Many financial advisor practice owners nearing retirement wonder when the right time is to exit. Often, they consider their age, the age of their clients, new challenges they want to tackle, or other life factors. Very few stop to ask themselves if they can actually afford to retire.
In our experience, even though their job is to look after the financial well-being of their clients, many advisors neglect to do the very real and necessary work of laying down a financial plan for themselves and to evaluate how their practice, and the sale of the practice, fits into the equation. The sad truth is that when they decide they are ready to retire many advisors realize that they can’t afford to sell their practice. Which is why it is so important that if you are one of the many advisors looking to retire in the next 5-10 years, you need to start planning now and doing the necessary work to secure your own financial future.
The first step is to outline what you want for yourself after retirement. Do just as you would for a client. Define any ongoing career goals, future business plans, or, if taking a true retirement, what activities and lifestyle you want to enjoy. This will help you set your target financial goals and understand what you will need to live out your next chapter.
The next step is to get a clear picture of what your practice is actually worth today. Don’t rely on industry averages or a rule of thumb to determine your practice value. Instead, secure a professional third-party valuation. A third party will employ sound methods for determining your practice value and arrive at a number that reflects what the market is really willing to pay, as well as what you can truly get for it if you were to sell in the next six months.
If the valuation is less than what you need or if you plan to sell several years from now, you want to utilize the data in the valuation to determine what you need to do to maximize your practice value and eventually grow to a price that affords you the retirement you want. Generally, your valuation will include benchmarks and a consultation with an expert that can tell you what factors will drive the most growth in value. It can take a few months or several years to reach the valuation you desire. Which is another reason why it is so important to think ahead and start working toward your goal as early as possible.
Just like with your clients, you have to look at your own retirement as an approaching horizon line. You want to do everything you can to ensure that you arrive at that point fully prepared and equipped to transition into your next phase of life.
