The 3 scariest things advisers need to know about succession planning

With Halloween around the corner, it seems appropriate to share what will surprise (or even shock) many folks when it comes to creating a successful, fright-free succession plan.
1. There is an inverse relationship between your value to the business and the value of the business.
If your business is going to be successful and sell for a premium, then it has to be successful without you. But for many of us who were driven to build a firm, it can be incredibly difficult to accept or to even imagine that we can create a business that can survive beyond us. The truth is, we all like to feel indispensable and selling a business that is your life’s work can be one of the most complex and emotional economic decisions that you ever face. Just remember, if you are the creator and maintainer of the enterprise’s value, you are also limiting its end value.
2. The best fit may not be at the best price.
Very often we think we can groom employees to take over and maintain the relationship with the clients. While conceptually, that may be a great idea, in practice, those people will seldom have the amount of money needed to finance a purchase. Also, they may not have the ability or entrepreneurial knowledge to maintain the business in a way that would allow them to pay you back securely over time. They simply may not have the expertise. Very often, the people who do have the money may want you to compromise the well-being of your clients or employees in some way. Finding the best balance for you, your employees and clients might mean finding a strategy that takes into account all affected parties beyond economics. Build a list and assign values to the soft stuff, not just the money.
3. You will wait too long to have a plan.
Selling your business is a scary proposition. Two things will cause you to delay making a decision. First will be the complexity of finding the right buyer who will take care of your clients, employees and financial needs in a way that works well. Second, the real delay will be facing the fact that you’ll actually be leaving work and tackling the “what’s next?” question at some point. Thinking about being dispensable is frightening — often the idea can be paralyzing and cause people to wait until it is too late to do something about it. What is the best way past this? Think about it as a continuation plan for your clients and employees rather than an exit strategy for yourself. Selling your practice does not mean leaving the practice. In fact, the likelihood is that the further away that eventuality takes place, the more economic value you can drive. It’s no different than from working with your clients — the more time you give yourself to plan, the better the outcome.
For many advisers, their practice is the biggest asset they have. Figuring out the best way to create a transition plan and have liquidity is one of the most important discussions they are not having. Scary indeed!
Joe Duran is chief executive of United Capital and the best-selling author of “The Money Code: Improve Your Entire Financial Life Right Now” (Greenleaf Book Group Press, 2013). Follow him @DuranMoney