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6 Keys to Evaluating a Financial Advisory Business For Sale

By Ray Sclafani | April 27, 2015


Screen_Shot_2015-04-27_at_2.33.35_PMAt ClientWise we support advisors at every stage of business, from inception through to the transition of the businesses once they choose to move on. While we’ve devoted considerable posts to discussing succession planning from the perspective of the seller, there are many advisors who are considering succession planning as it relates to the purchase of a business.


Purchasing an existing advisory firm presents an incredibly huge opportunity for growth, but it can also be a giant risk if the business being purchased isn’t the right fit for your existing business.

There is certainly as much, if not more, to consider when purchasing a business as there is when selling it.


Be clear about what you’re buying: There are many things at play in buying a financial advisory firm, because you are investing in everything that’s been built from the revenue value itself to the future opportunity, client relationships, talent, and brand. Like buying a house, knowing your costs all in, in terms of what you need to put money toward to get the business where you want it, is important. Get the entire picture of the purchase up front, and know what your true expense will be if the business will require funding in addition to the purchase price.


Evaluate the profit and loss statement: This is an incredibly telling document that will provide a lot of information about the business and give you some indication as to whether the investment you’re making is going to pay off based on its potential profits. This document should provide you with a clear idea of the revenue, direct expenses, gross profit, overhead expenses, and operating profit before moving forward with the sale.


Evaluate the Intellectual Property: The intellectual property (IP) is a good place to go to gain some insight on the selling firm’s understanding of their own target market and process around which they connect with their current and potential clients. It provides the opportunity for you to understand the experience of the client through the eyes of the business, and see between the lines of what’s on paper. Additionally, while the IP will be in alignment with the selling firm’s mission and vision, it will give you a chance to see the potential for you to enhance or change the messaging to incorporate your vision of the business moving forward.


Meet with the talent: Part of the benefit of acquiring an existing team is the ability to have access to a group of people who understand the processes, approach, and clients that come with acquiring the book of business. If you’re in a position to acquire the team of professionals, consider this option carefully. They will definitely be a good resource for understanding how the business runs currently, but if they don’t practice in your vision it could lead to a tough transition. There may be the potential to coach the team to run the with your vision, or hire new team members to supplement the abilities of the existing team. Either way, you have to have a clear enough understanding on this to factor it into the investment you’re making.


Meet with the clients: In order to run a truly successful financial advisory business, you need to be client-wise. The clients are the life of the business you will purchase, which means you must be entirely focused on satisfying their expectations. Meeting with clients will also give you an entirely different perspective of the business: Understanding their experiences as compared to the image of the business that’s been presented to you by the owner will provide insights into gaps you’ll need to consider.


Design a transition strategy, then decide if the deal is right or not: Sometimes the full picture of what you are buying isn’t clear until you really get into the details of the purchase, which usually happens in the negotiation phase, when you finalize the terms of the offer. Items like the down payment, your potential salary, your earn-out, and the total purchase price may come to you in an entirely different light once you’ve taken the time to evaluate the items listed above.


All of this is to say that the terms of what you are buying might not necessarily be clear on paper, or may extend well beyond the elements of what is listed on paper. Considering the other tangibles and intangibles of the business you are purchasing is key to fully understanding the outcome of that purchase.


Powerful coaching questions from this article:

  • Are you clear on the future of your business as it relates to a potential purchase of someone else’s business?
  • Have you given consideration to what this looks like before meeting with the seller so as to not get swayed by their vision before entering an agreement?
  • Are you fully taking into consideration the information that is being given to you by all parties involved?

Topics: Business Development Succession Planning enterprise value

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