(2 December, 2004) Perserverance pays off for practice sellers

At the start of 2003, Cliff Garrels and his Adelaide business partner began the process of selling their financial planning practice.

Garrels was in his early 30s and his partner was in his early 60s and both men were seeking a change away from financial planning.

Despite the business having 1,800 clients and a $1 million annual turnover with income of about $600,000 per annum, they had still not closed the sale by the start of September of that year.

Garrels says the main sticking point was finding someone willing to pay the price he and his partner were seeking.

It’s not that they were greedy but rather the two men knew what the business was worth, as they had spent the previous year preparing it for a handover.

In that time they had formalised and documented the systems and processes of the business, as well as its revenue model and had spent 10 weeks alone segmenting the client base along a number of lines so they could present the hidden value of the practice to any purchaser.

The pair had reached the stage of letters of intent and heads of agreement with two different potential purchasers before the respective deals fell over.

The two partners then called in consultants Kenyon Prendeville who took two crucial steps in helping them sell the business.

They removed the partners from the sale process and ensured they continued to work in the business, and then set out to find purchasers who had sufficient funds to buy the business before taking any further action.

Garrels says the final deal was concluded within a month with the group ultimately courted by two purchasers introduced by Kenyon Prendeville.

The business-wide review initiated by the partners meant due diligence lasted three days instead of the average six weeks and while the price had to fall to close the sale, Garrels says it wasn’t substantial.

Yet the main benefit of using external consultants was the guarantee the funds would be available as well as a higher percentage paid upfront.

“We got 80 per cent of the purchase price upfront compared with an industry average of 60 per cent — 10 per cent after 60 days and the remaining 10 per cent will follow in early 2005,” Garrels says.

Garrels also says Kenyon Prendeville set the settlement dates in concrete, since the funds were assured, defined the terms of payment and what would be clawed back if those failed, and what the partners would retain after the sale. In this case, it was some holdings in an investment platform.

“The benefit in seeking outside help was it was made easy for us as financial planners as we were back running the business while they made sure the buyers had the funds upfront,” Garrels says.

“They removed the emotion from the process and were hard-nosed about it, which meant we got the best deal.”