Now that I'm part of a larger organization, 95% of my workweek is
spent doing what I’m best at: growing the firm
February 18, 2020 By Scott Hanson
You’ve
no doubt seen the rapid-fire reports of the M&A frenzy in the advisory sector. If
you haven’t considered a transaction, I’d like to explain why you should.
My
partner and I started our RIA more than 25 years ago. We’d built a team of
about 60 associates and we were growing. However, we found we had some
challenges: First, the investments that we were making in infrastructure were
limited to the cash the business was able to generate, and, second, because we
were so focused on cash flow, we never felt comfortable investing all of the
profits back into the firm.
After
meeting with a handful of entities, two years ago we sold a majority stake in
our company to a private equity firm. Here are just three of the reasons why it
was one of the best decisions we’ve ever made.
First,
for most principals, the first few years in business are about survival. After
survival, it becomes about generating enough profit to take care of the family.
As the
years went by and our business grew, our cash flow improved, but having
personally grown up in modest circumstances, the poverty mindset never left me.
Intellectually, I knew that I could afford to take bigger risks and invest more
in the business, but the nagging fear that the survival of the firm was in
question never left me.
Once I
sold a majority stake, much in the same way I would advise a client, I took
enough “chips off the table” so that I was adequately diversified. However, and
this is key, I still have enough equity that I’m highly motivated to continue
to grow the business.
Frankly,
I’m now able to make rational investment decisions as they relate to the
business without worrying about how my family will be impacted if something
doesn’t go as planned. And that means that professionally, I’ve never been
more at ease.
The
second aspect of selling has to do with freedom. Over the years, I’ve become
pretty good at delegating and focusing on the things that
bring me joy, but there were always going to be operational tasks that I didn’t
like doing.
Today,
95% of my workweek is spent doing what I’m best at: growing the firm. Now that
I’m part of a larger organization, I no longer worry about payroll, taxes, rent
or insurance. I’m much more energized than I’ve been, and more focused, and
these things benefit both the business and me.
Third,
and finally, comes valuations. We completed our transaction when valuations
were high. Since that time, multiples have expanded even more dramatically.
When it
comes to valuations, I don’t know where things will go from here, but we are
probably closer to the top than we are the bottom.
Over
the past two years, we’ve acquired stakes in seven firms. In speaking
with those advisers, and with advisers who have sold to other firms, all feel
the same way that I do. Simply, if you’re a principal, now is very good time to
find out what are your options.
Scott
Hanson is co-founder of Allworth Financial, formerly
Hanson McClain Advisors, a fee-based RIA with $8 billion in AUM.
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