Key attributes of an independent business with “real franchise value.”

The momentum towards independence has given rise to a new generation of uber-entrepreneurs—advisors with their sights set on more than just the freedom and flexibility that the space offers. They’re forgoing the short-term payouts of brokerage recruitment deals for the long-term potential of creating an enterprise with maximum value that will be appealing to buyers in the future.

Yet as more and more independent firms grow and mature, so does competition. Every day, new players are competing to capture the attention of the right buyer, setting the bar for differentiation that much higher. Put another way, it’s getting harder to become the most desirable acquisition target in the space.

That said, firms best positioned for an M&A opportunity down the road are those that focus on designing their firms as such from the start—with a clear intent on building a “business” and not a “practice.”

What’s the difference between creating a practice and building a business?

A “practice” is a firm that is lifestyle-driven, typically lacking both scale and a deep bench of talent, essentially existing for the purpose of maximizing cash-flow for its owner. There’s nothing wrong with having a practice that serves the clients’ needs and provides a comfortable living and quality of life for the advisors—it’s just not acutely-focused on the end-game.

On the other hand, a “business” is built to be an enterprise, with an operational structure designed to promote growth and scalability. Business owners are driven by the big picture, often sacrificing short-term upside for long-term impact. And, these folks have their eyes on the prize: Maximum value creation at the end of the day.

What does it take to get from here to there?

In a recent podcast episode with Liz Nesvold, founder and managing partner of Silver Lane Advisors, we discussed the key components of some of the most successful independent businesses—those that she describes as having “real franchise value.”

That franchise value was not created by accident. As Liz put it, these firms made it their objective to “build with the end in mind.” That is, building out the attributes that will make the firm attractive to buyers at some point in the business lifecycle.

When it comes to being appealing to acquirers, things like culture, relationships and geography often play big parts. But there are other key attributes that buyers consider which are components of a strong business poised for acquisition. These attributes include:

• Strong operational infrastructure;
• Deep bench of talent;
• Replicable processes;
• Scalability;
• An intense focus on growth; and
• Solid client relationships built on long-term trust and confidence.

The good news is that owners don’t have to embark on building out a saleable business model themselves. The extraordinary growth of the ecosystem that supports the independent space makes it more possible than ever for would-be entrepreneurs to leverage the talent, skills and capabilities of any number of professionals. As such, advisors considering the space can tap into service providers, consultants, investors, attorneys and recruiters—each fully adept at helping to build a scalable business enterprise.

We’re currently experiencing what many industry experts are calling one of the most exciting and opportunity-rich environments for independence. The ability to build and grow the business of your dreams—and to capitalize on it in the long-term—is within reach of any entrepreneurial advisor with a clear vision and design on the future. Just focus on that future now and build your way there.

As seen on WealthManagement.com…