There are as many reasons for selling a business as there are for starting one. Corporate reorganization, shareholder disputes, retirement, going private or public or simply passing the torch to the next generation can be the spark that ignites an often combustible process. It’s up to financial advisors to make sure clients don’t get burned and get full value for the businesses their clients built with so much time and effort.

“When the time comes, I generally feel quite happy for the business owner. To me, it is part of what we do,” says Glen Daniel, a vice president and investment advisor with The Daniel Wealth Management Group, RBC Dominion Securities Inc. “We have a sense of duty towards the client, that we have done a good job for them. From the get-go, we identify that there will be a pre-retirement or the pre-sell stage. We plan for that, and after that fact as well.”

For Howard Fergusson, a CFP and Toronto-based advisor affiliated with Sun Life, the selling of a business is just another phase in the client-advisor relationship. What is Fergusson’s reaction when a longtime client – his client list is comprised mostly of business owners – manages to successfully sell their business and will no longer need his advice in that capacity?

“I usually go home and have a nice cry,” jokes the 30-year veteran and the principal at Howard J. Fergusson Insurance Agencies Limited. “They have sold their business and that is the point of maximum exposure to a businessman, because he’s built that business over a number of years, over a number of financial cycles.”

Generally, Daniel looks at a five-year window to complete the sale of a business. It can be done in less time, but in order to do it properly and get full value, it is best to have time on your side. Nobody wants to be pressured into making rash decisions. When it comes time to begin the process, Daniel and Fergusson have the same approach. They schedule a discovery meeting with a chartered business valuator (CBV) and all the principal players to get a complete and detailed understanding of the state of the business and what it is worth.

Before taking any steps forward, it’s important to know the purpose of the sale and have an overview of the business in hand. Depending on the individual case, questions – ranging from those about transferring the business to the family and how to monitor performance after the sale, to whether the current employees are a factor, or about tax implications – can arise. Only once those questions have been answered can the players establish an integrated wealth-transfer plan.

“That is one of the key cornerstones when we are working hand-in-glove with our strategic partners. We want to make sure they are getting a fair price, what we call fair market value. As long as they know what we are driving at, we can set the stage,” says Daniel. “I always underscore this. We are not replacing a lawyer they have or an accountant they have. We will work with them. They know the client’s story better than we do, if we haven’t had a long-term relationship.”

Fergusson will only move forward once he is satisfied that the proper pieces are in place and all of the pertinent information from all sources involved in the sale have been gathered properly.

“I advise a client to get the best team of professionals they can afford, including an accounting firm and a legal firm. I would want them to make sure they have a pretty good comfort level with those people. I want to make sure those people have done similar transactions before,” he says. “Let’s see the terms of the buy-sell agreement. Let’s see the valuation. I don’t want someone to tell me that. I want someone to show me that.” Starting off on the right foot is crucial to the overall success of a sale, according to Daniel. If a sale goes off the rails, you can trace the derailment back to improper planning during the preliminary stages. It’s simple. Lay bad track and your client can forget about reaching his or her destination.

“I act as the . . . central advisor who brings in additional expertise and resources. If the client hasn’t thought about the bigger picture, we have to pull them back and redefine what their objectives are first,” he explains. “I take them back through a macro view of the sale of the business.”

Breakdowns can also happen when advisors are generalists and unable to meet all of their clients’ needs in a detailed manner. Finer points can end up becoming major issues that slip through the cracks. Daniel believes having a diverse team at his disposal gives him an advantage.

“When there is something from out of left field that I am not familiar with, I can find someone who can address that need or concern. That is probably why people come to me. Just [as] they are not comfortable running a company all by themselves, I bring people to the table from the team to get the client to where it is they have to go,” he says.

Considering how much of themselves business owners put into their ventures, it may seem inconceivable that they would undervalue their companies during the sales process. While the majority believe the business is worth more than the buyer is willing to pay and that future performance will improve, there are some who sell themselves short, especially if there is urgency surrounding the sale or if the company is passed on to a family member.

“Unfortunately, what tends to happens is someone gets sick and there has been zero planning. This happens quite a lot, actually,” Daniel says.

When a client does begin to devalue his or her company – for whatever reason – it is the advisor who must intervene and protect the client from himself. That can be a tall order, especially in delicate, emotional situations.

“The idea of selling something for less isn’t really human nature. You have to watch out for things like agreeing to sell without the proper guarantees or without asking for some cash. Those are the issues that would most likely come up,” says Fergusson. Explaining to a client that a shortfall could affect their overall payout, or introducing future benchmark payouts, sometimes drives the message home. Bringing back lawyers and accountants to the table for further discussions can also do the trick.

“They have reached out to you because they believe you give sound advice,” says Daniel. “You sometimes have to pull them back and explain that based on similar clients, this is a situation we want to look out for. I listen to the client and understand their aspirations, their fears, their needs, their wants. If I feel they are selling themselves short, I ask them to take a step back and look at things again.”

It can take years of experience and expertise to work with business owners.

They are an entirely different breed of client and require a skilled touch, patience and a real sense of empathy in order to engage them on their level.

“You have to understand that their business is a reflection of who they are. To a certain extent, their business is a metaphor for themselves and what they have achieved,” says Daniel.

“People are different. They all have different hopes and dreams. The question is figuring out how to help them in a way that assists them in achieving their goals,” adds Fergusson.


  • John Powell is the web editor for Advisor.ca


    Originally published in Advisor's Edge