Preparing an advisory firm for sale: the operational side

Most preparation advice for selling an advisory firm is financial. Clean up the P&L, normalise the owner’s compensation, document the recurring revenue, get three years of statements in order. All of that is necessary and all of it is well covered elsewhere.

This is about the other half, which gets less attention and is generally the half that moves the number: whether the business can be operated by somebody who is not you.

What a buyer is solving for

A buyer is not purchasing last year’s revenue. They are purchasing the years after you stop answering the phone, and every question in diligence is a version of the same one.

So they look for dependency: who holds the largest relationships, who decides how an exception is handled, who knows why the firm does something the unusual way it does. Where the answer is consistently one person, that is priced. The full version of this argument is in what a buyer is actually pricing.

The question is not whether the firm runs well. It is whether it would keep running well if it changed hands on a Monday.

Three years out

This is the comfortable window, and the work looks like ordinary operating improvement rather than transaction preparation. That matters, because systems that have been used, corrected, and used again read very differently to systems built in the six months before a sale.

• Document the recurring processes properly, so they are current by the time anyone reads them
• Move the repeat work onto systems, which improves margin now and reduces dependency later
• Decide which system owns which record, and connect what should be connected
• Start distributing client relationships if they are concentrated on you, because this is the slowest item on the list

Eighteen months out

Now the framing changes from improving the operation to making it legible. Assume everything you claim will have to be evidenced.

• Get the document architecture right, because a buyer’s team will search your files and form a view in an afternoon
• Make sure the activity trail exists on anything touching client records
• Write the training material, which is the artefact that proves the procedures are actually used
• Fix the access register, so who has what is a document rather than a conversation

Most of that overlaps exactly with what an examiner asks for, which is convenient, because the work pays twice.

Twelve months out

At this point you are not changing how the firm runs so much as making visible what it already does. That is still worth doing, and it is worth being honest that a buyer can usually tell the difference between a firm that documented itself as it grew and one that documented itself for the sale.

Prioritise the things a buyer reads directly: procedures for the processes that generate the revenue, the data map, the access register, and a clean answer to what happens operationally on day one after closing.

The material a buyer will ask for

A buyer cannot audit institutional memory. They can only read what exists, which means the material that changes their assessment is the material that is written down. In practice that is a short list, and every item on it is something the firm should have anyway.

If you have been running the firm on undocumented process, the honest sequence is to fix the operation first and let the diligence material fall out of it, rather than the other way round. The operations guide sets out how that work is normally scoped.

What we are not saying

We are not valuation advisers. What your firm is worth is a question for your banker, and anybody who quotes you a multiple improvement from operational work alone is guessing.

What we can say is that dependency is what buyers discount for, that dependency is an operational condition, and that operational conditions have operational fixes with known timelines.