Posts by Jamie


Many of the financial publications today tell the tale of advisors selling their business for two and a half times what their revenue is worth. But what is not being discussed in many of these reports is what the buyer should expect. Early on in my career as an investment banker, I was trying to sell a retail organization that specialized in kitchen and bathroom tiles. The organization had 23 locations throughout Colorado, New Mexico and Arizona. It was a well-run business for sure. The owners had their mind set on selling the business for $10 million. The annual income received was $1 million on revenues of $8.8 million a year. However, we kept running into the same conversation with potential buyers: “I am only going to pay six times the earnings or $6 million for the business.” After seven buyers passed on the deal, the owners finally took it off the market. Several years later, I heard one of the seven prospects came back and bought the business. Unfortunately, the sellers never got their asking price. Outweighing the Risk So what does a buyer of a financial advisor practice want? Recently, I was writing about investment options in a series I call FLOW. I determined I was looking for a 10% return and was willing to take on some risk. It is likely that the price of the investments could swing by more than 20% in a six-month period, but I believed the investment’s cash flow stream would remain consistent. To begin, a financial advisor should seek at least a return of 10% on the purchase price of a business. Ensuring this; however, can be difficult as there tends to be risk involved. First, there is risk with stock market uncertainty. Second, there is a level of client anxiety associated with the fear of a trusted advisor leaving. Third, you may encounter an employee risk which occurs when an advisor leaves the firm or has not received proper training. Lastly, you must be prepared for systemic risk, which is the risk of an entire financial system collapsing. To outweigh such risks, I would look to achieve at least a 15% return on the initial investment. This means that the annual cash flow should be 15% of the price paid to the financial advisor. Let’s say that a financial advisor has $300,000 in revenue. Using the often-heard “two and a half times’ revenue” equation, the selling advisor may expect a return of $750,000. However, the amount received ultimately depends on how much cash the firm brings in as profit. If the expenses are $200,000, leaving $100,000 in cash flow...

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Golden State has had a great year; winning 73 games, receiving a new record, and now entering the NBA Finals for the second year in a row. They did not achieve this by following the typical style of play. Instead, they moved the boundaries of where to take shots from and created space with great passing. In all, they looked at how the game of basketball was played and changed it. This is what we are going to do with referrals. SHAPING THE STRATEGY ONE ADVISOR AT A TIME Let’s first begin with a typical story on how referrals work and how one financial advisor changed the way he was operating. During one of our recent breakfast meetings, my good friend and fellow financial advisor, Paul asked me for advice on how he could ramp up his company’s number of scheduled prospect meetings. He was reaching out to people, but nothing was happening. Either they did not respond to him, they felt uncomfortable, or they were unsure of whom to refer. Therefore, we had to change the strategy in order for him to compete and retain referrals, just like the Golden State Warriors changed their strategy of play to win more games. I instructed him to follow this process. Over the course of two weeks, he spent a total of four hours sending 11 emails to prospect referral partners. Of the 11 emails sent, nine responded with a yes! He sent four additional emails to set up eight possible meetings, five of which occurred. Paul went from not having any meetings in one week to having five scheduled the next. All of this happened by putting in four extra hours of work. THE TYPICAL REFERRAL PROCESS The typical referral process has four steps. Each step of the process faces the risk of completely and utterly breaking down. Perhaps the exchange does not happen; the referral partner is not suited to make an introduction; the potential partner responds by saying he or she is not looking for a firm, or there is simply no interest. Consequently the typical referral process is outmoded. THE NEED FOR A SIMPLE APPROACH To make an impact, the process needs to be easy. Unfortunately, the typical referral is NOT an easy task. Your first goal should be to make it as effortless as possible for you and the referral partner to succeed. Next, craft and deliver a personal introduction (Note: Your introduction should not be a sales pitch for the product or service your company provides. If you don’t like being sold to, neither will the next person). THE FIVE-STEP PROCESS In the ever-competitive marketplace...

