Once you have successfully valued your IFA business the next step is to understand how to go about selling your IFA business. In this blog, hopefully, we will answer most questions you may have regarding how to sell your IFA business.

Why is it important to know how to sell your IFA business?

Most Financial Advisors have spent the majority of their career building and scaling an IFA business they are proud of. It is the culmination of years of hard work and dedication which is why you want the best for it! For this reason, you obviously want to get it right to make sure you are securing the most appropriate succession for you, your clients and your business

Questions to ask yourself before starting to sell your IFA business

  • Make sure you have a desirable business – There are certain aspects within businesses that owners are not aware of that could affect the sale. For IFAs these could be high-risk areas of investment, namely, DB pension transfers. Some don’t realise that this could mean that some acquiring businesses will not deal with them as they do not want to be associated or takeover the risk.
  • Does it meet minimum criteria? – It is common practice for acquisition brokers and selling websites to have a minimum criteria vendors must meet in order to deal with them. This could be funds under management (aka assets under management or assets under advice) or recurring income. This can tie in with our previous blog which stresses the importance of knowing how to value your business. This is an important step before talking to any relevant parties as it can save time for everyone involved.
  • Are you ready for this process – Unfortunately, selling your IFA business is not always a straightforward process. In an ideal world, you would find a suitable buyer with relative ease, get a deal in place, sign heads of terms and finalise with completion. Whilst this can be the case, usually, it will take a little longer than this! We have seen an array of twists and turns with deals over the years, so make sure you are prepared for everything, including the delays experienced with the FCA in approving the change of control, where this is necessary! Furthermore, are you ready to sell? We occasionally hear IFA’s thinking of selling pull out at the last minute despite the deal terms meeting all their criteria because they aren’t ready to give up advising yet – often using the excuse that if they stayed on for another 5 years they could earn the payout terms from recurring income received. What is being missed here is the optimum age to retire and maximising the period of time in healthy retirement as you can’t buy back those years. Selling your business is a highly emotive time and for this reason, we recommend that you take your time deciding if this is the right decision for you. You should think about any impacts that it will have on your personal life including your family, friends and any other personal commitments. This is a topic we covered in far more depth in our free to download eBook “Are you considering your exit strategy?” which is well worth a read if you are considering retirement. It goes into more depth regarding things you consider including a list of questions to ask yourself and other things you may not have considered.

What are some of the different ways to sell your IFA business?

  1. Online website

One way that many people may choose to sell their business is through various online websites. These websites will offer to advertise your business for free with a ‘no sale, no cost’ approach and charge you upon completion or for a fee, whether that be a monthly retainer fee or a percentage of the final asking price. Fees can massively vary from website to website and many will apply a ‘one size fits all’ approach. In our opinion, this simply isn’t good enough when it comes to selling years’ worth of hard work which often is tied up in friendship with clients, loyalty to staff and impacts on your family.

Although some may have success with this method, we think that this is a risky approach for several reasons. Firstly, customer service with these websites can be non-existent at times which is the last thing you want when trying to navigate an already difficult task. Secondly, and this applies to all of the listed options in this blog, there is no required qualifications or governing body for the mergers and acquisitions industry. For this reason, it is not uncommon to see ‘cowboys’ who may have a lack of care and a dishonest approach when it comes to your business, your clients and you! Finally, some businesses will charge you a monthly retainer for marketing services, often without any evidence or record provided to you, the client. Though this activity may well be getting done, we would still be wary of this, so make sure you know what you are paying for.

  1. Specialist IFA Acquisition Broker 

The optimal way to sell your business, in any industry is by seeking a specialist who is well versed in your sector. The benefits of using an IFA Acquisition Broker like this are multi-faceted:

A specialist broker should already have a selection of suitable businesses for you and can get to work right away on finding the most appropriate acquirer for you. Some buyers will wait countless years to find the perfect match for them and will be willing to pay a premium to make sure that they secure the deal. Who knows, your buyer could be waiting for you right now!

Brokers can also help with the whole process far more efficiently than other non-specialists. As previously mentioned you will already have a lot on your plate, so you don’t want to be explaining simple terms and industry nuances on top of this. Dealing with those who are highly experienced in M&A and Financial Services market can save so much time and stress knowing that you are speaking to a fellow industry peer. For example, the IFA Acquisition team here have been in Financial Services for over a combined 100 years and have held a variety of senior roles, including Director and Board level across all aspects of the industry!

