Trending
Written by: Erin Botsford, CFP®
In 2002, fifteen years before I actually sold my firm, I went through the motions of selling it. I met with a business broker, he lined up a few potential buyers, and one of them sent back a seventeen-page document listing everything they wanted to see, including financial statements, organizational charts, roles and responsibilities for every team member, and a full breakdown of AUM by client.
I would say my first reaction was embarrassment. My financials were a mess, and I was writing personal checks out of my business account. Nothing was documented, and if a real offer had come through that day, any serious buyer would have walked away. That exercise changed how I thought about what I was building from that moment on.
Seeing Your Firm Through a Buyer's Eyes
When a buyer evaluates a firm, the paperwork they ask for tells you exactly what keeps them up at night. What happens to the clients and the revenue when the founder walks out the door? If the answer isn’t one they were hoping for, then that can be reflected in the offer.
The day I sold in 2017, the buyer also purchased a firm from another advisor with roughly the same AUM and a similar client count. She had suffered a stroke and was forced to sell with no time to restructure anything, and because her clients were accustomed to meeting with her personally, the buyer priced that dependency into the offer. From what I was told, she received approximately twenty-five cents on the dollar compared to what I received. Her client relationships were strong, but it was the structure of her business that cost her.
What the Checklist Is Measuring
Every item on a due diligence checklist is pointing at the same thing: whether this firm has value that exists apart from the person who built it.
- Can the team deliver a consistent client experience without the founder present?
- Are the firm's processes written down, or do they live in one person's memory?
- Are client relationships distributed across the team, or does one advisor carry nearly all of them?
- Is revenue tied to repeatable systems, or is it tied to one person's continued presence?
And remember that the further you are from an exit, the more time you have to actually do something about the answers.
Why Running This Exercise Is Important
The advisors who receive strong offers at exit spent years building a firm that could operate without them, not months. Real structural change does not come from documenting what already exists. It comes from actually changing how the business runs.
You do not have to be thinking about selling to find this useful. Call a business broker and ask them to walk you through the process. Get a sample due diligence checklist and run it against your own firm honestly. Then go fix what you find, because a firm that could survive without you is a better business to own today, regardless of what you plan to do with it later.
When I went through this in 2002, I realized I had a job with a very good boss, and that boss was me. By 2017, not one client on the books expected to meet with me. The buyer was not acquiring my relationships; instead, he was acquiring a firm built on a philosophy and a team that could carry it forward. That is what made three offers possible, and it is what made walking away on my own terms possible too.