Buying another financial service practice can be a great way to earn fast growth and scale your own business. However, finding the right practice to buy isn’t easy. Financial sellers are currently outnumbered by buyers at nearly a 50-1 ratio. If you’re looking to buy, you have a lot of competition.
That disparity between buyers and sellers has created a scenario in which sellers can often demand top-dollar for the practices. Many buyers are also having to settle for less-than-desirable practices, or missing out on deals altogether.
To be a successful buyer, you’ll have to stand out from the competition. You’ll need your target seller to take you and your offer seriously and to feel comfortable with you and your team serving their clients. Here are a few ways to improve your chances:
Strive for compatibility.
Compatibility may be the most important factor that a seller considers when choosing a buyer. The reason is clear. Think about your own practice. How important is it to you that your clients receive excellent service? Probably very important. After all, your client base is made up of friends, family members, and professional connections.
The same is true of sellers. They want to be sure that their clients are safe in your hands. If you’re proposing radical changes to the practice or if your personality represents an extreme change, the seller may just not be comfortable.
The key is to look for practices that are already similar to your own in terms of client demographics and advisor personality and style. That will make for an easy transition and will help the seller be comfortable with you.
It’s also important to understand that this is likely a stressful time for the seller. As excited as they may be about retiring, they’re also likely nervous about the practice transition. Stay open-minded to keep them comfortable with the process.
That could mean implementing your plans slowly rather than all at once. You may need to shuffle staff to retain some of the seller’s staff in key client-facing positions. You might also want to keep the selling advisor on-board for a few years, even if just in a consulting role.
Bring the right terms.
Your purchase terms are going to be the first filter the seller uses to decide whether you’re serious or not. In this market, it’s tough to look for bargains. You should expect to pay market price or higher.
Also, be prepared to make a sizable down payment. No reputable advisor is going to let you take over their practice without you making a down payment. A down payment in the 25 to 50 percent range is usually expected. The rest of the price can be seller financed with interest, although you may want to use a third-party bank to facilitate the transaction.
Finally, it’s important to be persistent in your search for sellers. Some deals will fall through at the last minute. The seller may get cold feet or they may have just been curious about valuation. By always looking for deals, you can keep opportunities available in your pipeline.
Buying a financial practice isn’t easy, but it’s often worth it. It represents a tremendous opportunity to quickly grow your practice to levels that you’d otherwise have difficulty obtaining. For more help in buying a practice, work with a third party. They can help with negotiations, communications, and keeping the seller comfortable with the process.