For Mr. Jain, an IFA, it was just another regular day at work. In keeping with his morning ritual, he was checking mails. The first thing that grabbed his attention was a mail informing him about the sad demise of an acquaintance and fellow advisor. The mail had come from his friend’s office informing everyone that ‘ABC Advisory Services’ would no longer continue its operations owing to the demise of its founder.
This unexpected news shocked Jain to the bone. It made him realise, that though he had financially secured his family against such an event, he had failed to guard his business against this eventuality. Since Jain had built the business with a lot of efforts, he was not ready to accept that his years of hard work and sweat may go in vain. He decided to talk to fellow advisors to understand how he could secure his business against such sudden unexpected circumstances.
Here are the suggestions that he received from his peers. Knowing that others may be facing this dilemma, he decided to share his knowledge with us.
Pass it to the heir
Easiest way to continue your legacy if you are a solo advisor is to pass on the business to a family member. If the family member is interested in your business, you must start his training early. This will help him understand business under your guidance.
To start with, you can ask him to accompany you to important client meetings and gradually start giving him opportunity to manage clients independently.
Train your trusted employee
If you do not have an heir and still want to continue your legacy, you can groom a trusted member of the staff for the role. You first need to identify an employee in your firm who has the potential to sustain as well as grow the business. Work on the criteria based on which you are going to appoint a successor. If you do not have anyone who fulfils the criteria, you should start looking for new hire and train her accordingly.
Merge your business
A solo IFA can approach another IFA with similar business philosophy and ethics to merge their firms. This can help you share risk and profits with another IFA. However, before entering into the deal, you must have a clear understanding of all the terms and conditions outlining the contract. In this setup, you reduce your risk by 50% and have a back-up option to let your business flourish after your demise.
Sell your business
You can also sell your business to a company for an equity stake in the bigger business. Ensure that management has the ability to service your clients in the same manner as you.
You need to evaluate cash flows and revenue generation potential of your business for valuing it. Before cracking the deal, you should research and analyse the expected growth rate, NAV growth, addition of more money through clients and market regulations. Based on this analysis, you and buyer can negotiate the price for the deal.
It is important to remember that you too would have to work for some more years after selling the business to build synergy.