11 June 2019
Selling your business is not a process to be taken lightly. If you are currently toying with the idea but are unsure of the process and your due diligence requirements, continue reading and we’ll give you a brief overview.
Your decision for selling your business could be for many reasons; maybe you have been planning this over a period of years or the decision has been made quickly, possibly due to health reasons.
Whatever the reason, it is vital that you have an awareness of the process including the due diligence requirements for both parties involved. This will ensure that the transition is as smooth as possible for everyone, including you, your staff and ultimately your clients.
Questions to ask yourself – Do you want to remain in the business afterwards and under what capacity? Or do you want to exit the business altogether?
These options need to be explored, especially if you intend to remain in the business.
If you have been planning the sale of the business, it is possible that staff and clients have been made aware of this and are mindful of your intentions, but if the decision is swift this can be unsettling. Making the right decision is yours as a business owner, only you can decide what is best for you, your clients and staff.
Who do you sell to?
Acquisition firms via specialist brokers remain the most popular route to take, normally where a business is purchased by an external source lock stock and barrel.
Methods of sale
Sale of Shares –The sale of shares is usually the preferred method of acquisition firms. This is the purchase of the whole company including the liability for advice. The cost of due diligence for the purchaser can be substantial therefore very small firms may find this to be a prohibiting factor.
Due diligence by the purchasing firm and change of control approval required by the FCA can take several months, as a result, this is not a quick process.
Sale of Assets – The sale of a client bank only ensures there is no ongoing liability to the purchaser, there are no reporting requirements to the FCA. Only pre-RDR trail commission can still be bulk novated without client consent due to the basis of the contract.
CAS Peer – This is the normal practice for St James’ Place where an adviser is taken on with his/her client bank and paid an upfront fee.
Valuation of the Business
The value of the business is normally agreed at the outset and can be based on:
- Operating profit, which typically ranges from 6-8 times the profit.
- A multiple of the recurring fee income, typically 2-3 times (excluding trail)
- Assets under Management, typically 1.5%-2%
As the selling party, it is essential that you undertake your own thorough due diligence. Some areas worth consideration is:
- Has the proposed purchaser acquired a regulated firm before?
- Their financial strength and how they are financing the acquisition
- Proposed service proposition and investment philosophy, does this fit with your client base?
If you are in the process of selling your business or even looking to acquire, then b-compliant can link you up with City & Capital Acquisitions, who work with a broad range of financial advisory professionals and organisations who are actively looking to purchase or sell client banks or businesses. They offer a bespoke search and selection service that has been carefully developed by financial advisers, for their peers, to deliver tailored introductions which meet each unique set of requirements.
Once your acquisition is on the way, you need to consider your due diligence, well look no further than b-compliant. We are here to help you every step of the way. Speak to one of our consultants on 0161 521 8641 to understand how we can help you.