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Selling a business is an emotional decision that takes a great deal of preparation. For Greg Seal of Seal Financial Services, closing the door on being a business owner was only the beginning. Greg recently celebrated his one-year anniversary since selling his firm in February of 2015. In the last 12 months, he has learned a thing or two. His decision to sell the 31-year old firm was an emotional one that involved giving up his authoritative position as president of the company. For Greg, transitioning from owning and operating a successful firm for more than 30 years to becoming an employee required a great deal of time to comprehend. His first reality check came when he was asked to write a personal performance review. “This was the first review I ever had to compose,” stated Greg. “All of a sudden, your employees no longer look at you as the decision maker, which can be challenging when you are used to having the final say.” In addition, Greg realized the importance of smart negotiating during the sales process. Sellers should have an idea of what they expect to achieve and what is most important to them prior to selling their business. Part of the negotiating process involves having flexibility and the ability to collaborate and park your ego at the door. Identifying Your Market After making the decision to sell his firm, Greg was faced with another challenge. He had to determine whether he was going to internally sell the firm or seek a buyer from outside the practice. In order to maximize the value of his company, he had to line up his business for sale, which meant assessing and organizing financials. This included completing a U4 (a government document that informs clients of advisor backgrounds, work history and any legal actions or lawsuit against them (fortunately there were none), ensuring discretion on assets (advisors have sole rights to make changes on their clients’ behalf), and consolidating investments into manageable groups. Greg started out with 400 mutual funds and 50 ETFs, all of which needed to be condensed into models and manageable assets. When Greg decided to put Seal Financial Services up for sale in 2013, revenue for the business was over $1 million. To prepare the company for the purchase, Greg and his business partner, Janet McCoy connected with FP Transitions, a firm that specializes in helping financial advisors sell their business. Although the company was helpful in evaluating the firm over several years, Greg and Janet instead chose David Grow JR at Succession Resource Group (SRG), as the firm had a more concrete understanding of the compensation...

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This post was originally published on July 31, 2013. It was updated on November 11, 2013, August 3, 2014, and again on August 2, 2016 to reflect the new GDP numbers. Extending our research on the use of the Big Mac Index, as created by The Economist, we applied the rise in the price of a Big Mac in relation to the economy. While Big Mac prices rose over the last three months, the price overall declined in the past 12 months. The burger, as a representation of GDP, may be stealing more than calories from consumers. The Bureau of Economic Analysis (BEA) reported that in 2015, the economy grew 1.2%. This was far below economists’ expectations reported by Briefing.com. As the BEA indicated in the press release “The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE) and exports that were partly offset by negative contributions from private inventory investments, nonresidential fixed investments, residential fixed investments, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.” The deflator used for inflation was up 2.2%, which was far higher than the Consumer Price Index (CPI) of 0.8%. Under estimating inflation results in correspondingly optimistic growth rates. This resulted in the GDP number being significantly higher than it would otherwise be if the CPI was used. Odds and Ends The BEA defines gross domestic product, the measure of economic growth as: GDP = private consumption + gross private investment + government spending + (exports – imports) Taking it one step further, we can break this down to by private consumption into service and actual goods and investment into fixed investment (machinery) and inventories. When looking at GDP with all its components, we can see that real final sales was the strongest, but all other components have weakened over the course of the last 12 months. Doug Short graphically represents the components of GDP. Burger Blues Inflation boosts the growth rate of each of the components of GDP. When the price of food or gasoline increases, GDP increases. This is more accurately called “real” GDP. Thanks to The Economist, we have come to look at the price of the Big Mac as a good indication of inflation. The Big Mac includes beef, dairy (cheese), wheat (bun), cost of labor, and the cost of real estate. As a result, I believe it is a good representation of inflation. However, our analysis indicates that the price of the Big Mac has continued to escalate much faster in recent quarters than the official government rate of inflation (CPI-U). Consequently, here...

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Picture this: you’ve just met with a powerful potential client—a female business owner with a stellar reputation in the community. You addressed each element in her financial situation and asked all the right questions. You devised a valuable plan, and she appeared to be on board. You provided her with a detailed breakdown of fees, references, and the accounts custodian. Before your conversation ended, the two of you had already scheduled your next meeting, and then… You receive an email saying that she has not yet reviewed the information you provided and is therefore postponing the meeting. Does this situation sound familiar to you? Interactions like this are frustrating and time consuming, and may leave you curious as to how you can prevent clients from dragging their feet in the future. Driving the Sales Process with an Effortless Evaluation Plan In his book, “The New Solution Selling: The Revolutionary Sales Process that is Changing the Way People Sell,” author Keith Eades emphasizes that as a salesperson, it is vital to guide clients along in a way that promotes accountability from both parties involved. One way Eades encourages accountability is to use an evaluation plan as a road map while navigating your business as well as your clients’ needs. An evaluation plan is a step-by-step checklist that outlines each milestone, date and party or individual responsible for taking action. Implementing a plan helps to keep the process on track and helps prospects understand what is expected at every step along the way. Here is a sample evaluation plan: If a prospect has suggestions or makes adjustments to the plan, that’s an even better sign. This means the individual is fully engaged in the process and feels hopeful about the next steps. This organizational tool can encourage prospects to own the plan and take charge of the process. The more involved your clients feel, the greater the likelihood that they will engage with YOU.Utilizing a plan also pushes you to understand where you — as the advisor — stand with prospective clients. If they accept the evaluation plan, you can be confident that the sale is moving in the right direction. If a prospect isn’t ready to move forward in the sales process, it is unlikely that they would agree to set an evaluation plan into...

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