Discover 3 keys to ensuring a smooth transition that protects the value of your business and provides long-term stability through proper goal setting.  

As a business owner, creating a succession plan is crucial for ensuring the long-term success and stability of your firm. A well-designed succession plan protects the value of your business and provides a roadmap for a smooth transition of leadership. Acquatio’s transition services can help guide you through this process.

In this article, we’ll explore the key steps to get started on your succession planning journey, with a focus on defining your goals. 

Start with Your Personal Goals 

Before diving into the details of your succession plan, it’s important to take a step back and consider your personal goals. 

What do you want your business to do for you, your family, your staff, and your clients? 

Keep in mind that the goal of most succession plans is not to remove you as the founder but to build an enduring business around you that can provide a lifetime income stream while allowing you to gradually hand off the reins over a period of 5, 10, 15, or even 20 years. 

Some common succession planning goals include: 

• Developing a strategic growth plan that doesn’t focus on the founder’s skills. 
• Creating a practical and reliable continuity plan to protect the value and cash flow of the practice. 
• Providing the founder with a lifetime income stream. 
• Transferring the business to a family member in a tax-efficient manner. 
• Accommodating an on-the-job retirement while never fully leaving the business. 
• Merging with another business to grow, protect, and optimize value. 
  
  

Rethink Your End-Game Strategy 

Conventional wisdom suggests that you should choose between an internal succession plan and a transition plan like selling or a merger. However, the smart plan includes both options from the start, with a focus on the internal ownership transition strategy. An external sale to a third party should be your fallback strategy if your internal plan doesn’t work out as expected. Acquatio can help you develop a comprehensive strategy that considers all options.

More than 90% of advisors will never sell their practices in the conventional sense [1]. This means that most advisors prefer to continue working and earning income that supports their lifestyle, as the income stream multiplied by additional years of work is often more attractive than selling for a lump sum. 

Set Up an Internal Ownership Path 

Establishing an internal ownership path is a key component of a successful succession plan. This approach creates a stronger and more stable business, which in turn leads to greater value in the future, regardless of your exit strategy. It also provides protection against the founder’s short-term or temporary disability. 

Attracting, retaining, and properly rewarding next-generation talent is essential to moving beyond a typical practice to a more valuable business model. Acquatio’s succession planning experts can help you identify and develop the right talent for your business.

With a succession plan in place, you can lead and continue to participate in your business for decades to come while building a lasting and transferable foundation. The actual value received through this approach can be up to six times the trailing 12 months’ gross revenue, based on the starting point for the plan—a significantly higher return than selling to a third party. 

Determine Your Workweek Trajectory 

One of the best ways to determine when to start your succession planning process is to plan your “workweek trajectory.” Instead of focusing on financial needs, potential successors, or the amount of ownership you’re willing to part with, look at the amount of time you would like to spend in the business in the years to come. 

Start by assessing the average number of hours you’re working now, then plot how many hours you’d like to be working in five years, 10 years, and so on.

Most advisors prefer a gradually decreasing workweek plan that levels off at about half time. A well-structured succession plan allows you to extend your career by reducing hours and stress while transferring responsibilities to your succession team. 

It’s crucial to start your formal succession planning process five to 10 years before you hit the “30-hour threshold.” Working fewer hours while remaining the sole owner can lead to attrition and a reduction in the equity value of your business. By starting early, you can enjoy the lifestyle your business provides, along with the cash flow and gratitude of your clients and family. 

Starting your succession planning journey by defining your goals is a critical step in ensuring the long-term success and stability of your business. 

By considering your personal goals, rethinking your end-game strategy, setting up an internal ownership track, and determining your workweek trajectory, you can create a comprehensive succession plan that protects the value of your business and ensures a smooth transition of leadership. 

References:  

[1] Grau, D. (2018). Succession Planning for Financial Advisors. John Wiley & Sons.