Choosing an exit? Should you milk your book’s value or build it?

Choosing an exit? Should you milk your book’s value or build it?

Choosing an exit? Should you milk your book’s value or build it?

With 25 years of experience in the financial services sector, including 20 as an advisor, Jerry Butler offers succession planning as well as business-brokerage services for advisors, whether they are looking to buy or sell a book of business.

Many of the senior advisors today, especially on the MFDA platform, started in the business in a career agency system.  People came into the business to make a good living, control their destiny and have more flexibility than a nine-to-five job. It was a great job for many, but in the end it was just a job.

Less than 20 years ago, retirement was either dying or yelling out your office door “who wants my clients.” You decided at breakfast you were leaving the company and you came home at supper with a box of your personal “stuff.” Back then, companies owned the clients and the business.

But now it is your business! Those who treat it like a business do well and create value. Those who act like it is just a job, usually don’t do either. As I tell advisors all the time – you have a business NOT just a book of business!

Any mergers-and-acquisitions book you pick up will tell you – whether you are starting a business or buying one – the first question that you should ask yourself is: “what is your exit strategy?” An exit strategy to a business owner is like a will for the general public – “what do you mean I am not going to be around forever?”

A good exit strategy involves planning to create value, protect value and get the maximum amount on your way out.

There are three basic exit strategies:

1. Maximize Your Income: Truth be told, this strategy is by far the most popular succession strategy I encounter – but it’s less of a strategy than a default. “Why would I sell my business when I am making such a great income?”

This strategy is designed to reduce expenses and milk your business for as much as you can and for as long as possible. It does not require investing back in your business as there is no plan to sell in the future. This remains a viable alternative in our industry due to the compensation structure. And frankly, for many advisors it is the most effective strategy. Some of the problems include: dying, disability, paying more income tax than necessary, and seeing the business that you built over the last few decades start to decline.

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