Once you have determined what the value of an advisory business is, it is important to understand the motivations and objectives from both the buyer’s and seller’s point of view.

This is because when entering negotiations, you need to be able to take all emotion out of the transaction. Many deals do not make it through the negotiation stages often because both sides did not understand what the “deal killers” could be.

Sometimes those deal killers can be as simple as the continued employment of the receptionist.

Often, sellers in the investment advisory industry have an inflated perception of their business value, which is natural stemming from the sweat-equity they have put into it.

To keep a cool head in negotiations over price and terms, be prepared to understand the following:

• What is a reasonable value to the buyer and seller?
  
• What is the motivation of the buyer or seller?
  
• What is the buyer or seller’s required rate of return? (and is it reasonable)?
  
• How many buyers would be interested in this practice?
  
• What are buyers really paying to purchase such a practice?
  
• How prepared are the employees on both sides for this transition?
  
• Is the timetable for the acquisition consistent on both sides of the transaction?
  

For both the buyer and seller one of the main points to keep in mind throughout the negotiation process is – be prepared to walk away – if the deal doesn’t fit within your defined strategy or if you have reservations about doing the deal. Often advisors become enamored with terms of the deal (i.e., the purchase price, projected cash flows, potential client base, etc.) and begin to compromise their “deal breakers” to force a transaction. Don’t let this happen to you because it will result in buyers (or sellers) remorse.