You’ve made the decision to sell your IFA business. It’s probably the biggest work decision of your life. Now to make the second: do you stay with the business after sale, or walk away when selling your IFA business?? And how do you – how should you – make the call?
Deciding whether to stay or go after selling your IFA business
Chances are, you’ve already given some thought to your involvement (or lack of) in the future of your business after you sell it. And you might have a hunch which you prefer. If so, that’s a good place to start. Don’t ignore your gut feeling – but do interrogate the implications for you, your family, the future health of your business and your finances. Before we get into the nitty-gritty, let’s break those down…
You probably think the personal stuff is secondary to the business implications of staying or going after the sale of your IFA business. You may be right, but starting with you and your family might help you to rebalance that ratio. We’ll come to the emotional side of selling your IFA business in a minute but don’t leave thinking about it before you sign on the dotted line. Realise that your decision has real life implications – for you and those around you. It may also affect your future financial health. Go into the decision whether to stay or go with your eyes open.
With that said, there are practical business considerations. Are you selling a company? Or are you, in fact, selling your job (albeit a job you ‘own’)? How much are you willing to buy into changes that happen after the sale? How much do you want or need to keep ‘skin in the game’? How much does your continued presence in the business affect its future valuation? What do you want for the future of your business? How much do you trust the buyer to look after your clients and the P&L of your company? And, perhaps most importantly, what is your motivation to sell?
The trick to tackling the stay vs go decision is to think broadly about you, your clients, your business and – importantly – the buyer. What is the outcome for each of those entities? Understanding your own mind is just one part of the picture. Understanding how your decision moves the pieces for other parties after selling your IFA business is critical to a mutually beneficial and profitable choice.
It’s also important to recognise that the buyer may also have a preference for starting afresh without legacy ownership in the building. If that’s a hard position, you won’t have a choice and you need to ready yourself for that eventuality.
Stay or go – the power of emotion
Before we come to the numbers, the administration and the future financial implications, let’s talk about you. Maybe you have a plan to sell your IFA business and walk away. But do you have a plan after that? At Gunner & Co., we like to talk about the ‘Monday morning reality’: the first working day of the week, when you might usually be preparing to go to work. If you’ve sold your business and you’re walking away from it, what are you going to do instead? How do you feel about your business – your baby – carrying on without you? Are you comfortable with a situation where the business is run in a different way? Are you concerned about the welfare of your staff? Do you care that your clients may receive a different level of service? And what does your life look like for you, your spouse, your family? Are you at home five days a week? Seven? What is the reality of day-to-day life after you sell your IFA business and walk away?
We can apply the same thinking to your emotional state if you decide (or, indeed, are invited) to stay on after selling your IFA business. Your working life is going to change. Have you prepared for that? Are you comfortable with a change in the hierarchy that moves you away from the centre of the company? Have you considered that you may not have a say in management changes? Will you have to travel to a different office? How do these things change the way you feel about going to work? And how important is your reputation among staff and clients? Will the way the business is run in future jeopardise that?
Stay or go – the money
Clearly, finances are important. How much will you get for your IFA business? You probably have a number in your head. But it will be important to interrogate how that number is influenced by your decision to stay or go after you sell the business. And you need to consider two key questions: what’s your IFA business really worth? And how much are you worth to the new owner?
If you’re in a position to, you should also think about the implications for what you actually pocket at the end of the deal. Yes, you could stay on and take, say, a £100,000 salary. But the buyer is likely to want that salary taken off the capital sum. As capital gains tax is softer than income tax, you would have less take home from the deal by staying on. That might make sense if you were planning to stay on for a long time (10 years, say) but if you’re only planning to stay on for two or three years, it can be a better idea to forfeit income for a higher consideration on the deal.
Not all of this will be in your control. A buyer is unlikely to accept a peppercorn salary for you in the knowledge that when you do finally leave the business your replacement will cost multiples more. That’s just not the sort of P&L adjustment a business is likely to want to see in its future forecasts. Compromise is possible, but you need to consider the buyer’s position. They may already be expecting higher attrition after you leave the business so asking them to write further uncertainty into the paperwork may stall or kill the deal.
Knowing what you want out of the deal before negotiations begin is critical, but being flexible about the potential outcomes is less likely to stymie a quick and mutually beneficial sign-off.
Stay or go – be practical
Let’s look at two scenarios for you personally:
• You have a plan. A plan to sell your IFA business and walk away. But what happens next? Have you made a plan for that? Are you ready to retire? Realistically, how much time are you going to spend doing the things you want to do after the sale? And what will fill all the other hours previously consumed by building and running your business? Still sure?
• You have a plan. A plan to sell your business and stay on. But what happens next? Are you still the figurehead of the business? If you are, do you have value to the buyer beyond that? Do you retain control? Will you see eye-to-eye with the new owner? Does the buyer want you to stay on? How do you feel about cultural and management changes that might be needed to assimilate your business into another, larger, organisation. Still sure?
You can run these interrogations on your team and your clients. How do they feel about a change of management? How do they feel about you once you leave, or once you sell and stay on?
And you should also consider the buyer: how does the new owner feel about whether you stay or go? How much do they care? Have they got a strong preference either way?
Stay or go – decision time
Everything about this decision follows from you and your gut feeling about what you should do next. But that doesn’t mean it’s all about you. You should also consider your business, your clients, your team and – crucially – the buyer.
If you’ve made a entrenched decision to stay or to go after selling your business, that’s fine. There are all sorts of situations that might make your choice non-negotiable. But make it clear when you go to market if that’s the case. A buyer will not want to find out during negotiations that your relative positions are not compatible.
If your standpoint on staying vs going is fluid and you can accommodate the wishes of a suitor, however, you are likely to find better options in the market. Being in a stronger position to sell is great – but you should still know your mind at the outset. An adapted tactic is always better than no tactic at all.
And – whatever happens – prepare yourself for post-sale life… however it pans out. You will be happier for it. And you can’t put a price on that.
Louise Jeffreys is managing director of Gunner & Co, an IFA broker with values based on strong relationships built on trust, credibility and value.
Gunner & Co. specialise in IFA sales, IFA business sales, retiring IFAs and IFA client bank sales.