One piece of advice we would give is to make sure your broker has non-disclosure agreements (NDAs) in place with acquirers and limits the number of introductions to one or two that best meet your criteria. Without an NDA, you run the risk of your clients and / or employees finding out you are in the selling process which will only unsettle them and potentially leave which could put your business in a weaker position than it is currently in, prior to its sale, leaving you open to a lower asking price than you were expecting. Again, this is something we ensure is in place at IFA Acquisitions and through thorough fact-finding, our recommendations will narrow down on the acquirers that best meet all stakeholders needs such as you, your clients and your staff. Think of this as a 3 legged stool and if one of these stakeholders is not supported the stool will not be fit for purpose. We see this as a vital part of our best practice.

If you want to have a chat with us, please get in touch:

Email: [email protected]

Telephone: 0208 0044 162

  1. Someone you know

The final way is selling to someone you know. This could be a friend, family member, business partner, acquaintance, or current locum etc. This can be a good route in some situations, namely where there is more than one person with equity in the business but they might not share the same exit strategy as yourself. In some cases, your business partner(s) may be willing to buy your equity from you. This would obviously be in an ideal world where they have the capital to do this. However, often this is arranged under a long earn-out which means this route could see you waiting longer to be fully paid out of your capital and is dependent on smooth and amicable dealings for many years in the future. In other cases, you may personally know someone unrelated to the business who would be interested in taking ownership of your firm. This again is dependent on a range of  factors and is extremely rare in what we have seen over the years that the deal is priced at market rates

Whilst a viable option for many, it is worth noting, that unfortunately, we have also seen this route put a strain on personal relationships over the years. Just look what happens when you start to Google it!

Types of sale

Once you have decided on the method of your sale, you can then decide on the type of sale you want:

Share sale 

With a share sale, the individual is buying the shares of the business and the acquirer will retain its assets and liabilities. The purchase is between the company’s shareholder(s) and the buyer of the shares. They buy everything to do with the business which includes the risk of future claims from past advice so this can represent a contingent liability that may come with that.

With share purchases, business owners should be able to benefit from Business Asset Disposal Relief which will be really useful when reducing your capital gains tax. Furthermore, your business can undertake a seamless transition from you to the acquirer as they are buying everything. There are ways to protect the acquire such as asking the vendor to take run-off cover and / or warranties in contracts to cover any excesses on future claims for a limited period of time, for example before the acquirer transitions clients to their existing business and then liquidates the acquired company. Whilst a smooth transition is still possible with asset sales, this usually requires the seller to get involved with getting clients to sign new adviser agreements to transfer their assets under advice to the new acquirer.

Despite the positive aspects associated with share sales, it can have some downsides, for example, they can become trickier if you, the seller wants to retain certain assets post-sale. We would encourage that you think about these before starting to sell your business so that there are no surprises for either of the parties down the line. There can also be more red tape with some share sales leading to unknown issues being unearthed which can affect the offer price, sometimes unbeknownst to the seller. For this reason, we encourage that you do a deep dive on your own business as this will help you identify any potential talking points before you start talks with buyers. This is a subject we cover in more depth in our most recent eBook “Are you considering your exit strategy?” which is free to download and we hope you will be able to benefit from the topics discussed inside.

Asset sale

The alternative option is an asset sale which is where an acquirer buys some or all of the assets of a company without assuming any of the prior liability. The seller will retain legal ownership of the business and although the company won’t be trading after the sale, they will need to keep it active over the sale period and then they will apply for liquidation – unless you have debts in which case a liquidator will need to be appointed to help the process.

Asset sales are beneficial as stated by so legal, who say that asset sales can make for quicker sale “as there is less due diligence for the buyer to perform in an asset sale (due to cherry-picking what assets and liabilities it wants to acquire), the transaction can often be completed quicker .” The other good news is that Asset sales for Sole Traders and LLP’s should qualify for Business Asset Disposal Relief.

Share sale vs asset sale  

As discussed by Newtons solicitors regarding the difference between the two options, “The main difference between a share sale and an asset sale is that in a share sale, the buyer is purchasing the entire entity, which will include all assets, liabilities and obligations, whether the seller is aware of them or not. For an asset sale, the buyer purchases only the assets of the business from the company that owns them.

Once a share sale is complete, the buyer assumes responsibility for the whole company. For this reason, there would usually be greater due diligence and more extensive legal documentation for a share purchase than an asset purchase.

As a broad generalisation, the seller is likely to prefer a share sale, and the buyer will often prefer an asset purchase. The different tax treatments and risks involved in a share sale vs an asset sale can affect the price.”

Conclusion 

Ideally, your IFA Acquisition broker will be able to talk through all different options with you which should give you better peace of mind throughout the process. If you want a free no-pressure chat or just more information, contact our team on

 

 

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