The Difficult Decision to Sell Your Practice

How will my clients react to my practice sale?

“Of all the details to be concerned about regarding my practice sale, this is the one that kept me up at night. In retrospect, my concern for my client’s reactions was likely the reason I didn’t retire years ago as I had planned."

“My financial plan certainly supported that earlier timing, even without including the value of my practice."

“My practice sales consultants at KMG used the analogy of selling my house with my family in it, which was exactly how I felt. Delaying having “the” conversation with my clients, due to my fear, turned out to be a poor way to address it and only allowed time for that fear to grow in my head. The guys at KMG also told me my clients would be OK without me!"

“Part of me wanted to believe this, but that wasn’t the part that I listened to more often. Instead, I kept telling myself that my clients rely on ME to complete the journey we started together. I finally worked up the courage to start the selling process, with the KMG team supporting me. I was told it would be OK to experience these emotions while they kept the process on track; I had no idea how much that would mean to me. We had worked up a client communication script and when the day came to make the first call, I was terrified. My team told me how the clients would react: first, they would want to know how the change would impact them; this would be followed by being happy for me and my own journey. This is exactly what happened. Each call became easier than the one before it and I started enjoying the conversations and the closure they brought to a long career. I will never forget those calls and the kind words of my clients as they thanked me for my service and wished me well in my post-career life."

How can you make the difficult decision to sell?

Will you sell to the advisor you know down the street, groom an AFA to be your successor, or cast a wider net in an open market sale? Moreover, are you ready to sell today or some time in the future? How can you make these difficult decisions when it is often easier to avoid them? The answer to this question is simple – take the first step. Which, in this case, is educating yourself about your options in order to make an informed decision. As it turns out, there are many flavors of succession planning and it is likely that one will be perfectly suited to your unique goals. In this case, maintaining the path of least resistance coincides with a lack of planning and a diminished capacity to reach your goals. After all, selling your practice is likely one of “the” major milestones of your life, both personally and professionally.

Why are so many advisors avoiding or delaying retirement?

Is vocational irony (the cobblers’ children’s syndrome) the reason that advisors are not taking their own advice? The answer is likely more complicated than that and specific to the individual. Clearly, we have experienced a long period of growing revenue and a relatively stable market, which is not conducive to the pain points normally required to motivate change. The risk here is that those advisors, who are in the very large group at or past retirement age (Baby Boomers), are now in a place analogous to maintaining an aggressive portfolio (related to the asset that is their practice equity) close to retirement. The average valuation is now in excess of $1.5m and is often the advisor’s largest personal asset. Taking your practice equity off the table at the correct time is done for the same reason that you don’t leave your clients in aggressive positions close to retirement – to reduce risk. Again, the path of least resistance may also provide the least results.

What are the key considerations of the sale?

A professionally executed sale should involve both quantitative and qualitative success. The qualitative result involves the selling advisor having absolute confidence in the selection of their successor, by way of the process of the sale. The primary concern of most advisors is “who will take care of my clients and staff”. The quantitative results are found in the price, terms and the agreements that support them. We often communicate the priorities being Fit, Terms and Price, in that order of importance. All three should align with the advisor’s goals for a successful sale.

How do you start the process of understanding your options?

A practice valuation and consultation are the starting points for most, providing both information and insight. Does the current value of your practice support your financial plan? Is your practice likely to experience declining value (most near retirement decline in value)? How do I get paid for the sale and how is it taxed? All these questions and more are part of our valuation deliverable and review. The valuation is often followed by a deep dive into succession options, industry standards and best practices. We are also experts at working in the Ameriprise system to ensure that all their requirements are closely followed. Most advisors will sell one business in their lifetime and have one chance to achieve that lifetime goal, it is far too important to leave to chance.

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