Strategising Your Exit: Part 2

Last month I shared with you a strategic framework in which to develop and grow your business, to build value and thus allow you to exit more lucratively. The earlier you define and implement growth plans, the quicker you build value into your business.
Fast forward a couple of years; this month I’m focusing on the 6-12 months before you want to start the exit process (which in itself can take up to 18 months). Probably the question I get asked most often from my clients is this: What do buyers want? Which can also be loosely translated as “What do I need to do now, to get the best valuation for my business?”.
In reality, different buyers value different things. There is going to be a business out there that sees value in what you have built. I’ve been known to say IFA business brokerage is a lot like romantic matchmaking. My main goal in working with clients is bringing businesses together that value the same things. That said, there are a few aspirations that come up time and again, and in this month’s article I am going to review some of those attributes.
1. Recurring income
The importance of recurring income is number one on the list although it’s something not every advisory firm fully appreciates. It is likely that the majority of the valuation of your business will be based on your ongoing, recurring fee/trail income. If you’ve built your business on the high-street, turnover £200k every year, of which £150k of that is initial fees, mortgage fees, general protection etc., at the point of selling your business you are likely to be disappointed. You may have earnt a good income from this business over the years, but transactional (one-off income, as opposed to ongoing recurring income) is considered high risk, and as a result is not desirable in an acquisition.
Focus your attention on building, and growing your recurring income – this is the most important factor in valuation. Most advisory firms care deeply about what happens to their clients following sale. It’s important therefore to find a buyer with similar values and approach, so that clients can enjoy continuity of service. Having a strong client centric business model which builds trust and long term client loyalty is a real boost for evidencing strong recurring income.
2. Review your business model – and your charging structure
When it comes to charges, most acquirers will place a greater value on businesses with an average charging structure of 0.5% of assets under management or advice than they will on those at 1%. Typically having a charging structure averaging below 1% and ideally below 0,75% across your client base is considered a good place to be.
Most acquirers are not looking to purchase your business with the assumption it’ll deliver back to them what it’s been delivering to you all these years. It’s an investment after all, so the more growth potential they can see, the more they’re willing to pay.
The question is however, if you are considering selling in 3-5 years, does it make sense to increase fees now (sensitively, in line with the value you’re delivering to your clients), build even greater value into your business assuming that norm may change. Without a crystal ball it’s a difficult one (particularly with the potential pressures of the likes of robo-advice). If it was me I’d probably look to carve out a couple of propositions, based on either size of investment or service levels, with a tiered charging structure. And then stay in touch with a broker like myself to keep track of changes in the market.
3. Attracting higher net worth clients
Growing your average portfolio size per client also has a strong positive effect on business valuation. A fairly low number of HNW individuals can often deliver as much income as several hundred mid-level investors, and should be easier to look after. That said, watch out for pockets of high-value clients. If the firm has 2 or 3 UHNW clients which significantly increase your average portfolio size across all your clients, buyers can be concerned of the risk of losing these and what that will mean for the overall value of the business.
4. Get your back office systems in order
Completing an acquisition is complicated and time consuming, It therefore makes sense that businesses with up to date back office systems, and electronic client records are easier for a buyer to integrate. This then has a positive effect on valuation. Factoring in the time and resources needed to integrate an acquisition can chip away at the price a buyer is willing to pay. Similarly, if they have to scan all your files following acquisition you can bet you’ll be the one paying for that in reality.
Spend time in the months preceding your desired exit time getting all of your electronic records up to date. If you don’t have a back-office system, ensure at least you have a clean, simple to understand spreadsheet with all your client data in one place. If you have data over multiple files and only you know where everything is it will be very difficult to hand this over. Similarly, if you have paper files, consider getting a student or temp in to scan either everything, or at least everything from the last 5 years.
Finally, ensure that your clients are clearly segmented, so a buyer can see exactly which client is generating what revenue, and how.
5. Property matters
It’s unusual for a buyer to want to retain the business premises when making an acquisition. Think about your exit timings around lease break dates, or at least understand the potential cost, and consider those factors in your ultimate valuation.
If you have a clear timeline you may be able to renegotiate your lease in advance, or look at sub-let options and line up someone to take the space for the remainder of the term.
Are there common pitfalls to avoid?
Preparing ahead will help you to have a controlled exit, and avoid common pitfalls.

  • Due diligence; Don’t skip things. Declare EVERYTHING as any skeletons in the closet will come out, and if you haven’t been up front this can kill the trust a buyer has in you and your business, and ultimately kill the deal.
  • Valuation; Be realistic. It’s good to know what you want, but being able to evidence the rationale of your valuation will put you in a much stronger negotiation position. It’s no good negotiating a value ‘because it’s what you want’. If you cannot articulate, with comparisons and evidence, why that valuation makes sense you will lose credibility at the negotiation table.
  • Consider all stakeholders; once you have a shortlist of potential buyers, think about how each one will work with your business including your team and your clients. Given almost all deals have ratchets in place if business is lost, finding the right fit for all parties is essential. Assuming you’ve got a team staying on, be very considered on how you get their buy-in. Spell out the benefits of the new structure and plan in detail the roll out of changes. Don’t leave anything to chance.
  • Don’t forget your day job; this is probably one of the most common pitfalls. The process of exiting can be long, complicated and time-consuming. It is essential during this process you do not lose focus on the day to day running of your business. There is nothing worse than missing projections presented in the sale, because again the trust will be tested. If you can, spread the load between the acquisition process and operational business management within your leadership team to ensure you have the best chance of completing both effectively.


As you can see, a well prepared and controlled exit takes time, so start early. Work backwards to set realistic timelines. Going from first introduction meeting to completion typically takes 18 – 24 months.
Once you have started down the path of preparing the business for exit you can typically start getting introduction meetings going, since a number of the points above can be done during that 18-24 month time frame.
Your starting point is finding a suitable broker to represent you. Gunner & Co. has the relevant M&A experience and through the relationship with IFA magazine has the reach into most buyers out there, significantly increasing your chance of introductions based on matched criteria, which ensure the best valuation.
Next month I’ll share with you the different types of exit options and buyers out there, which will help you even more in your planning process. In the meantime, if you are actively looking to exit now and would like to have a confidential, non-committal conversation I am always happy to share my insight.
Louise Jeffreys
MD, Gunner & Co.
0117 9926 335
Louise Jeffreys