Key considerations before launching your own advice firm

This article first appeared in Professional Adviser.

I implore budding advice business owners to ask themselves some hard truths before they embark on the journey of starting their own firm. I highlight three key things one should consider…

It will come as no surprise to anyone that I speak to a lot of financial advisers in my line of work. But whether someone is a one-man-band IFA or an adviser working within an existing practice, there’s one key question that continually crops up: ‘What would I need to do to start my own business?’

Any aspiring business owner will need to figure out how much income they’ll need and where the launch capital is coming from, but my first piece of advice is always to be brutally honest with yourself about why you want to go it alone and whether or not you are genuinely equipped to withstand the pressures that come with being a business owner – in all of its forms.

Creating a business plan is the easy part; building a workable life plan that fits around it is much more difficult. Over the years I have seen financial advisers make a smooth segue into running their own business, while others have had to learn the hard way that they simply aren’t cut out to be a managing director.

In my experience, there are three key questions to consider before deciding to go it alone.

What am I actually going to get out of this?

The first thing to consider is what the motivations are behind setting up a business. It’s important to be brutally honest here – is it because you see a better way of doing things, because you don’t like being told what to do all the time, or is it more about earning money or status?

All of these motivations are valid, but it’s important to be clear on them from the outset as your ambitions – and how strong they are – are ultimately going to be what keeps you in the game when times get tough.

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Don’t be afraid to reach out to others in the industry when considering this. Discussing others’ experience and learnings on what to avoid will help you make a far more balanced and informed decision. And if you do decide to set up alone, having a go-to person to soundboard against and discuss growth plans with will be extremely valuable.

How well can I manage people?

I’ve seen even the most talented and charismatic financial advisers come to the conclusion that they don’t enjoy managing people. There will be times when dealing with people issues, combined with time-consuming back-office tasks, will hold you back from focusing on clients and developing the firm, and this can be frustrating for many business owners.

Aside from this, if you’re someone who’s been working alone for many years it can be hard to adjust to a new way of working where others want to have a view. Fresh ideas and perspectives can bring huge benefits to any company but, particularly in the early stages, you need to make sure you’re open to employees challenging the way you do things.

On the subject of people, it’s also important to consider if you’re happy to give part of what you earn away to entice quality talent into the business – by offering equity, for example. In my experience, too many IFA firms fall down by being overly generous with how much equity they give away in the early stages. The business may not be worth much at the start, but the idea is it will be one day, so any decisions surrounding remuneration should be considered as part of your long-term strategy for the business.

Is this really what I want?

People often look at me like I’ve gone mad when I suggest this, but one of my key pieces of advice is to have someone to interview you about what it is you’re wanting to do and why.

If, when put on the spot, you struggle to provide coherent responses that hang together, this should be considered a red flag. Being a business owner can be a lonely place sometimes, so it’s important to stress-test your own ambitions to ensure you truly believe them and that you are genuinely equipped to deal with any challenges that may lie ahead.