I’m not sure why this is true, but it seems the only legitimate transaction I read about in the wealth management world is to sell your firm to a third party.  For most of us in the industry this is the absolutely worse way to transfer a business.  The fact is, most wealth/investment management firms only sell of 40% in cash and the rest financed by the owner over five years or so. 

To me, this is not a great way to transfer your business.  When you hold 60% of your purchase price as a sellers note to people who you don’t know, there’s a very good chance you’re not going to get paid.  I have no idea why people in the wealth management world think this is a good idea.

Instead, what if you found some good people inside your firm to take over your business when it’s time for you to leave?  I bet you would find this way of business transfer much more satisfying and financially safer.

Selling your business to an outsider is a big risk.

I’ve written about this a lot.  I don’t understand why anyone would sell their business for less than 80% down.  This wealth management business tends to sell for 35 or 40% down with the rest financed by you.

When you do this, you are transferring the risk from the buyer to you.  You no longer have control over the business.  If the buyer doesn’t service your old clients well your clients will leave.  If your clients leave, you can be sure the buyer will stop paying you.  You have little or no recourse because the clients are gone and if you do take the business back again, there’s nothing to take back. 

Instead, why don’t you think about getting a good bench in your firm that is willing and able to buy your business from you?  You might not get as much money upfront, but you’ll really know who’s buying your business.  You’ll have had years to decide whether they your new owners are trustworthy.  That’s really what you want.

You can stay involved.

One of the biggest issues I work with is sellers remorse.  It’s rare that I see a business of any sort sold where the selling owner is happy and rides off into the sunset.  Instead, what usually happens is they become unhappy and bitter at what the buyer has and is doing to their business.

If you transfer the business to junior partners in your firm you have a chance to stay involved.  You have a chance to make sure that what made your firm successful is still in place.  You’ll be able to influence behavior and you’ll have a higher likelihood of being paid the money that is owed you.  In fact, you’ll have a sales agreement with real teeth that allows you step in if your junior partners start ruining the business.

What you created is likely to continue.

One of the reasons seller’s remorse exists is because the new buyers change things around.  Frankly, it’s a buyers right to make changes.  They’ve paid you and now they get to do with your business what they want.

It’s well known in the M&A world that buyers always lie.  They’ll tell you what you want to hear to get a deal done.  Then, when they take over the business they make changes.  If you transfer to your own staff, they’ll have learned what works and will likely to keep doing it.  You’ll feel better because your clients and business are being well taken care of.  After all, you’ve trained them in what great client service is all about.

You get to mentor the next generation.

I don’t know about you but I really like to mentor people.  I find a great deal of satisfaction in helping younger people learn skills that will make them effective business owners.  When a light goes off, I find it immensely satisfying.  I bet you will too.

When you spend years with green advisors you get a chance to help them learn what you know works.  You get a chance to watch them in action.  You even sit in on client meetings with them.  You know what is likely to happen once you step back.

Your clients will have real continuity.

I said this above and it’s worth repeating.  Your clients will not feel like they’ve been deserted.  The junior advisors who buy your firm will probably continue providing the type of service you have provided for years. 

You’ve worked for a long time to create a firm that provides a level of service you’re happy with.  Before selling to a third party, think long and hard about whether this is the best option for you.  I think an internal transition just might be what the doctor ordered.


Topics: For business owners, business exit planning, succession planning, selling to managers, inside sales

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