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Retiring or moving on to a new venture after years of running your own business is a momentous event and there are several factors to consider before reaching the decision to sell.
Understanding the process and choosing the right partner to look after your clients is crucial to achieving the best outcome, and one of the biggest concerns for sellers is that their clients are taken care of and the advice they have given is protected moving forward.
Before you can begin the process, you will need to consider:
You will need to decide the type of sale that is appropriate for your business.
In an asset purchase, the clients and income assets of your business are transferred to the buyer. If your business is a limited company, the buyer does not buy the shared capital. In this scenario, the transaction is between your business and the buyer, so you will still own the limited company but it will have no clients. You can then apply to Companies House to close the company. If you are a sole trader or partnership, you may be able to benefit from Entrepreneurs’ Relief. Due to the nature of this type of sale, certain elements of the buyer’s due diligence process are scaled down. Asset purchase is generally preferred by buyers.
A share purchase is a transaction between you, the shareholder (not your business) and the buyer. This means selling the legal entity (the limited company) of your business including its assets and liabilities. All of your shares in the business are transferred to your buyer.
Entrepreneurs’ Relief applies when selling shares so a share purchase is often more tax efficient for you as the seller than an asset purchase. A share purchase generally takes longer to complete than an asset purchase due to the level of due diligence and the negotiation required for warranties, guarantees, and indemnities. As such, professional fees are generally more expensive for a share purchase.
Once you have decided which type of sale is appropriate, you will be in a position to think about the type of buyer you are looking for. At this stage, it is worth considering whether the potential purchasing firm:
The next step is making sure your records are available and up to date including:
You will need to ensure that client files are scanned and that your client database is exportable, for example in a spreadsheet, as your buyer will need contact and policy details for all your clients.
If you are an Appointed Representative, you may need to obtain data from the Principal so it is prudent at this stage to check the agreement which sets out your rights.
You will also need to be able to demonstrate compliance with regulatory requirements and data protection legislation. It is worth preparing your records as early as possible to ease the process further down the line.
You should seek legal and tax advice and it is best to engage advisers early in the process. Another consideration is whether you want a broker to represent you and their fees tend to range between 1-5% of the deal consideration. It is increasingly common for sellers to approach buyers directly, so you may not feel it necessary to use a broker.
There is no guaranteed timescale for selling, particularly as most buyers will tailor their approach to your individual business and it can be a time-consuming process. A general guideline could be anything between two months and a year, and planning an exit further in advance of this is not uncommon.
Buyers will look at numerous aspects when valuing your business including cashflow, profits, and staffing arrangements. There are several different methods to calculate the valuation including:
It is sensible to consider more than one offer to ensure you achieve the best deal, not only financially but when it comes to the future of your business and looking after your clients (and staff if applicable).
The tax implications of selling your business can be significant and it it important to take tax advice. Entrepreneurs’ Relief is generally available, depending on the sale structure and the key tax to be aware of is Capital Gains Tax which is due on the gains from the sale of your business.
Once you have agreed a deal in principle with your buyer, they will carry out due diligence on your business, but you should also carry out due diligence on them to ensure they are a suitable fit for your business and your clients. It is also prudent to check their financial stability, growth strategy, and regulatory and complaints history.
Your buyer will carry out due diligence on every aspect of your business including finances, tax, regulation, and its day-to-day operations so you will need to supply information on:
client demographics and service propositions
income and assets
technology and back office systems
staffing and premises if applicable.
Due diligence for a share purchase is more detailed than for an asset purchase because of the extra liability involved, so the process will take longer (typically 4-12 weeks). Alongside the due diligence process, the contract will be prepared by your buyer’s lawyers for your lawyers to review.
If your business is directly regulated, either a change in control or de-authorisation and appointment as an Appointed Representative is required when you sell your business, depending on the sale structure. It can take up to 90 working days for the FCA to complete a change of control and the application process normally happens during the due diligence stage.
You will also need to have a complaints process in place for prior advice as generally buyers will not assume liability so you will remain responsible following the sale. Your buyer will expect you to hold Professional Indemnity insurance run-off cover in respect of your previous advice and activities, typically for two years.
Naturally, payment is a fundamental part of the transaction. A typical structure is a payment on completion, and on the first two completion anniversary dates.
Once the deal reaches completion, you will need to migrate your clients. This can be done with a Letter of Authority or by novation for each provider. If you have not already communicated this to them, your clients will need to be made aware of the sale and agree to transfer to the buying firm. Typically, your buyer will work with you to produce a letter from you explaining the change, and another from them welcoming your clients.
“A few years ago I decided I still wanted to give advice to clients but the regulatory and legislative burden of running a financial planning business was becoming too demanding, so I worked with Attivo Group to establish my business as an Appointed Representative of Attivo Financial Services. In 2018 I decided to sell my company’s shares to Attivo Group and joined the company as a Financial Planner. For me, being able to give advice without the burden of running my own business is the best of both worlds.”
“I had run my financial planning company in Milton Keynes with a business partner for several years. With my partner having stepped back, the changing regulatory environment, and the fact I was approaching retirement age, I decided it was time to exit the business. I met with Attivo Group in October 2017 and worked closely with them for 12 months to establish the right deal structure, including a handover period so that I could introduce my clients to them. Completion took place in October 2018 with an excellent retention rate.”
“In 2016, I felt it was time to sell our business and enjoy retirement as I was in my sixties and had provided financial advice for over 40 years. I was introduced to Attivo Group in the April and quickly realised they had the knowledge, experience and client focus to provide our clients with the service they were used to. Due to the structure and tax position of our firm, I wanted to sell the firm’s assets rather than the shares and Attivo Group was happy to accommodate this. Over the subsequent months we progressed to Heads of Terms and completed the sale in October 2016. I didn’t want to be involved in the integration process, other than working in the background to ensure a smooth transition, as I felt this demonstrated the confidence and trust I had in Attivo Financial Planning and their high client retention rates are testimony to their ability.”