Owners of Financial Planning and advice firms have been warned to avoid a ‘rushed’ or ‘desperate’ sale.

Planners and advisers looking to exit have been urged to give themselves at least two years to plan if they want to sell their businesses.

Bankhall has made the recommendation, saying such a time frame is necessary to implement a clean exit that maximises the value in their firm.

It highlighted five areas for exiting firms to carefully consider (see beneath).

Bankhall’s head of bespoke solutions, Linda Preston-Todd outlined the company’s guidance for exiting firms at an adviser seminar in Edinburgh hosted by online DFM forum DISCUS.

She said firms continually underestimate the work involved and the steps required to prepare their business for sale.

Ms Preston-Todd said: “Many business owners are deeply involved in the day-to-day operation of their firm and conducting meetings with clients.

“This is completely understandable, but what we regularly see as a result is that exit planning is often left to the last minute and this can be detrimental to the firm’s interests.

“An unplanned exit can look rushed and in some instances desperate, which can in turn reduce the value of the business.”

She said: “Our recommendation to firms is that they include an exit strategy within their long-term business plan. By making this an objective and reviewing it on a regular basis, firms will ensure they are on track to achieve their long-term goals.

“This includes encouraging sustainable business growth and managing risk in readiness for future sale. Planning as early as possible, but at least two years in advance of sale, will ensure the business structure and customer base are in good shape, and all the necessary compliance and regulatory requirements have been met.”

DISCUS director, Gillian Hepburn, said: “The options for an exit strategy and the preparation required for this are firmly on the agenda for many financial advisers. One of the many considerations is the impact of the investment proposition on any valuation and the views on whether this should be consolidated on a platform are mixed.

“There appear to be tensions between the business benefits of consolidating in platform model portfolios managed by discretionary managers or by placing investments ‘off platform’ in the nominee of the discretionary manager. However, what is abundantly clear is that good client outcomes are paramount, which is why DISCUS wants to bring people together and facilitate this important debate.”

Top 5 tips areas to carefully consider from Bankhall

1. Understand your goals and aspirations
What does good look like when selling your business? When do you feel will be the right time to sell?

2. Review your business structure
How would this look to a potential buyer? If it is overly complex then could this reduce the value of the business or delay negotiations?

3. Have up-to-date management information
Is this in an accessible format, which is readily available? Any delays in producing key information could indicate a lack of controls. Furthermore you should be able to evidence how this information is used within the business and what decisions are made by senior management as a result.

4. Review your regulatory oversight including systems and controls
Are they robust? Are you able to confirm what oversight within the business looks like, including any services outsourced to a third party, which you are responsible for? Do you know your current business mix and any historical activities that your firm may have ceased due to de-risking of the business? Be prepared and knowledgeable about any regulatory correspondence the firm has received, along with the outcomes, to provide assurances to any potential buyer. Ensure your latest compliance reports and file checks are available from your support provider, which serve to demonstrate an independent third party’s view of your business.

5. Know everything about your client base and staff
How many clients does your firm have and how much income is generated from them? Who are your key accounts and how much value do they add? What is the likelihood of the new buyer retaining this business after sale? What is the current role of your key staff, as a potential purchaser might want them to remain within the business to support transition, maintain client retention and assist with cultural alignment between the businesses?