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Would you put a for sale sign in front of your house prior to having an idea of what you could get for it, without making improvements to enhance value before bringing it to market, or figuring out logistics of where you would move to and life after post-sale?
You wouldn’t do it with your business either. The average investment advisory firm is worth more than three times the average house. Yet, many advisors approach the sale of their practice as a one-time, spontaneous event, often leaving significant money on the table.
The day you sell your wealth management firm should be the culmination of a series of meticulously planned events, allowing for your exit to take place on your terms and for maximum value. It’s a strategic business decision that requires a clear understanding of your firm’s value and a well-defined plan to ensure your exit takes place on your terms and for maximum value.
The Dangers of Not Planning Ahead
Advisors who view selling as a singular event, rather than a process, are at a significant disadvantage. Waiting until the "moving trucks show up" can compromise your objectives and lead to a less-than-ideal outcome.
A lack of planning can result in:
- Lower Valuation: Without a pre-sale valuation, you don't know your firm's true worth and may accept a low-ball offer.
- Wasted Opportunities: Failing to identify and fix weaknesses (e.g., outdated technology, inefficient processes) can deter buyers and reduce your firm's appeal.
- Client Attrition: A rushed or chaotic transition can spook clients, leading to account transfers and a significant loss in value after the sale.
- Loss of Control: Without a plan, you risk losing control over your timeline, the buyer you choose, and the terms of the deal.
The 5-Step Strategic Process to a Maximum-Value Exit
Your exit strategy is a core part of your business planning. By following these key steps, you can ensure a successful and profitable sale.
1. Get a Professional Valuation & SWOT Analysis
Before you do anything else, you must understand your firm's current value. A professional valuation goes beyond a simple multiple of revenue; it evaluates your profitability, client demographics, client retention rates, and growth potential. A SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis will identify areas where you can improve and justify a higher price.
2. Develop a Strategic Timeline
The timeline for a sale can vary widely, but experts recommend starting to plan 3-5 years in advance. This gives you time to implement value-enhancing improvements, vet potential buyers, and prepare for a smooth transition.
3. Implement Value-Enhancing Improvements
Once you have a clear picture of your firm's value and its weaknesses, you can take action to improve it. This could include:
- Streamlining back-office operations.
- Updating your technology and compliance systems.
- Diversifying your client base to reduce concentration risk.
- Documenting all workflows and processes to make the firm more appealing to a buyer.
4. Go to Market & Source Buyers
The current market for financial practices is strong, with high demand and rising valuations. However, finding the right buyer who aligns with your firm's culture and values is critical. You'll need to prepare marketing materials, conduct due diligence, and vet buyers to ensure a perfect fit.
5. Plan for Life After the Sale
A successful exit is not just about the transaction; it's about what comes next. Whether you plan to retire, work in a limited capacity, or pursue new ventures, having a clear post-sale plan ensures you achieve both your financial and personal goals.
Q&A: Your Questions on Selling an RIA
What is a good valuation for a wealth management firm?
A firm's valuation is typically expressed as a multiple of its revenue, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), or AUM (Assets Under Management). A multiple of 2x-3x revenue is common, but this can be higher or lower depending on your firm's profitability, client base, and operational efficiency.
How long does the process of selling an RIA take?
From the moment you decide to go to market to the final closing, the process can take anywhere from 6 to 18 months. However, the pre-sale planning, which is essential for maximizing value, should begin years in advance.
Can I still work with clients after I sell my firm?
Yes, many deals include a transition period where the seller remains involved for 1-3 years to ensure a smooth handover and client retention.
Ready to Plan Your Strategic Exit?
It's your responsibility to understand the value of your RIA and implement a plan to ensure you exit on top. Don't wait until the last minute. Our attorneys and M&A specialists can help with all aspects of your succession plan, from valuation and buyer sourcing to contract negotiations and closing.
With experience helping thousands of advisors, we are the experts you need to protect your legacy and maximize your firm’s value.
Engage our experts today!