Inside the advice business sales process

0:02Hello and welcome to this episode of the FT Advisor Better Business Podcast. We will take a deep dive into what it's like to sell an advice business and how to achieve the best valuation. We're joined by Gordon Flower, founder of the Flower Group, who will talk us through the ins and outs of a sale and what to do to get dressed for sale. And we're joined by Kerry Carter, IFA at Broadway Financial Planning, where we'll share some inside knowledge on what it's like to sell your business after Broadway Financial Planning was sold to Ren Sterling earlier this year. Hi both. Thanks for joining us. Gordon, you work for a lot of advice businesses which are going through the M &A process.

0:39What are the common issues you see and why do firms seek your help in the first place?

0:44Keri Carter: Yeah, I'd like to start with a lot of small business owners in the space. we know the sector's full of small firms and a lot of those business owners are advisors so a lot of their time is taken up on clients looking after their staff and keeping the right side of the regulator so they never really have time to think about their business and the journey goes on and they kind of get to the point where they're very close to retirement and they wake up one morning and they bring the business out to market for me i think it's about being well prepared earlier on in your journey because there's a lot of stuff that you need to get in order and some of that information might be brilliant client data you know your your business is going to go through you know a one-page summary of say well what is my business on one page and it's effectively your clients the segmentation of those clients in different categories the age profile of your client bank that's what you're showing to the outside audience this is my business on one page and I see so many times that because the owner hasn't had the time when you start looking at that data it's wrong it's got incorrect clients on there they're no longer clients it's got you know assets on the management that's just not correct so being able to be aware of what that data looks like today allows you the time to really cleanse that data and I think then you can use that data to drive forward your business growth so it's not just about preparing you for sale it's actually good data to have to generate future growth as well.

2:19And how do you kind of determine what value to put in your business?

2:25Keri Carter: Yeah so over my journey as a CFO I've looked at probably somewhere between 200 and 250 firms to acquire and not one of those firms did we take recurring revenue and times it by three and a half or four. If it was as easy as that I probably wouldn't have had a job what you do look for is the adjusted EBITDA number which is income less the costs that are going to recur post a deal that's the number that you'll then apply a valuation to and because most the sector is private equity backed for me to get investment in an acquisition that would be the numbers I would have to present to the board to gain that investment so that's where the value starts yes we do then divide it back by the recurring revenue to present it back to the business owner because we know that most business owners understand the multiple recurring revenue that's what their business is worth and that's the language you're using so if you think about that if you don't know what your adjusted EBITDA number is today you don't really know what your business is worth and there are you know so many examples where I've seen businesses come to market they take the recurring revenue times it by three and a half but let's say they've got a high infrastructure of costs let's say the revenue is a slightly lower per client that adjusted EBIT down that number then is quite low and it just doesn't marry up to their business owners view i think it's so important that you understand what your business is worth through that adjusted EBIT down number is that quite a common kind of theme that business owners are getting this wrong Yeah, and again, it just comes back to the time factor.

4:03Keri Carter: They're looking after the clients, looking after the staff. They're thinking about being the right side of the regulator. They're not thinking about what does my P &L look like? What is my adjusted EBITDA? Because they're there to look after clients predominantly. Do they typically over or undervalue? I think through their eyes it's probably overvalued sometimes because, again, because you're not aware of what that adjusted EBITDA number is you can take that recurring revenue times it by three and a three and a half or four i could give you a different very different picture and what are the kind of common challenges then and in getting a deal over the line do you have any practical tips yeah so again it's it comes back to this time factor so the more prepared you are with you know good data good financial awareness you are looking it through the compliance lens so you've got your annual reviews up to date for example and you can evidence them so if you're aware of the information that an acquirer is going to ask you for and you're well prepared then your journey is certainly more efficient a lot smoother but as most businesses that don't have their data in good order and their you know what questions are going to ask then you can imagine that they find an acquirer they get a deal they go on their heads of terms and then suddenly the acquirer will ask them 250 questions for due diligence and they sit there and go, well, gosh, when am I going to have the time to do that?

