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Maximize the sales value of your wealth and asset management firm

Jul 12, 2021

Whenever you create something of value, particularly something as financially and personally important as your business, a long-term objective should be to realize the best price possible should you decide to sell. Through careful planning, you can achieve a successful sale and a smooth ownership transition.

In business terminology, the ending for a business owner is called an exit; the plan for a defined ending an exit strategy. Having an exit strategy tells interested parties that you have a plan for an organized and profitable ending.

Firm owners who don't plan for transition often fail to realize the true value of their firms when they sell. One result: Their retirements aren’t quite as comfortable as they had imagined. This doesn't happen because the owners failed to create value in their firms; it's because they failed to do the planning that would have allowed them to capture that value.

Unfortunately, many wealth and asset management firms are sold because the owner dies unexpectedly or is otherwise unable to run the firm. That is the worst-case scenario and it must be avoided. An unplanned exit greatly reduces the prospect of a successful sale.

In a perfect world, registered investment advisors sell their firms when banks are eager to lend, the economy is strong, the financial services industry is booming, the businesses are enjoying record profits and the future looks even brighter. Naturally, a perfect convergence of all of these variables would enable you to maximize the value of your business — allowing you to sell it at the highest price and on the best terms.

As evidenced by the current market and economic turmoil, most owners of registered investment advisory firms did not sell when market conditions were perfect. Opportunity knocked, but a relative few answered the call.

Planning the sale 

As you plan your firm’s sale, ask yourself a couple of questions. First, how motivated are you to sell? Selling a firm can be an arduous process, taking a year or longer from the initial valuation to finding a buyer and finalizing the deal.

Second, have you adequately prepared your business to be sold? Most experts agree that owners should plan for the sale of their firms at least three years in advance. A savvy business owner plans for an eventual sale while building the business.

Even if you have no current plan to sell, managing your firm as if it will be sold is likely to result in a more efficient, financially viable operation. For example, your business plan — whether a formal or informal document — should evaluate growth opportunities, market position, business goals, and explain how progress in reaching these goals will be measured. Not only is your business plan an important tool in unlocking the current value in your firm, but it also serves as an initial prospectus for potential buyers.

Keep an eye on economic cycles and how they affect the merger and acquisition market. The market for privately owned companies can be just as cyclical as that for publicly traded companies. As witnessed by many registered investment advisory firms, economic weakness can result in a drop in your business’s profitability and a perception among buyers that your business is risky. Whether on the buy-side or sell-side, firms that demonstrate stability and strength in tough markets may actually thrive, from a mergers and acquisitions standpoint, in a turbulent economy. For buyers, there is less competition for acquisitions; for sellers, demonstrating strategic or financial value to the buyer should command a higher valuation.

Also be aware of your business’s growth cycle, and plan to sell when sales growth is peaking. This isn’t always easy to calculate; it typically requires the help of an outside advisor. The advisor is also well placed to help you evaluate the value of any brand, proprietary process and/or service, or lucrative market niche your business has developed.

In recent market activity, buyers of registered investment advisory firms have given less credence to multiples of revenue when valuing acquisition candidates. Instead, businesses are valued on some multiple of earnings. Your business’s earnings, therefore, must be stable, transparent, and documented. Buyers also look for breadth of management, which reduces the company’s dependence on the departing owner and allows the buyer to learn the business from an experienced management team.

Making relatively minor changes to the business can enhance its perceived value and make it more attractive to prospective buyers. Clean and organize the office. Make sure staff duties and responsibilities are clearly delineated in firm policies and procedures. These steps will attract buyers seeking a turnkey operation. Finally, consider disposing of unproductive components of the business because buyers don’t want to be burdened with them and won’t pay for them.

How Wipfli can help

If you've been in business for years and are only now thinking about an exit strategy, our team can help you with  your exit strategy starting today.

Our team would work with you to determine:

  • Current valuation of your business
  • The factors that drive the value of your business
  • Methods to increase your business value
  • The potential future value of your business
  • Your options for ownership change
  • Likely tax implications of ownership change
  • Tax-saving methods specific to your business
  • Your likely proceeds from strategic ownership change

Learn more about our services for wealth and asset managers on our web page.


Paul T. Lally
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