Begin with the end in mind

Considering that the age of the typical financial adviser is between 52 and 60, it is safe to assume that a tidal wave of advisers will exit the business over the next 10 to 15 years. As a result, many advisory practices will be turned over to new owners.

That leads to several questions.

How will this unfold? Who will view the transition process as an opportunity and benefit from it? Who will lose out?

As an adviser who recently sold my business and now helps other advisers, I can tell you that many advisers are unprepared. Less than 33% of advisers have a formal succession plan in place — even though about 25% of all advisers are older than 60.

The reason so few have thought through their succession is that a woefully low number of planning firms operate from a strategic plan and matching business plan, from which a succession plan would flow as a natural extension.

Only after a practice has a written road map can the owner turn to the questions and issues surrounding a smooth transition of the firm.

WHERE TO BEGIN?

Sometimes the issues and questions surrounding succession are so complex that an adviser doesn’t know where to begin.

Does he or she want to leave the business completely or cut back and ease out over a period of years? If you could sell to anyone, who would be your first choice? Do you want your employees to buy your firm? Would you rather sell to a nearby practice you have known for years or to a larger firm across the country? What about selling to a bank or a consolidator? If you took any of these steps, how would your employees and clients react once they found out? How much money do you want?

I offer the following advice to advisers who are contemplating an exit strategy but are confused about how to start.

Begin with the end in mind.

Write a broad strategic plan first. This document should detail the date you wish to leave the profession, the ideal owner to whom you would pass the baton, where you factor in during the transition, how the staff and clients will be told and treated, and, finally, what you want the firm to represent without you.

After completing that first big step, you are ready to translate your wishes into a business plan that has several action steps attached to each of its strategic components.

A corollary benefit to preparing so well is that your present-day profitability probably will increase as a result of the energy you have invested in preparing the firm for sale.

Another way to begin with the end in mind is by establishing a time frame.

The rule of thumb here is to allow 30 to 45 days for internal evaluation and sale preparation (clearing up all your paperwork, for instance), as well as researching how to proceed and with whom. Then allow another 90 to 120 days for listing the practice and screening buyers.

Finally, negotiations with buyers can range from six months to a year, with the average about nine months. Many buyers require that you stay on for two to four years.

Given this timetable, starting the exiting process five years beforehand isn’t at all impractical, especially as the process requires an abundant reserve of emotional energy.

During the process, of course, it is paramount to keep day-to-day operations running smoothly. Otherwise, employees and clients alike will become uneasy and fearful, causing your practice to suffer and its value to decline.

A BIG STAKE

You, of course, have the greatest emotional and financial stake. How do you “hand over the keys” to a buyer and ensure that all goes well?

In general terms, you must make sure the following conditions are in place: a very strong cultural fit; an effective, realistic valuation model; a compatible strategic plan; and a compensation arrangement that works for both sides.

Throughout the emotionally charged preparation period, revisit your strategic plan periodically to stay focused on your goal.

Your objectives should serve as your key mileposts along the way.

Remember, to guarantee the success of the plan you envision, start with your desired outcome and work backward.

Good luck.

Diane MacPhee, a certified financial planner and business coach to advisers, operates DMac Consulting Services LLC in Manahawkin, N.J. She can be reached at [email protected].

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