When most advisors want to grow their businesses, they rely on organic tactics-client referrals, professional referrals and strategic alliances. That makes sense as these are relatively straightforward, proven steps that result in major breakthroughs. However, some advisors are finding that nonorganic options-acquisitions, in particular-are an excellent way to ramp up growth and build successful larger firms.

Obviously acquisitions aren't for every advisor. They can be extremely challenging and can take a lot of effort to make happen. What's more, acquiring another firm requires your own firm to be in a very healthy position, both operationally and financially.

As Echelon Partners' Dan Seivert pointed out in a report earlier this year: "The real buyers in 2010 will be larger firms that have emerged from the downturn stronger and leaner. Many of these firms were able to pick up new clients or get more from existing clients, meaning their assets, revenues and profits are likely to be at all-time highs. They are likely to be experiencing active growth already, but nonetheless will want to become larger at a faster rate than solely focusing on organic growth will allow."

With that in mind, here's a look at what it takes to execute an acquisition properly so that it does what it's supposed to do-maximize the value of your practice.

EIGHT STEPS

In an acquisition, one business takes control of the other through an exchange or a purchase. When done right, the result is a larger, more effective organization. Acquisitions allow you to acquire talent immediately and to achieve scale quickly-much more quickly than through organic growth alone. In addition, a good acquisition generates new efficiencies by creating revenue and cost synergies. It also can lead to new opportunities by creating access to new market and distribution channels, broadening your service capabilities and leveraging the client base of both practices.

A successful acquisition follows eight key steps:

Step 1: Identify potential candidates. Ask yourself questions such as: What is the ideal type of practice that would help you to achieve your goals? What is its primary niche? Where is it located? What is its position in the value chain? Use your answers to formulate a clear picture of the space where potential targets reside.

Answering these questions means performing a preliminary "SWOT" analysis of your practice to understand your strengths, weaknesses, opportunities and threats. Review your core competencies, service offerings and current plans for growth. Look again at your choice of business model, target market niche, ideal client profile positioning and marketing strategy. Examine your competitive pressures and any internal challenges you face.

Next, revisit your vision for the business and the specific goals you wish to accomplish. Perform a gap analysis, identifying what you are missing that you need to achieve your goals. This analysis will ensure that you are clear about your practice's long-term vision and enable you to set goals for the acquisition that support that vision. If you can't nail down a compelling strategic rationale for an acquisition, you're not ready to make one.

Step 2: Develop criteria to assess candidates. Create a short list of criteria that will allow you to identify and evaluate potential acquisitions. Consider the four to six factors that are most important to achieving your goals for the acquisition. In addition, consider any other characteristics that are significant (special expertise or price range, perhaps). Prioritize each feature, deciding what you can't live without and what you'd be willing to compromise on.

Step 3: Collect information and rank candidates. Armed with a clear understanding of the optimal target, collect information on potential candidates and score each one using the metrics you previously chose. You need to gather enough information about each target to be able to rank it according to how well it would help you meet your strategic goals.

Look for potential partners systematically: Outline a schedule and a budget for your search. Then decide where you will obtain information about potential targets. The source or sources you choose will determine the research process you'll use.

For instance, your broker-dealer or custodian may make third-party research available or provide a seller listing service. Your local business journal also provides listings of top financial advisors in your area who share your client demographic, as do online marketplaces like FP Transitions. You might even reach out to select financial advisors with whom you don't compete. And of course, investment bankers may be familiar with potential targets in your area.

Step 4: Approach candidates. Caution: It is extremely easy to make a misstep here, with enormous consequences. The price of a target can increase as much as 50% from the mere act of an advisor knocking at the door.