Buying a book of business

Three Things to Keep in Mind When Buying a Book of Business

Whether you are just starting your career, or you’re a seasoned professional looking to expand your business, acquiring a book of business can be an efficient way to grow your list of clients. A book of business is an ever-evolving asset and its value lies in the goodwill of the clients and customers rather than tangible assets like commercial real estate or equipment. Consider these best practices when buying a book of business to verify that the book will be a strategic fit and a wise investment.

1.) Conduct Due Diligence

In order to determine if the book being sold is a good fit for your business, take your time and conduct plenty of research to confirm that your service model will align with the seller’s current model. Unearth how the seller runs the business and what the client expectations are. An example would be if you’re acquiring an investment advisory clientele who are accustomed to quarterly reviews, but you run reviews on a yearly basis, make sure that you can meet the demands of those customers. Set parameters for your search, including the ideal type of client and target price you are willing to pay.

During the due diligence phase, it’s critical to dig deep into every aspect of the business to ensure that the customer retention rate is high. It could be beneficial to schedule meetings with several significant clients to gain insight on their expectations and goals, and also whether they’ll remain a client after the transaction has occurred. They are in no way obligated to transfer their business with the buyer. Make sure you have a clear understanding as to why the owner is selling the book ­— are they retiring? Changing careers? Ask the right questions to confirm that you aren’t inheriting unsatisfied customers.

Acquiring a book of business

Further, inform your acquisition by assessing the overall health of the business. Review tax returns and financials, analyze cash flow and identify the general organization of client data. The due diligence process should encompass a comprehensive evaluation of every facet of the book of business.

2.) Pay a Fair Price

After you’ve completed due diligence and decided to move forward with acquiring a book of business, an appraiser will help you determine a fair purchase price. Your lending team at Live Oak has years of expertise in financing these transactions and we’ll support your efforts to settle on the right price for the right acquisition. Every book of business is different, and a variety of factors play into the market value of the book, including revenues, client demographics and tenure. After taking all aspects of the deal into consideration, the seller and buyer settle on a purchase price.

3.) Build a Transition Plan

Prior to closing on the book of business, it is strongly advised to have a plan in place for transitioning the clientele. Establish a mutually agreed-upon timeline for the seller to support the transition and complete all responsibilities to their customers. The first six to nine months are crucial in executing a smooth changeover strategy in order to retain clients. Remember, these clients can choose to leave and take their businesses elsewhere, so you must establish trust and nurture these new relationships for long-term success.

Onboard your newly acquired clients by hosting meetings with the seller so that you can set expectations, address any concerns and create consistent communication with your new customers. If you take the time to document your goals and priorities, along with a timeline for the transition, you’ll have a global outlook of how best to incorporate the new business into your existing service model.

Live Oak Bank specializes in acquisition financing and our team of lending experts will help you navigate the complexities of buying a book of business. If you’d like to speak to a member of our team about an opportunity, please fill out the form below.