Liquidity Events – Three Keys For Clients Selling Professional Practices

Janeesa Hollingshead, Executive Editor, Wealth Solutions Report

Experts From Elements And Stratus Share Top Issues For Advisors Whose Professional Practice Owner Clients Are Approaching A Sale Of The Business

Your doctor, lawyer, dentist and accountant – these people aren’t just service providers. You would, and sometimes do, trust them with your life. As professionals held to high ethical and knowledge standards, they become friends over time who help navigate you through life’s twists and turns.

But they are also people – and business owners – who need help navigating their own lives, and the financial advisor, planner or other financial professional who serves them is just as crucial to their success as they are to yours. 

As clients, they are in a special category of business owners with professional practices that demand unique approaches and strategies, especially as they near retirement and look to a sale of the business. 

In this installment of Liquidity Events, we look at how advisors can help serve this group of clients who do so much for us as they approach the sale of their practice. 

We spoke with Reese Harper, CEO of Elements, and Sam Brownell, Founder of Stratus Wealth Advisors, to delve into the nuances specific to a sale of a professional practice.

We asked them the following questions:

What are the top three issues financial advisors and their clients must consider that are unique to the sales of practice-based businesses, such as medical, legal or accounting practices? How can a financial advisor help their client prepare for the sale process and guide their client through that process?

Here’s their advice:

Reese Harper, CEO, Elements

Reese Harper, CEO, Elements

First, incorporate an estimate of the business value into the personal financial statement. Business owners work hard to increase or maintain the value of their business, and they expect to receive liquidity at some point in the future. 

If you’re not visually incorporating the estimate into their personal financial statement, you may appear disconnected, or even unsophisticated to the business owner who is working so hard to build their enterprise. Business and personal are not separate for many business owners.  

Next, divide a business owner’s assets into four groups: after-tax, qualified, business equity and real estate assets. In many cases, liquidity in after-tax assets will decline as exposure to business and real estate increases. Maintaining adequate liquidity can help reduce stress for owners and improve their quality of life. They will appreciate your attention to detail in helping them stay engaged in building their enterprise by improving liquidity. 

Finally, anticipate liquidity events and consider how they might affect your investment asset allocation during the client’s accumulation years. This is particularly true for professional practices with very tangible, liquid markets, like professional medical practices. If over $1 million of liquidity is going to hit their account at some point near retirement, you may be able to increase their equity exposure in accounts like a 401(k).  

Most financial advisors tend to make investment asset allocation decisions without considering these highly predictable liquidity events which allow owners to have many years of personal liquidity at or near retirement. These events can have a huge effect on present day and future investment asset allocation.

Sam Brownell, Founder, Stratus Wealth Advisors

Sam Brownell, Founder, Stratus Wealth Advisors

The three top issues advisors and their practice owner clients are likely to encounter are:

First, these businesses are typically defined by the personality of the owner and the relationships they have built over time. You cannot transition the business without transitioning the relationships.

Much of the value of these businesses is based on the retention of clients. Exiting owners need to have a plan for transitioning clients to the next generation of owners and leaders.

Owners in practice-based businesses typically have great processes and procedures memorized, but not written, which is not useful to a new owner. Exiting owners need to formally record what niches they serve and how they operate to make the transition of ownership as smooth as possible.

Here are three things an advisor can do to help a professional practice owner with a sale:

Start by having the business owner write down what tasks they perform daily, weekly, monthly and annually. This list can then be used to begin transitioning responsibilities and relationships to the new owner and leader. Start by transitioning the least difficult tasks.

Know the value of the client’s business and what drives that value at least three years prior to the anticipated exit. This allows the advisor and owner to plan for how the monetization of the business fits into the owner’s financial plan and allows the advisor and owner to make adjustments to increase the value and marketability of the business prior to a sale.

Identify potential exit strategies (e.g., family member, key employee(s), competitor) at least three years prior to your anticipated exit. It takes time to transfer responsibilities and relationships and to solidify the value of your business. The sooner that advisors and owners have a list of potential buyers, the easier it is to prepare for the ownership transition.

Janeesa Hollingshead, Executive Editor at Wealth Solutions Report, can be reached at

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