability in the business. Having teams that can manage themselves and not fall apart at the seams is essential. Diversification of control of the business is an important selling feature, not just in management but also in terms of client relationships.

Becoming less hands on can help you to identify the value in your business and how it is different from others out there. Spend some time doing an audit on your competition and determine why you are better, or how you can improve. Cultural due diligence and scrutiny of customer relationships is crucial in a people-led business, so ensure your human capital and talents of the organisation are shown.

Facilitating a longer handover period, even of 12 months, can create more value to an acquisition, as accessible support from the seller can help with any difficulties with client relationships. Remember that the majority of acquisitions are completed on a deferred payment basis, which means that forecasts need to be accurate.

Having information on other deals and acquisitions in a similar region (what multiples they were on, who has failed and who has succeeded) can help with the management of negotiations.

It may be that you are not thinking of selling right now but business owners should start thinking about exit strategies on the day their firms are created, as that is when the value within the business itself translates into real money.

A bad position to go to the market in is when you can only see the escape tunnel and really do not know what to do with the business. You should have a clear vision of where the business can go and be able to present to a potential buyer how your team is going to drive that.

Mifid II is the next big regulatory change pushing some firms to leave the advice industry through the stringent, regular reporting it demands. In the run-up to implementation we are likely to see more firms considering selling up. As the seller market becomes more crowded, it is important to stand out with your competitive advantage.

Stephen Hagues is founder of Retiring IFA