In my business owner practice we work with our clients to become passive owners in their businesses. We help them become operationally irrelevant in their business which allows the owner to focus on strategic issues and not spend time on operational or customer issues.
In the financial services business becoming a passive owner is a much more difficult proposition. Our industry is a personal services industry. Our clients work with us because of special skills we bring to the table. We worry what will happen to our client relationships if we stop talking to our clients and move away from being their go to advisors.
This is a conundrum that firms that want to sell to a third party at significant multiples must face and successfully handle. A buyer is interested in your clients and the recurring revenue your firm can provide. They most often aren’t really interested in you or what you bring to the table. Sophisticated buyers understand that you eventually will leave and in many instances your personality won’t fit in well with the acquiring organization.
If you are interested in maximizing the value of your firm when it comes time to exit your business, moving to a passive ownership strategy is a great interim step. Not only will you have an opportunity to make your firm tactically and strategically excellent, but you’ll be able to prove to a potential buyer that you are irrelevant in the business and because of this the buyer should pay you more, much more money.
Some of the things you can do to help get your firm ready for your move to passive management is:
If you take the time to move towards a passive ownership strategy you will find that you naturally put yourself in a position where leaving your firm will not be a scary proposition. In addition, buyers will find your firm more attractive and if marketed properly will sell for a higher multiple with more upfront cash than the average firm.
Have you thought about pursuing a passive ownership strategy in your firm? If so, I would love to hear about what you’ve done. Leave a comment below or give me a call.