According to Michael Quiches, there are usually two reasons to buy financial advisory services The nerd’s perspective Blog, “Is buying a financial planning practice a good way to become a financial planner?” The first reason is to acquire or merge with another company to increase revenue and scale. This usually applies to larger practices or institutions. The second reason is that the new planner is eager to get the business up and running and doesn’t want to build the practice from scratch. Among career changers with existing financial obligations, buying a company may be more common.
In either case, there is evidence that it is difficult to directly retain customers and obtain full benefits during and after the acquisition.Jason Carroll, former Live Oak Bank, at Investment News The article describes common pitfalls that arise when acquiring financial consulting practice. These include the departure of important employees, the relocation of customers, the re-transaction of sellers, and the actual proceeds of the acquisition are not worth the price. Carroll continued to report the results of the 2012 Aite Consulting Group survey, which showed that 33% of consultants who purchased established practices admitted that they retained less than 50% of the seller’s customer base.
If you are considering buying a financial consulting company, the first step is to conduct due diligence. Don’t rush to do anything, check and recheck books, and be aware of potential pitfalls. In order for the acquisition to be successful, this approach must be nearly perfect for the buyer. It is important to understand the operating procedures of sellers, employees, and practices that you are interested in buying. Before close to completing any transaction, please be sure to give a clear answer to all your questions and concerns.
Conduct a cultural audit
Every company has its own culture, values, work style and strategy. People who want to acquire a company also have their own expectations for the way the company is managed, so even before the transaction begins, there may be conflicts.
In addition to the possibility of disagreements due to different management concepts, sales ideas have other negative effects. Mergers and acquisitions terrified existing customers and employees. The staff are worried that they will lose their jobs. Customers who contract with a company are faced with the idea of letting their accounts be handled by a company they did not choose.
Clear communication and patience are essential for handling this process. The buyer must meet with the seller and employees to determine the corporate spirit within the company. Next, the acquirer must fully grasp the customer agreement and evaluate the existing process. All parties involved must understand where the acquisition is and how everything is going on. Transparency will minimize the fear and anxiety of employees and customers. If the culture is not suitable, don’t be afraid to walk away.
Verify the financial status of both ends
Both the seller and the buyer must be in a strong financial position. If the purchase is financed through debt, then sufficient company cash flow is needed to repay the debt. The acquirer should hire an accountant to check the books and look for sustainable income and any red flags. Assumptions are the key. When acquiring a company, consider the limit on how many customers you might lose while maintaining the solvency of the transaction. For example, if the transaction fails and 25% of customers are lost, then the buyer will be able to find a way to make up for the lost revenue.
When checking the financial situation, learn and understand how the company makes money. Do they charge a certain percentage of fees based on managed assets and hourly rates, or are they compensated based on a commission model? View income and expenditure growth trends. Study the sustainability of current income streams.
Check all expenses carefully. Ask yourself if they are reasonable and if they are likely to increase. The company’s salary structure, overhead and operating expenses may remain the same or increase? When acquiring a financial consulting company, it is very important to ensure that the investment is worthwhile, just like when buying personal stocks or any other type of business, having a deep understanding of the financial situation.
Develop a transition plan
Once you decide that you definitely want to buy, make sure that the paperwork is reviewed by an attorney with acquisition experience. Write down the expectations of all parties. Involve employees and other consultants at this stage to ensure that they are satisfied with the new organization. The items to be considered are; clearly define employee responsibilities, revise business practices and employee levels. When all parties involved work together, you are more likely to transition smoothly.
If the seller wants to leave the company, they must appropriately introduce each existing customer to the new owner. Customer retention is the key to maintaining cash flow. Just as existing employees and consultants must be part of transition discussions, customers must believe that the quality of service they receive will continue or improve under the new management. Make sure they feel cared for and make sure they understand the situation. Ask customers to share any questions or concerns they may have so that you can avoid and minimize potential exits.
In order for the acquisition to proceed smoothly, you need to take your time. Don’t ignore the red flags, no matter how slight. Make sure to double-check your findings and assumptions with a trusted professional contact. Finally, don’t forget that if you are not sure about the acquisition, you can exit the transaction at any time and look for another business.