The best time to consider increasing the value of your business is long before you’re ever ready to sell it. “Starting early is the best thing you can do,” said Brian D. Heckert, CLU, ChFC. “By 55, you should have a transition plan in place. Otherwise, at a certain point in time, the business will hit a cliff and diminish.
“The owners who receive the most value are selling a functioning firm, while the owners who are simply selling a list of clients receive the least value,” said Heckert, a 31-year member from Nashville, Illinois, who served as MDRT President in 2016. To ensure your business rates at top value, Heckert recommends starting with these key points:
- Determine your value and make sure your financials are true financials. For the maximum value, itemize your expenses and clean up your books, Heckert said. Reduce your overhead and expenses as much as possible. Aim for three years of true financials before you consider selling. Know the difference between your net and gross. Look at your assets under management and recurring revenue. The age of your clients factors into valuing your firm’s growth potential as well. “If there’s no relationship with the children of clients, there’s no value,” Heckert said.
- Build a firm for sale. Product sales aren’t transferable, and solo practices are often too closely linked to the individual advisor. The most valuable financial services businesses are ensemble practices, Heckert said. “The value becomes significant because it’s not tied to the owner.”
- Start with the end in mind. Start five years before you actually plan to exit the business. This gives you time to tighten up expenses, clean up your books and increase recurring revenue and referrals.
- Find a buyer. Network through MDRT and your local financial services associations. Talk to your broker-dealer, wholesalers and centers of influence for recommendations.
- Secure staff and sales personnel. Create a contractual understanding of when the exit will happen. Lock in everything you can, so everyone knows upfront how the transition will proceed.
- Treat it like a marriage. Be upfront and honest about the whole situation. Make sure the chemistry is right between you, the buyer and your clients. “The best deals will fall apart if you don’t get along with the person,” Heckert said.
Read more in “Building a firm for sale”
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