5:30Keri Carter: Because I've got clients to look after. I've got my business to look after. And what then happens is they're trying to do it on an evening and a weekend and the time of a deal takes longer and longer and longer. And the longer a deal takes, the more at risk that that deal can be. So, you know, that's where one of our services that we have, you know, with Carry On being able to just parachute in our experience to gather that information will help the deal be quicker. Okay, well, let's look at these deals in a little bit more detail. So, Kerry, coming to you, you've recently sold your firm to Ren Sterling.

6:09Can you talk us through the process? I guess maybe that's a little bit too big of a question. Summarise it. Why did you go down the selling route? When did you know, how did you know it was the right time? So I had sort of looked at the various options for about five years. I've been thinking about this. I actually acquired the business from my retired director partner. And so I'd done sort of an internal management buyout as such. And I had looked and thought that was my first choice initially, that that would be the route that I would take because it had been very successful. As I searched for that right person, I realised it was a bit like looking for a needle in a haystack.

6:47And as time went on, I realised that I was going to have to look at other alternatives and see what else was out there. So I'd spoken to a few firms. I believe in sort of collaboration in every aspect of our business and had sort of had discussions with a couple of smaller firms to see whether there was some synergy there we could combine. That wasn't sort of coming up with the right numbers or it just wasn't working out for either of us for various reasons. And so I had come to the conclusion probably about two years prior to selling that I'd need to go to a bigger acquirer. In doing so, I also knew who I didn't want to go to.

7:26I was very conscious. I had a good ear to the ground in terms of what acquirers were out there and what I didn't want. And I had a very clear vision of what I felt like a good deal would look like. I mean, this is quite interesting, actually. Can you just tell us a little bit more about, I mean, without going into specific names, but how did you choose your acquirer when it came to the kind of the last selection? What kind of how did you go about that? Well, my route was probably slightly different insofar as, as I say, I knew from experience of others. I spoke to lots of people. I spoke to lots of business owners that had sold their businesses and knew what had worked well, what hadn't worked.

8:04and actually I went to somebody who I knew had sold his business to Ren successfully and asked his opinion and said you know what's been your experience he was very very complimentary was very happy with the way things had worked and for me that was a really strong indicator of what might work for me because our businesses were quite similar the other thing I think was quite useful from that perspective was that he had been very much through a beauty parade process and in his words had said, look, I've kissed a lot of frogs. And I just thought, well, why waste the time kissing them as well when he's already done the hard work, basically.

8:40So I didn't go to market as such. I went straight to Ren Sterling and said, look, this is something I think I'd like to talk to you about. So I didn't go through the traditional broker route and look at alternatives because I had such a clear idea of what I wanted, what I thought good looked like. and were you were you proven right in terms of the kind of ideas you had in your mind in terms of the figures for example what you wanted to get and things yeah I think so because I think I'd done my own financial plan I'm a financial planner and so I knew the scope of where a sale price could occur so I knew anything between those two numbers would would work you know from a personal perspective and I think that's important because it can then open up a whole load of conversations and it gives you some flexibility as to where you then go with that deal um and so I think that that was sort of really important to um you know to look through that and then I just had a clear idea of the sort of principles and putting clients first I wanted to know that the clients would be looked after that it was something that I could look them in the eye and say this is a really good deal this is the right thing for all of us and I have a lot of local clients local to my business I wanted to be able to bump into them in the street and for them to say it's great it feels the same and you know I didn't want to be hiding in alleyways or doorways and sort of ignoring them or avoiding them so I went in with a very clear idea of what I thought could look like and happily when when you know came up trumps from that point of view I want to talk about clients and kind of how you communicate changes to clients a little bit later but um just a little bit more on the kind of negotiating phase have you got any tips for negotiating first of all the price you want and second the the outcome you want for your firm yeah I think you've got to have a really clear idea of what's important to you and what good looks like and also not be rushed into making that decision because that was the other thing that I had time on my side you know I wanted to make the decision I knew that was the decision I was going ahead with I just didn't know who it was going to be with and I would you know go down various routes to find the right partner so I think that was really important is having that time to not be rushed into suddenly doing it I think from a client perspective it was just important that I wanted to feel that their terms of the deal weren't going to constrain them or force them down a route that I didn't feel was reflective of my values and things.

