The concept of succession planning is still at a nascent stage among advisors but it is important for you to understand how it works. As an advisor, you career has been solely focussed on making your clients’ financial plans and help them reach their goals. But it’s time for you to plan your personal goals as well.
A whitepaper released by Investacorp, a financial services firm, gives you essential tips on succession planning.
Know your goals
Before creating a succession plan, you need to be clear on what you want. Here are some questions to ask yourself:
- Do you want to walk away from the business or continue in some capacity?
- Are you mentally ready to step aside?
- What is best for your clients? Family? Employees?
- How will you spend your time after you transition out of the firm?
- How will your pay-out work?
- Can you accept a lump sum or do you prefer an on-going revenue stream?
Hire or identify and develop talent
If you are interested in internal succession, start identifying candidates who might be able to lead the business one day. Consider strengthening their loyalty to your firm’s success by offering them a minority stake in the business. Figure out the criteria for evaluating candidates and decide what skill sets you will need to help them develop. If you don’t have anyone in-house then start hiring with these criteria in mind.
Identify issues and build value
The first step in determining the value of your practice is reviewing your assets and identifying the different revenue streams associated with them. While revenues represent a key component in the valuation, other factors will influence value including, but are not limited to:
- Transferability and retention of clients to the successor
- The types of revenue streams
- Client demographics
- The financial structure of the proposed transaction
Use the succession planning process as an opportunity to identify and address problem areas before they hurt your firm’s valuation. For example, if your client base is older and nearing retirement then put in effort to attract younger clients to replenish the base. Similarly, if you identify an operational issue, now is the time to make an investment in automation technology or creating new processes. Identifying issues early on in the process will give you the necessary time to tackle them and to pick the best solution for optimizing the value of your firm.
Timing is everything
A lot of firms hope to transition their businesses to their employees but are not successful because they don’t allow themselves enough time to effectively make that transfer. Give yourself a 5-10 year window from planning to execution. As counterintuitive as it sounds, firms should start to think about their ideal exit strategy in their early growth stages. By making time your ally in succession planning you can build more equity into your firm, ensure continuity of service for your clients, retire on your own schedule, minimize the tax impact, remove emotional decision making and time your exit to maximize your value.
