Serving the Pre-Liquidity Client: The Most Underserved (and Most Valuable) Opportunity for Banks

Take a look at any post-liquidity client relationship. Without a doubt, you will hear a familiar story: “We wish we had met you earlier.” By the time a business owner is selling, merging, or preparing for an IPO (whatever their goals may be), the biggest decisions have already been made, according to industry research. By whom? By their CPAs, estate attorneys or independent advisors.

Banks are usually brought in at the execution stage to manage proceeds, provide lending or offer wealth management services. Valuable? Yes. But strategic influence? Quite limited. The reality is that many institutions are stepping in AFTER the blueprint has already been created (CIBC)

Creating Value at Pre-Liquidity: A Window of Opportunity for Banks

As you can imagine the real opportunity exists earlier, well before a deal is on the table. The “pre-liquidity phase” is when business owners are still in the process of putting together their strategy, evaluating options and thinking through long-term goals. By the way, this applies to both existing and prospective clients, but the greatest opportunity lies with business owners who have not yet formed deep strategic ties with a financial institution.

If you are a banking leader, you are probably thinking: How about our long-term clients who always seem to be satisfied with our services? Let us assure you that even long-standing clients who typically rely on day-to-day banking such as deposits or credit lines, still turn to CPAs, attorneys or M&A advisors when making major financial decisions. This is where decisions about deal structure, taxes, estate planning and capital allocation begin to take shape (Ernst & Young). Engaging at this stage allows banks to shift from “generic” transactional providers to strategic partners. In other words, instead of reacting to a liquidity event, they can help guide, influence and shape it.

Best Way to Understand The Pre-Liquidity Mindset

Pre-liquidity clients are not yet thinking like “wealth management clients.” (The Banker). At this stage they are mostly focused on their business. They reinvest cash flows, their risk tolerance may be higher, and long-term planning is not really a priority (The Banker). This creates a disconnect. In other words, topics such as diversification or preservation may not resonate quite yet.

But what DOES resonate? Strategic guidance that aligns with their current priorities such as scaling efficiently or minimizing taxes, and other goals that support the business.

Reframing the Bank’s Role

To compete earlier, banks need to reposition themselves. How? By asking strategic questions. What does a successful exit look like? How can you reduce taxes ahead of time? What are some of the major risks that could potentially derail your plans? By focusing on these issues, banks can build trust and earn a seat at the table alongside other trusted advisors. Remember, the goal is NOT to replace CPAs or attorneys. As a local bank you can complement other financial professionals by providing additional value.

As we pointed out in some of our previous articles, instead of competing with external advisors, banks can collaborate and build referral networks. It will make them stronger, more efficient and ultimately more successful.

Building a Pre-Liquidity Playbook

As stated by McKinsey & Co., winning with pre-liquidity clients takes a plan. Banks should give their teams the right tools and frameworks they need to help these business owners. They should be able to think of different ways to exit, connect clients with valuation experts or share some educational materials focusing on deal-making and liquidity events. How about relationship managers? They should watch for early signals such as fast growth, ownership changes or industry shifts that may lead to a future liquidity event (McKinsey & Co.) And of course timing matters, and being proactive can make all the difference.

Final Thoughts:

The pre-liquidity client is one of the most underserved and most valuable opportunities for banks today (Ernst & Young). So what are the pre-requisites for success? Capturing these types of clients requires a shift in mindset, moving from reactive to proactive, from transactional to strategic. Local and regional banks that “make this shift won’t just arrive earlier — they’ll arrive with purpose, relevance, and a much stronger seat at the table when it matters most.” (McKinsey & Co.) In addition, engaging clients early builds credibility. When a business owner evolves into a “wealth holder”, he or she is more likely to stay with the bank that guided and supported them. This results in deeper and more holistic relationships that are hard for competitors to replicate.

FREQUENTLY ASKED QUESTIONS

1. Who are pre-liquidity clients?
They are business owners planning significant financial transitions who haven’t yet fully formed strategic ties with a bank.

2.Why should banks engage them early?
Early engagement allows banks to influence major decisions, provide strategic guidance and build deeper, long-term relationships.

3. How can banks position themselves for success?
By shifting from reactive to proactive, focusing on strategy rather than just products, and collaborating with other trusted advisors.