So you’ve survived the economic downturn and your business has re-emerged strongly now on the other side. In fact you’re in a position where you’re looking to accelerate your growth opportunities. And one approach that more and more advisers are leaning towards is finding another advice business to buy.
In fact I’ve seen a real sea change in the Irish market in recent years. 3 or so years ago, a number of advice firms approached us to help us get their business fit and ready for sale. In 2015, all we’ve seen has been firms coming to us seeking out help in finding and acquiring other advice firms.
So what are some of the questions you should ask yourself before stepping into the market place and looking to buy another business?
First of all, be crystal clear on why you are actually in the market to buy another practice. What is the strategic rationale for the acquisition? Are you seriously in growth mode, or have you simply run out of ideas in terms of developing your existing business? Maybe instead of buying another business, it’s time to really unpick your own client value proposition, get crystal clear on the type of business you are and then look at all of the potential means to grow your business. These may or may not include buying another business.
What are you actually looking to buy? Have you run out of opportunities in your existing business and need an injection of potential clients? Are you looking to buy a book of clients hoping you will unlock a few nuggets in the belief that your advice approach is superior to that of a selling broker? Or are you looking to buy a very well developed business that is going to turbo charge your own business through bringing better processes and opportunities than those that exist within your own business? The challenge in the latter situation here is to ensure you actually extract these opportunities, rather than letting the business you are buying fall back to the levels of your existing business.
So you’ve decided that the strategic rationale justifies buying another business. The question now is which business to actually buy. This is where you need to carry out careful due diligence to really understand what you buying: the quality of the clients, the processes, the client propositions and of course the advice that has been provided to their clients. After all, poor advice given in the past could result in a whole host of headaches for you into the future.
Are the clients that you are buying simply going to increase your recurring income stream, or are they going to really help you to gain a foothold in your target market? Are they going to be worth more or less than the “sum of the parts”?
The people that will come with the business (if any) will of course also be a tremendous asset or liability going forwards. You need to make clear and educated decisions as to whether they are a good fit for your business or not. Bringing in a strong group of people could really help you to drive your business to the next level.
So you’ve found your purchase target. If you’re simply buying a book of business, the chances are this is going to be a fairly straightforward transaction based on a multiple of the income stream. However if you are actually buying the business, there are many other factors to consider.
Are the existing owners remaining involved and if so, in what capacity? Are they going to be part owners of your newly enlarged business, keeping them with “skin in the game”? If they are remaining as shareholders, they are much more likely to stay committed to growing the business. On the other hand, if they are remaining in the business simply to help the transition, you should be looking to build in clear earn-out targets. This will ensure that you reap the rewards of their ongoing involvement, as they will be financially incentivised to help you transition the clients into your business.
You should also examine closely the profitability of the business you are buying. If they were struggling to make meaningful money, how are you now going to do it? Can you see cumbersome administration practices that you can immediately replace with your own well-developed processes, extracting immediate savings? Can you see savings to be made in terms of people – maybe you don’t need all of their staff? And possibly you can see opportunities to broaden the proposition that was offered to their clients, increasing the revenue potential. Any of these factors will help you realise more profit potential.
These are just some of the questions that you should ask yourself before you step into the market to buy another firm. Buying a business is a big step – take your time, ask yourself the hard questions and do careful due diligence in order to seriously enhance your prospects for success.
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