Succession planning: Why Advisors can’t afford to wait
Financial advisors may have a leg up in terms of growing their wealth, but when it comes to selling their businesses, they’re just like every other entrepreneur: they rarely have an exit strategy. Procrastination can come at a hefty cost, however. This lack of planning can ultimately lead them to either shut down the business they’ve worked so hard to build or sell it at the last minute for less than what they could have received.
While it may be ironic that advisors who counsel clients on their financial futures neglect their own succession plans, they face the same challenges as other business owners. The Canadian Federation for Independent Business surveyed entrepreneurs of all stripes and found that 54% fail to succession plan because they can’t find the right buyer. Nearly half said they struggle to measure the value of their business, while 39% felt the company was too reliant on them for day-to-day operations to sell.
54% of Canadian entrepreneurs fail to succession plan because they can’t find the right buyer.
Add worrying about who would properly care for their clients, the emotional weight of transitioning out of a profession they love and a general lack of flexibility when it comes to succession options, and it’s no surprise that planning can be a challenge.
Canadian advisors, though, are reaching an average age of 51. If you find yourself among the more than half of advisors who don’t have a documented succession plan, now’s the time to start considering what your exit strategy could or should look like. Here’s why you need to plan ahead.
Plan now, or put your retirement at risk
As difficult as it may be to think about selling, failing to plan can have consequences in a number of areas:
Retirement goals:
Selling a business can take time – up to two years of planning, strategizing, conversing with potential buyers and more. You’re likely counting on at least some of the proceeds from the sale to help fund your retirement, which means you don’t want to rush this process. The more time you have, the more you can work on increasing the value of your business, so you get the number you need to realize your post-work dreams.
Having a plan gives you time to interview potential successors and determine if that person is the best advisor for your clients.
Continuity of client care
Creating deep relationships with your clients is one of the best things about building a successful business. You’ll no doubt want to make sure they’re well taken care of after you leave. Not planning ahead, then, leaves no guarantees that the person who takes over – if anyone ultimately does – will be the right person to work with your clients. A proper exit plan includes thoughts on your ideal buyer and the steps you need to take to find them. Having a plan also gives you time to interview potential successors and determine if that person is the best advisor for your clients.
Team disruption
Your staff are the backbone of your business, and without a succession plan, you risk significant disruption to your operations. Unanticipated changes can lead to employee uncertainty, which could impact administrative processes and degrade the quality of care your clients receive. Proper planning will help you know when to bring your staff into the succession conversation. By having open conversations, understanding priorities and helping employees plan their next steps, you can maintain continuity as you move toward selling. Plus, a knowledgeable, well-functioning staff will be seen as an asset to a potential buyer.
Business continuity
Markets never sleep, which means your business can’t afford to take time off. But life happens. Not planning ahead for a sudden illness or a family emergency could impact service and negatively affect your business’s sale price. Creating an exit plan and a business continuity plan will help you avoid business interruptions and prevent you from eroding value if you have to suddenly step away.
Finding flexibility
There are many ways to exit a business, especially an advisory business. You can sell outright, retain partial ownership and become a salaried employee, or sell to a strategic buyer who can help you slowly transition out of the business. By waiting until the last minute, those other paths become much harder to negotiate, leaving you potentially feeling unsatisfied with the sale. A rushed decision could also impact what you’d get for your business. Embarking on this process early gives you the time to find a route that works best for you.
The ideal time to start your succession plan is 5 to 10 years before you need to sell.
When to start selling
For advisors in their 50s or 60s, now’s the time to develop that exit plan. You don’t want a health scare or another event to result in an unplanned sale. Ideally, you’d create a succession plan five to 10 years before needing to sell – that’s about enough time to weigh your options, talk to clients and create more value in your business if needed.
If you’re in your 30s and 40s, it’s not too early to start thinking ahead. You’ll want to give yourself the time to build a business that can run itself and to figure out your own financial goals so that you can do what you need to do to ensure you’re getting the price you want.
By developing a succession plan, you’re giving yourself the option to exit your business on your own terms. Start the process by understanding your priorities and having conversations with potential buyers to explore your options. When you’re ready to move forward, consider these succession solutions, all of which can help you, your team and your clients through a successful sale.
Our Office
Aspect
Blog