How To Think Like A Buyer

You’ve decided to sell your practice. You think you’re fully prepared for your sale. You’ve gotten a valuation and “know” what your practice is worth. You have a great staff and a very loyal client base.

You think that selling your business is going to be a piece of cake. You’re sure that it’s not going to take anymore than a few months before you’ve sold your practice and can move on.

Before you’ve moved on and bought that new house take a few steps back and think about your business as if you were buying it. I can promise you that you’ll be glad you did.

Start with your valuation.

This is where I want you to start. In the wealth management world there are firms that will be glad to value your business and when they do so they’ll tell you you’re business is worth much more than it really is.

You might even find a buyer who’s willing to pay you what your valuation says. Then, six months to a year down the road you find that your payments slow down or even stop. It’s really very simple, you’ve sold your business for too much money and your buyer can’t afford to pay you the agreed upon price.

Start with looking at your valuation and ask yourself whether you would be willing to pay this much for your business. If the answer is no, stop and set a realistic price……one that you might actually get paid.

Take a good look at your staff.

I know you have great feelings about your staff. What about your clients? Do they have the same warm feelings towards your staff that you do? Will they be willing to have your staff solve their problems once you’re out of the picture?

Do you think there’s a chance that your staff would use your sale as a chance to start their own firm and steal your clients? Don’t say, “This will never happen to me.” The fact is it happens and happens more often than you think.

Who are your clients loyal to?

The question here is are your clients loyal to you or are they loyal to your firm? If the answer is your clients are loyal to you, you’ll have a hard time getting a big chunk of cash up front when you sell your business.

Your buyer will want to make sure your clients successfully transfer to them. They’ll want to have language in your purchase agreement that penalizes you if you don’t successfully transfer your client’s loyalty to your buyer.

What will you require of your buyer?

Wealth management firms just don’t sell for all or even mostly cash. The industry has taught itself that selling a practice for 40% or less is the way things should work. (I think this is belief is one of the major flaws in wealth management firm transfers.)

This means that you’re going to be playing bank for a large percentage of your deal. If you’re going to do this you MUST act like a bank. You must make sure your buyer actually has assets you can attach and you must get a personal guarantee from your buyer.

This needs to be a non-negotiable activity on your part. If you don’t act like a bank there’s a very good chance you’re going to wish you had.

How long are you willing to stick around?

The success of your deal is going to hinge on how well your clients are transferred to the new owner of your firm. This is going to require a great deal of work on your part. If you aren’t able to do this and your clients leave there won’t be cash to pay you.

You’re going to have to prepare yourself for hating what the new owners are doing with your firm. You’re going to have to be able to smile and act like everything is wonderful. You’re going to have to get used to your new owner not listening to anything you say. If you can handle this, then there’s a chance your deal will work. If not, then I’ll give you my condolences now.

Start with a mock due diligence exam

When I work with a practice owner who wants to sell their practice the first thing I do is get a sense for what how much money you want to get. The second thing I do is put the firm through a mock due diligence exam.

I want you to see what it’s going to be like when you really do put your practice on the market. You can then decide whether a third party sale is really the best option for you. If you’re interested give me a shout and we’ll talk about what a mock due diligence exam means for you.


Topics: For business owners, business exit planning, exit planning, for business owner advisors, Being a buyer

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