Principals need to focus on exit strategy
Many principals of advice businesses do not have a documented and funded succession plan and an exit strategy in place in what is a mature industry, according to the principal of a succession planning firm.
Financial Planning & Succession principal, Peter Fysh, warned advice business principals should be addressing succession planning issues well before retiring, preferably when establishing the business and when key staff join the business.
What they don’t realise is that it is something that cannot be done overnight, especially when giving consideration to tax and legal issues,” Fysh said.
“Why would a principal, who has worked hard over 20 years in building a planning business, not allocate time to address this key issue?”
Principals who were contemplating retirement would need to ask questions like who would manage the ongoing affairs of clients, what would happen to staff who were years away from retirement unlike the principal and what their expectations were, whether key staff were secured in the business with contracts including equity, and whether the business was “fit for sale”.
“If these questions can be answered easily, then it will not be as big a challenge to retire successfully. If however these issues, along with other key factors such as tax and legal, are yet to be addressed fully, then retirement is something only to wish for,” Fysh said.
Fysh added it could take two to three years or more to make the business “fit for sale”, especially if there were a large number of clients who had remained with the business but only accounted for less than 20 per cent of total revenue.
“These clients will not always be appealing to a prospective buyer, so it will be best to divest these clients prior to selling the whole business. This itself takes time,” he said.
It was also vital for key staff to have “buy-in with the process” to instil certainty in them about the future of their business as they plan to keep working for some years.
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