Many insurance agents dream of the day when they can sit back,kick up their feet, relax and enjoy the rewards of their hard work.They may be thinking they'll just slow down and work less, or theymay think they want to retire completely.

Either way, they typically have only one of two options in mindfor their business when that day comes:

• Create a business that runs on its own and provides its ownerwith consistent cash flow — one with very little dependence onowners being present to accomplish growth.

• Sell the business to an outside investor for a nice valuation,based on a multiple of the practice's revenue or earnings.

Whether it's the automated cash flow machine you want or asell-out, both of these strategies would be a great option for asuccessful advisor to have in order to live the retirement years they'vealways dreamed of. But 9 times out of 10, these business peopleeither end up with a practice that is much more dependent on themthan they expected, forcing them to work and not retire at all. Orthe valuation they get on their business and what they thought itwould be worth, are miles apart.

I spoke with a successful financial advisor recently — let'scall him “Mike” — who was at this point in his life. He wasreaching retirement age and was very proud of the business he hadbuilt over the last 30 years. He knew all of the blood, sweat andtears it took to build his business. He was sure the business would be very attractiveto buyers, and expected to get a high valuation for it.Besides, he had heard, the bigger the business, the higher themultiple he would get. Unfortunately, outside investors had anotheropinion on what his company was worth.

An earn-out vs. a sale

I asked Mike two simple questions: “If you left your businessfor two months, would it run by itself? Would it be able to grow onits own?”

His answer? “No.”

This highlights one of the biggest fallacies regarding the timewhen an advisor tries to sell his or her business. Most believethey can sell their business for cash and sail off into the sunset.Many advisor practices, however, are reliant on the business owner,making it very hard to sell.

Rather than a sellout, in almost every one of these situations,the purchase comes in the form of an “earn-out.” An earn-out, onthe surface, is much like a sale. An investor gives you a cashmultiple on your business. However, since it's an earn-out, thedeal requires you to stay on as an employee for a minimum of twoyears or more. This effectively takes you from owning a businessthat you built to working as an employee in the business you builtbut no longer own, which is far different from being retired.

A sale, on the other hand, gives a business owner a nice payoutand no obligation to stay on as staff. So how can you build asuccessful advisory practice that gives you the option to get areal sale when it's time to retire, as opposed to an earn-out?

Building a sellable business

One of the biggest issues with an insurance agent's practice isthat many advisors focus on cash flow but forget about equityvaluation. It's a service-based business, so this is natural. Butin order to create a sellable business, you need to focus on cash flow and overallequity.

You essentially need to create a well-oiled machine that can runwithout you.

Here are seven things I suggest in order to create a businessthat sells, rather than one that earns out:

1. Delegate operations. Your financial advisoryfirm needs to be able to operate without you being there. Thismeans that you need to better train your employees to handle all ofthe responsibilities within your office. You've got to wean yourbusiness off of its dependence on you, and every other employee aswell. You more than likely will need to hire additional employeesin order to do this.

2. Build out processes. In addition to bettertraining your team, you've got to build out and document yourprocesses. Your processes should be so clear that if any oneemployee left, another employee could easily step in without havingto reinvent the wheel. This gives potential buyers confidence thatyour business is resting solely on your shoulders, or the shouldersof any single employee.

3. Set up a solid sales team. Many advisor salescome 100% from them, and no one else. This is not the making of asellable business. Instead, focus on creating a sales team that canbring in the lion's share of revenue so that your business can notonly operate but grow when you are gone. Again, your sales processneeds to be easy enough to follow so that a new owner could bringin fresh sales people to follow it and succeed.

4. Know your niche. Many advisors build a businesswhere they are the “jack of all trades” and handle every littlething a client needs. To maximize the value of your business,however, you are better off focusing on one or two areas that yourbusiness can do really well. It's much easier to duplicate yourprocess with others this way, and it also increases the quality ofthe work you do as you can train and hire specialists as opposed togeneralists.

5. Your numbers are golden. You need to measureand track all of your numbers in order to sell your business. Youneed to be able to show real cash flow. You should be able to showthe cost of acquiring new clients, as well as the sales ratios. Ifa new owner were to invest $100,000 in marketing in your business,with your processes built, they should have a reasonableexpectation regarding the amount of revenue that investment wouldgenerate. All of these are things that a potential buyer will wantto know in order to take buying your business seriously.

6. Establish high-volume, reoccurring revenue. Isyour business built solely on up-front commission sales, or do youhave recurring revenue that comes in each and every year? In orderto maximize the value of your business, you've got to have ongoingrevenue. The bigger your business is, and the more ongoing revenueyou have, the more attractive it is to the potential buyer, whichwill increase your valuation.

7. Diversify your client base. You also need toensure that your business is diversified among a variety ofclients. If 35% of your revenue comes from one client relationship,it's going to be discounted. This is a perfect example of thesuccess of your business being dependent on one person.