11:18So that was something else in terms of sort of doing the matching of what I felt was important from that perspective. Gordon, do small businesses, generally speaking, do they get quite a lot of pushback from acquirers, especially when they're larger acquirers? Or is this usually, how can you describe this process?

11:36Keri Carter: I think it's, I mean, I think from Kerry's perspective, you've done your homework really well. You know, you'd spoken to your peers and you'd done your own fact-finding as you would with your clients. You know, you'd done your own view of what your portfolio is worth or what your business is worth. I think a lot go through this situation not thinking about that. And I think that's when it starts to get, you know, quite difficult really because you've not really got all your ducks in a line, to be honest. Were there any other hurdles you had to overcome? Was there anything, a real sticking point that you kind of had to compromise on?

12:18I think be prepared for how long it does take. Even though I was really pleased to work alongside Gordon and the flower group to help me with all of the due diligence side of things and the supportive side of things, it still just takes time. So I think, you know, it's not a quick fix and it won't be a quick fix. I think mine from the point of discussions to the point of completion took about 15 months. and I think the danger there is that it's quite tricky managing the team it's quite tricky keeping that quiet having lots of meetings having lots of discussions and things you know that was probably the biggest hurdle I would say is is how you manage that and at what point you engage the team and say okay this is what's what's happening yeah because there's always a danger you know it's it's getting that fine balance to telling them what's going on and being open and honest as I always had been in terms of my succession to then actually saying, OK, this is going to happen, but I don't want them all to leave if if they don't like the route I'm taking.

13:19Yeah, absolutely. So that, I think, was probably the biggest challenge from that perspective. And I think, yeah, it's just really all absorbing. It just takes over your life without a doubt. Yeah. And that of your families as well. So I think that you can't underestimate that. Definitely. And how did you kind of go about communication, both with your employees and your clients? I imagine, I mean, you've already alluded to it's probably quite difficult. Yeah, it was difficult. And in the end, I just felt I had to be honest and say, this is this is where I'm at with the business. You know, it was getting close to exchange.

13:55I knew there weren't anything. There wasn't anything likely to be anything come out of the woodwork that would stop the deal going ahead. it was just a time situation and so at that point I said right okay this is this is where I'm at because I had prepared them and said this is what succession might look like it to a certain extent it wasn't a massive surprise because you know I'd always been very open and honest and said look I'm not going to live forever at some point you know we have to find the right route through that's right for the clients right for the team and right for me you know lastly really so I think that wasn't too much of a surprise then you've obviously got to try and sort of promote the new business and what that's going to look like and be able to reassure them so that that was quite time consuming and there were lots of questions that I wasn't able to answer in that sort of interim period and that's quite that is quite tricky you know I would say from that point of you and the clients probably less so because I'd worked with most of them for 20 years I rang I'd say about 98 % of them all of the ones I could get through to I rang every single client and I said look in my words this is what I'm doing this is why I'm taking this route this is this is how I approached it and I was able to look them in the eye and say you know I do believe this is the right thing for us all for the long term and they seemed happy you know they were all of them yeah I would say there's probably since there's probably been one or two have maybe thought this is an opportunity where maybe they feel they want to be in control of their own decisions because clearly the decision to move to Wren is my decision and not necessarily theirs so I would say there probably have been a couple that have since come out and said actually I'm not sure that or I need a bit more reassurance that this is going to work for me or perhaps now's a good time to just see whether we want to do something different and I think that's to be expected you know I think I was probably naive thinking they'd all they loved me enough to come on board on this new journey but majority of them have been happy and have since been in and said it feels the same and that's exactly what I wanted you know I couldn't ask for any more than that so I think ringing them definitely made the difference because the couple that I didn't get around to or somebody else had a conversation with them about what was going on a colleague or something they weren't quite as bedded in I think and needed that bit of extra reassurance so I think that was a difficult job because it was time consuming but it was an important one and I would say you can't

