An IFA asks: "I want to sell to a financially stable company"

If you’re thinking about selling up, choosing a buyer that lacks financial stability could have a serious impact on your future.    

You must carry out thorough due diligence on any potential buyer. If the deal consideration is paid on a deferred basis or includes shares in the acquiring firm, securing proof of financial stability is crucial.

When accepting deferred consideration, you can expect your buyer to pay a percentage on completion and the remaining balance over a two-year period. A common arrangement is a payment profile of 50% of the projected consideration on completion, with two further payments of 25% of the deferred consideration on the first and second anniversaries of completion.

Be sure to ask about the buyer’s growth plans and whether they are taking on secured debt to fund them. You’re likely to feel more confident with a self-funded buyer, as opposed to one with a complex or geared capital structure.

You should also keep in mind that while it’s possible for a buyer to take on prior liabilities, providing you have the consent of every client with a potential claim against the business, the client can still hold you accountable should the acquiring firm go out of business.

Failing to receive the full amount for the sale of your business, or facing an unexpected case, can have a detrimental effect on your plans for the future. Find out as much as you can before signing any agreement and never feel rushed into making a decision.

If you’re considering selling your IFA firm and need help, you can find a comprehensive breakdown here.

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