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The last thing you want to do is acquire the wrong business or botch up the transition. And yet, the current market conditions are brimming with potential acquisitions that could boost your business success and seem very exciting.
While the process may seem straightforward, it's essential to conduct thorough research to determine if acquiring another business is the right move for you and your team is ready to transition them. Finding a business that aligns with your culture and goals requires more than just an internet search - you will need to put in the legwork to ensure the deal is worth doing.
To experience a successful acquisition, several factors must be considered before you sign the dotted line. This article will outline five critical steps that we have devised after witnessing poorly executed acquisitions.
Step 1: Pinpoint and Qualify Acquisition Opportunities
To stay focused, say no to non-fit businesses, and use your time wisely, devise a list of deal breakers vs. nice to have criteria for the acquired firm to meet. The list can range from a match on services, tech stack, exit timeline of owner(s), location, and team skills, to aligned purpose, ideal client traits, and level of access the clients have with the team. Match that list with a process to follow, just as you would have when interviewing potential new hires.
Use platforms like LinkedIn and your firm's website to express interest in acquiring and network at industry events such as CFP® and CFA® meetings. Connect with influential people and let them know you want to acquire as finding the right match can take years and you must show focus and commitment to the process to attract quality sellers.
Consider exploring the following avenues to uncover potential acquisition opportunities:
- Engage with reputable business brokers specializing in financial advisory businesses. These professionals range from investment bankers to consultants. They possess a wealth of industry knowledge and connections and can help you identify potential acquisition opportunities, negotiate deals, and navigate the legal and financial aspects of the acquisition process.
- Monitor industry forums and online marketplaces tailored to buying and selling financial advisory firms, which can provide insights into emerging trends and available practices.
- Contact your personal and professional networks, as word-of-mouth referrals can often lead to promising prospects.
By casting a wide net and methodically exploring various channels and applying your criteria for the ideal acquisition, you will be well-positioned to identify opportunities that align with your business goals and set the stage for long-term success.
Step 2: Stand Out from the Competition
There are many buyers that range from private minority equity to larger businesses. You want to attract the ideal seller and thus, differentiate your firm by:
- Clearly articulating your firm's guiding principles and vision for success: Showcase what sets you apart from other buyers and discuss how your culture benefits clients, employees, and the seller's legacy.
- Highlight your infrastructure: Demonstrate your commitment to exceptional service and operational efficiency by presenting the systems, processes, and resources that enable your firm's success.
- Create a comprehensive pitch slide deck: Include your firm's key metrics, fee schedule, and previous M&A experience, and offer a transparent view of your culture, values, team skills, and client services and philosophy.
- Have a 3-5 year business plan: Either complete a VTO or create your own growth and intention plan to share with qualified sellers. This level of clarity will increase the seller's trust and creditability and most definitely attract an ideal acquisition. While the value you pay to the seller matters, so does retention of clients and staff. A well-defined business plan will assure the seller that you can offer a wonderful home that will retain clients and staff.
Step 3: Plan a Seamless Ownership Transfer
A well-planned transition is crucial to manage the process and reassure the financial advisor and their new clients. Collaborate with the seller to draft a detailed transition plan, demonstrating your care for their clients, the owner and team's needs, and to promise the most frictionless, quality experience for all. If the seller is unwilling to assist, consider it a potential red flag regarding this potential acquisition.
Step 4: Conduct Non-Emotional Due Diligence
Extensive, objective due diligence is essential before acquiring a business as it enables you to make informed decisions. Engage with the seller's financial advisors, who can offer valuable insights into client satisfaction and facilitate a seamless transition.
You will want to have your own firm's valuation completed. You will also want to pay for the seller's firm to be valued by a reputable valuation company. Further along in the process, you will want to review the seller's financial statements, tax returns, and cash flow to understand the business's financial health comprehensively. This approach will help you negotiate a reasonable price and set realistic expectations.
Finally, you will want references in the form of talking with a few clients and key staff to understand their experiences, concerns, and aspirations whenever possible. Gathering firsthand information helps identify existing challenges and ensures your vision aligns with their needs.
Step 5: Make sure your own house is in good order
Your business's foundation must be strong enough to support and maximize the addition of more team members and clients. Confirm your brand and messaging is attracting ideal clients, your processes and systems are integrated and as lean as possible, and your team is clear on their roles, responsibilities, and career paths. Review your financials and project future profitability if you acquire another firm. And pulse check your culture and level of trust among your team to confirm they are in a good place to tuck in more clients and team members. Great success, exponential client growth, and new opportunities for the team will occur when your house is in good order.
Conclusion: Navigating the Transition Process
Once you have decided to proceed with the acquisition, the typical transaction can take 1-6 months, depending on the complexity. Your team will need to address numerous logistical and operational aspects, such as licensing, account reviews, compensation matters, data integrity, technology integration, and compliance.
One crucial aspect of the transition process is onboarding new clients, who may be uncertain about the upcoming changes. By evaluating the seller's portfolio and ensuring all required documentation is completed, you can establish a smooth and seamless experience.
As you embark on this exciting new chapter, remember that you don't have to navigate the integration process alone. If you require assistance getting your house in order or tucking in an acquired business, contact My Virtual COO for transition providers and expert guidance and support.
In the meantime, know you are not alone. Check out our case study on how we helped an owner turn an acquired business into a thriving enterprise in just 12 months.
Related: The Importance and Easy Steps to Proactively Managing Your Business Finances