16:33Keri Carter: there's no shortcut to that yeah I think the other thing Kerry from your point of view been going through this journey well ahead of time and taking the consideration to think about it all when you do communicate it to whether it's your staff or your clients people can tell that you've gone through a journey yourself and that's the reassurance because you know both sets of people trust you yeah whether it's your clients or your staff you've all been on a journey for 20 odd years and if you can explain what the end's going to look like because you've been going on that journey well ahead of time yeah people go well i can tell kerry's consider this you know she's gone outspot to other people she's done this she's done that and the other that's what people want to hear you know and and you're right you know you're not able to always answer everyone's question um but if people can understand that you've gone through a journey yourself and looked and narrowed it down and thought carefully about what is right for staff and clients and you you know um people can tell yeah I say to clients that I dated Ren Sterling for quite some time and now we've moved in together I sort of liken that it to that situation and I think they understand but that's a good that's a good analogy because were you ever did you ever have any doubts about this relationship I think probably early on there were a couple of things and I thought oh gosh there was one situation where there was the potential for something to change very slightly and I thought oh this is exactly what I didn't want you know I wanted that transparency and that honesty and that green light that took us forward on the basis at which we'd entered into the conversations but in fairness Ren were very open and happy to sort of overcome any of those situations so I think that was the only time but I think once I was on that journey having done all of my background work you know I had done a lot of due diligence on them and reconciled my own head with what was happening so no I think you know I can honestly say no and did you ever have any doubt about your whole the plan for your whole kind of business planning your plans for your business and your own future I think you'll always have doubts because at the end of the day you know if you've built a business up over 20 years it's like having your baby adopted it's you know is I haven't had my child adopted it must be like that and um yeah so I think there will always be times when you think oh gosh am I doing the right thing but I did know I was doing the right thing and I sort of had my list of why I was doing this you know I was very clear in my goal for doing this and that was for the protection of the clients and the team because I'd had family and friends around me who'd sort of you know sadly passed away or something and I just said this won't work you know if something happens to me this won't work you know this leaves us all in a terrible situation so there has to be a parachute as such and so I just kept that very the forefront of my mind and that was my sort of reasoning and goal.

19:41Keri Carter: I mean we worked with with Kerry you know gathering all that due diligence information but a lot of the time we're kind of the experience so there might be times where people go to you well what about this and we're just saying no that's perfectly normal question there's nothing to worry about it's not it's not a point to check up and devalue your business it's just normal but when you've not gone through it you don't know what normal is if you know what I mean and that's where you know we sit alongside Kerry to keep her on the the kind of the journey really and say these are normal things you know and we've done this now worked with 40 odd firms in the last 15 months and we have the same conversations just a reassurance sometimes you know because it's a lot of anxiety a lot of worry going on you know what are people going to think these are people I've worked with 20 30 years you know that's a lot of built-up anxiety and all that worry goes through this process so if you can have a sounding board with someone that's been through this time and time again and and can play reassurance so i think that really helps yeah definitely yeah because you say you'll probably only do it once and you need that reassurance that you're doing the right thing you're giving a big part of your life into somebody else's hands effectively you are and i think a lot of the hard work was done almost prior to finding that partner you know you have to reconcile your own head with what you're doing and why because it's scary and you know you go through all of those emotions of thinking everyone's going to judge me they're all going to think badly of me they're going to think I've sold them down the river you know and I see quite often some news articles where they'll refer to that and sort of say you know people have been sold down the river and everything I just sort of think for most of us that are running decent businesses with the clients at the heart of it that's not what we're doing we're just trying to find that protection for them and that route forward but yeah you do go through all of that in a emotion and and what happens after so you've sold your business you're still there um how has life changed so i think the first thing that i wasn't expecting is on the day of completion it's actually a real anti-climax it's you think you know you should be celebrating and everything and it i didn't feel that and i think since speaking to gordon and other people you know they've all said the same so i think don't expect a sort of fanfare and fireworks you know it doesn't feel like that and i think suddenly you find that it is business as usual but actually it's under a different umbrella and there's different systems and things like that and suddenly maybe different phones and different softwares that you're not really expecting and you can't work with the clients as you were the day before and that's quite difficult you know that's quite different in that respect where all the things that you were so used to doing on the Friday are now thrown up in the air on the Monday and you're having to sort of suddenly come to terms with that.

