6 Essentials to Pick the Right Buyer for Your Practice
Choosing a buyer for your advisory practice should be a piece of cake. The number of buyers vastly outnumbers that of sellers, so you should simply sell to the highest bidder, right?
In most cases, that would be a costly and irreversible blunder, because much of the value of the deal comes in back-end payments. Thus, advisors need to do the due diligence to be sure that a potential buyer can live up to his or her promises. Once an advisor sells a firm or practice, there are no “do-overs.” You have to get it right the first time, because your retirement nest egg is riding on it.
Selling an independent advisory practices typically includes earn-outs, which are based on back-end performance ranging from 50% to 70% of the total deal or sale’s price. At the wirehouse firms, the entire deal is back-end based. Earn-outs are paid via a mix of cash, equity and interest-bearing notes. Down payments are often 30% to 50% of an agreed upon value.