APEX Insights > Your Business > Has your business got a succession plan?

28 September 2018

Has your business got a succession plan?

Having a succession plan in place protects your business against unexpected events, writes Zoe Fielding.

You won’t often hear a financial planning business owner complaining that they have too little to do. Between advising clients, keeping up with regulatory requirements, and running a business day to day, there aren’t many hours left in a week.

Long term tasks, such as succession planning, can easily drop to the bottom of the to-do list.

A succession plan documents when and how an owner will leave a business, and who will take over when they’ve gone. A good plan can maximise business value and protect against unexpected events like the illness or death of an owner.

But many businesses fail to plan for succession. Around one third of family businesses have no plans for transferring leadership or ownership, according to a survey by KPMG Enterprise and Family Business Australia.

In the financial advice sector, only 41 per cent of businesses have a succession plan and just 27 per cent have it formally documented, according to research by Janus Henderson Investors for the Financial Planning Association.

Benefits of a succession plan

It’s difficult for advisers who have spent years building their business to think about moving on, especially if they have no obvious successors in mind. But it’s worth the effort, says Bill Webster, senior adviser at Tempus Wealth in Kirrawee.

“Having a succession plan gives you a greater sense of control and the sense of exiting on your own terms,” Webster says. “Knowing it’s the right time to let go is very satisfying and empowering.

“From a professional standpoint, you go out on a good note. Your peers and your family will respect you for that.”

An orderly exit strategy also ensures the best outcome for clients, he adds.

Webster is well qualified to comment. He founded his financial advice business several decades ago and sold to its current owner Colin Ward in 2012, eight years after deciding he needed a succession plan.

Webster now works three days a week in the business as a self-employed consultant. The 66-year-old plans to stay with Tempus Wealth for the foreseeable future, but now has more time to spend with his grandchildren and go surfing.

Work out when you want to leave

Deciding to leave is the first step to succession planning, Webster says. “Without having made the decision, the rest is not going to happen.”

He suggests advisers map out their future, putting a timeframe on their exit, even if this is flexible.

“The worst thing would be to be forced to leave the industry because of health or economic circumstances,” Webster says.

Some advisers are rethinking their place in the industry now, with strict new education requirements to phase in from January 2018. And by 2023, advisers will have to achieve tertiary qualifications and pass an ethics exam if they wish to keep practicing.

The standards will be challenging, says Association of Financial Advisers national president Marc Bineham.

A recent survey suggests up to one third of advisers will retire  rather than retrain to meet the incoming benchmarks.

The AFA would prefer advisers to stay in the industry, but Bineham acknowledges that with five years to prepare, many will exit, making it all the more important to plan now for succession.

Lay the groundwork

He says advisers who are assessing their options should consider how attractive their business would be to a potential successor.

“If you have been doing this by yourself for 20 years, what would your business look like to someone coming in? Is all your client data in a CRM data base or do you still work in paper files?” Bineham says.

Work may be needed to get the business up to scratch.

When advisers feel ready, they should share their decision to leave, Webster says.

Be prepared for questions from loved ones. Webster’s wife and some family members thought he was making a mistake when he decided to sell, but Webster was confident in his decision.

Sharing exit plans with professional contacts can help identify successors.

Licensees and other advisers who have been through the process may be able to offer guidance and support. There are also consultancies that specialise in helping with successions and business sales.

Succession planning checklist

  1. Decide when you want to leave.
  2. Prepare the business.
  3. Share your plans.
  4. Identify successors: This may be an internal candidate, someone outside the business who will come in, or another business that will merge with yours. Look for similar values and a good cultural fit.
  5. Determine your price and terms: Advice businesses can be valued based on a multiple of recurring revenues, but valuations based on earnings before interest and tax are becoming more common. The purchase might be made upfront or take place incrementally, say 20 per cent a year over five years. The sale may be funded by vendor finance or an external source, such as a bank loan.
  6. Flesh out the plan: Address details such as contingency plans, legal issues, and insurance cover. The fine print is essential to ensuring a smooth transfer.
  7. Review and revise as circumstances change.
  8. Prepare for life after selling up: This is important, but often overlooked, Webster says. Advisers may lose their sense of purpose when they’re no longer running a business and advising clients. Stay positive by planning your next move – keep working, travel, spend time with family or volunteer with a charity are some of the many options.


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