22:38But the clients are still there. You know, all of that normal business is still there. So that's quite tough. You know, that is quite hard. Now we're five months down the line. There are times now where I'm thinking this is great. And I have to say that somebody else had told me this, that once they'd been acquired, they said, I've got a new zest for the work, you know, new zest for the business and for the jobs that we do. And I feel absolutely the same. my suddenly thinking I felt really quite worn out by compliance and all of the things that I didn't really enjoy doing now majority of my time is just spent on working with the clients and it's great so quite a few people have said to me you look really well you look like you've shed the responsibility and yeah so I think be prepared for the pain but know that you will come out the other end fairly shortly and hopefully you know for the better yeah any any issues with um the fact that you're no longer the boss no no and do you know what i really enjoy it that might be a personality thing or is it a thing of clever planning i think it's i think it's planning i think you're putting

23:45Keri Carter: yourself into the right mindset yeah you know and i think going back to your point about the anti-climax you know and this is all the point about you know you want to be well prepared well ahead because you want to get through this really quickly because the longer it goes the kind of more sleepless nights you're having the more fatigue kicks in the kind of the less kind of things just come a bit more frustrating or the rest of it but for me you've already more or less got yourself to the starting line once you've sold your business because that you know the most important part really is then the integration piece yeah you know and that's the kind of that's where the anti-climax comes in it's like oh and then you're like oh now i've got to integrate all my business you know so you want to kind of go through that process kind of fresh and supported because the real piece of work comes when you're integrating you know you want that smooth journey for your clients you want your staff to feel comfortable with their new acquirer and and all of that piece and I think sometimes it's hard to get through the sale process and as businesses or business owners you forget about the integration piece and then it suddenly lands.

24:57At what point do you start that integration piece though?

24:59Keri Carter: I think you're doing that you know through obviously post heads of terms whilst you know you're kind of dovetailing you know we're there to support with due diligence you're thinking about your legal agreement but you also should be talking about the integration program. Did you have a chance to train yourself up before that Monday? Yeah, so I actually had three months between completion and or exchange and completion so I did quite a lot of the integration, started a lot of the integration during that three-month period which meant that we could hit the ground running really on day one under the new arrangements.

25:37so and I think going back to your point before about you know giving up being the boss I think you almost give up being the boss when you agree the heads of terms and say this is something that we want to move forward with I think you've almost gone through all of that because you've decided that's that is the right route as long as you've got a really clear idea and you have reconciled all your emotions to what you're doing I think at that point you're then okay I've stopped being that I think there will always be elements of sort of thinking well I think maybe our way was better but I think equally if you feel that you are that type of person and you choose the right partner to acquire you then there's always an opportunity to have some feedback and things and Ren have always been very open to saying look, feedback and a thing you think could work better.

26:22Keri Carter: And I think the interesting point and I've heard this a few times you made was about zest for life again and if you put your mind into the right place where you're going to let go of that that I'm no longer running this business, and you go back to what you really loved was looking after clients, then that's where you find that energy again. It's interesting when you watch that happen. I've seen so many people be in the same situation as you. It's like, oh, I've got to retire after the day. I'm like, I don't want to retire because I'm now doing what I love again, meeting new clients, speaking to new people, et cetera, et cetera.

27:00Yeah, excellent. Well, we've almost come to the end. just a very, very short parting message to our listeners, some of whom might be in that situation where they might be thinking about selling their business that they've founded and run for years. What's your parting message to our listeners?

27:15Keri Carter: I think for me is to start to think about it now. You know, think about what Kerry spoke about today, going through the mindset of the journey. Where are me, you know, taking this business? Who's going to be the right suitor, et cetera? What does the world look like after the deal? and then just making sure that you're aware of what your data looks like, get your data in good order, be aware of what your business is really worth and what the journey ahead looks like. Start being prepared today. Don't wait to two years because you don't always know what tomorrow brings, do you? I would agree with Gordon in terms of what he said there.

27:51And I also think the other thing I would say is explore all of your options. So make sure that when you decide on the route that you're taking, you have explored all of the others fully and therefore you know you've discounted those for perfectly valid reasons. So it gives you that focus to enter into the new arrangement with clarity. Perfect. Thank you very much for coming in. Thank you. It's great to talk to you. Thank you for listening. I hope you found it useful. And for all other Better Business content, visit ftadvisor.com, Better Business. Until next time.

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