Deal breakers when selling your financial planning business

If you’re planning to sell your financial planning business you’ll need to be aware of some obvious and not so obvious deal breakers.  Besides price and terms being the obvious ones, there are some surprises in store for the unwary seller.
If you’re an Authorised Representative of an AFSL and looking to sell, Radar has had buyers come back saying “my dealership is not happy with the compliance of the vendor’s business” or “my dealer doesn’t like the products they’ve been using”.  A seller may impose a deal breaker themselves such as “I’m happy to sell but you must join my dealership”.  Another deal breaker isolated to a vendor’s business that has multiple partners would be the requirement to buy-out one of the partners. This can stop many buyers from getting past first base.

Consultants like Radar Results can introduce sellers to a matched buyer; matched on location, price, terms and business style. Radar may then be able to also arrange an indicative finance approval to see if the buyer qualifies before moving too far into the transaction. Radar also canvasses and identifies trouble spots in a transaction well before they appear.

But there are the less obvious deal breakers If your business is run by a company then the ownership of the clients need to be confirmed.  Are they owned by the adviser, the private company or some other entity, usually a trust?  If the clients are owned by a company, do you want the buyer to acquire the company shares, effectively taking over the company and its responsibilities? Usually the buyer’s answer is no, so the deal stops immediately.
Another deal breaker could be the lease on the vendor’s office. The seller may want the new owner to take on this lease, thus keeping the clients going to the same location, enhancing client retention and passing on the cost to the buyer. Not a problem if the buyer needs an office; likes your office and feels there’s a commercial advantage in taking on the lease. However, often buyers already have their own office and only require your client’s revenue to add to their bottom line. Buying the clients is one thing, taking on a lease is quite another. This can be an instant deal breaker.
Staffing is another possible deal breaker. Often a mature business looking to expand already has adequate staff. The vendor’s push for existing staff or family members working in the business “to go with the business” can be a deal breaker. As well, the retiring adviser may want a salary for several years after signing the contract and depending on how much they ask for, and for how long, can jeopardize the sale. I’ve seen qualified experienced planners ask for as low as $60,000pa and up to $250,000pa.
Within the terms of a sale, a claw-back or rise and fall clause can be negotiated.  A sale without any claw-back provision can cause a buyer to shun the deal day one. Transition of the client relationship to the new owner is usually required by the buyer, and if this is not being offered, the transaction may never start.
As you can see, there’s a lot of information and questions that need to be answered upfront to save time and effort from both the buyer and the seller – and these questions are not always obvious.