Roderic Rennison: Are you sale ready?

Based on the feedback we receive from our adviser clients, they receive at least two – often more – unsolicited emails each week from brokers offering to arrange the sale of their business for what appears to be ‘adventurous’ valuations.

While most of these emails will land up in the metaphorical wastepaper bin, they can serve a purpose if they prompt owners of firms to become ‘sale ready’.

Being sale ready doesn’t mean you want to sell immediately. Rather, it means you have taken the right steps to make your business attractive to prospective buyers, whenever that may be.

We are often asked: “What should I be doing to be ready for a sale?”

This depends on the timescale the owner has in mind but, broadly, there are a series of good practices any well-run business should be adhering to.

1. Data

Being able to generate the right data and then interrogate and interpret it accurately and effectively has never been more important.

This starts with having a property functioning CRM system. What is needed is a set of integrated, data-driven software solutions that help manage, track and store information related to a company’s current and potential clients.

Consumer Duty has highlighted shortcomings in some firms. When asked by the Financial Conduct Authority, they have been unable to demonstrate the client reviews they have undertaken over previous years, which has led to S.166 reviews being imposed, with all the cost and disruption that entails.

All firms, irrespective of size, must ensure the right data can be extracted, speedily, when required. If external assistance is needed to reach this goal, this will be much less expensive than regulatory intervention.

2. Profitability

Establishing a firm’s level of profitability is simple with the right software and assistance from accountants. However, what matters just as much are the drivers of profitability.

Having one or more dashboards to confirm specific outcomes, such as the impact of amending levels of adviser charging, are invaluable, as is the ability to accurately assess the level of output generated by planners, paraplanners and administrators.

If you do not know the monetary impact of different types of expenditure, your business is trading blind.

3. Contracts

Advice firms enter into many contractual relationships – be that employment contracts, property leases, software licences and, in some instances, network membership.

Some should involve a solicitor but all should be carefully considered before signing and a schedule maintained.

Starting with the question, “When and how can I cancel this contract, and with what (monetary) consequence?” even before signing the contract is common sense, as is being prepared to go to the expense of consulting a lawyer when appropriate.

4. Governance

The word ‘governance’ means different things to different people but it is widely accepted the core governance principles are: fairness, accountability, responsibility and transparency.

These alongside the ‘four Ps’ – people, purpose, process and performance – will hold any business in good stead.

At the same time, it is important to bear in mind what the FCA expects of authorised and regulated firms: “A firm must conduct its business with integrity. A firm must conduct its business with due skill, care and diligence. A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. A firm must maintain adequate financial resources.”

A firm that pays continuous attention to these points, with a culture and ethos of integrity and client focus, is not only likely to be profitable and successful, but will have less preparatory work to do to be ready for when they choose to sell.