If you’re planning to sell your book of business, putting a price on your lifetime’s work can be an emotional endeavour. Yet, sellers — and buyers too — can better negotiate through preparation, not passion.
Roland Chan, founder and CEO of FindBob, offered negotiation tips at the 2021 Independent Financial Brokers of Canada (IFB) Spring Virtual Summit on Tuesday, as part of his session on selling/buying a book. FindBob is an online platform that helps advisors and firms with continuity and succession planning, and IFB partners with the platform as part of its offering to members.
One of Chan’s negotiation tips was to understand rational economic principles, so you’re organized and can keep a cool head amid the emotions that arise during a transaction.
For example, both seller and buyer should understand such things as demand for the business, their motivations to sell/buy, their required rates of return, how well prepared the employees on both sides of the transaction are, and whether the timetable to close the transaction works for both sides.
To effectively negotiate, advisors also need to know how well the business value will transfer. Transferability involves examining revenue mix, such as more “consistent and predictable” fee versus commission income, Chan said.
He also suggested advisors understand how to evaluate the return generated by the business — an important part of assessing value and negotiating a purchase price. This evaluation involves examining the compensation that the business provides for both labour and ownership, he said.
To more easily demonstrate return, advisors who are considering selling in several years could aim to retain earnings in the business — “a fantastic signal to send to a potential acquirer,” Chan said.
Another tip was to enter a negotiation with clarity about risks, and “preparation is key if you want to mitigate risk,” he said.
For example, buyers should consider how long it will take to earn back their payment, and sellers should consider the rigorousness of the payment structure and whether there’s potential for default.
Assessing less tangible risks may require advisors to dig deep. For example, a buyer’s automated digital platform may not be effective when a seller’s book consists largely of clients who expect to meet in person twice a year over dinner and drinks, Chan said.
A final negotiation tip was to be prepared to articulate your deal-killers, sharing them early so they can be addressed. Deal-killers are transaction objectives you’re not willing to compromise on, such as how staff or clients will be treated after the transaction.
Defining your deal-killers allows you to quickly eliminate candidates who don’t meet your criteria, Chan said.
Advisor’s Edge and sister publication Investment Executive were summit sponsors.