Succession planning can be a scary concept.

    The first thing financial planners have to do when starting to think about succession is to accept the inevitable.

    At a personal level, business owners have to accept that at some stage they will be exiting their business; because although I know many would if they could – you can’t work forever! As the saying goes, it’s as certain as death and taxes.

    As an owner manager, you need to start with an understanding of what your life looks like outside of your business.

    This requires having an honest conversation, either with yourself or someone else, about your life when it doesn’t include your work, your clients or your team.

    So many financial planners live for their job and for their business. The relationships planners have with their clients are really strong, which is great.

    But it also can mean thoughts of succession planning are equated to abandoning their clients and throwing them to the sharks if a planner starts thinking about not being the one to look after them in future.

    Yet designing and having an amazing life outside of the work you do for clients can actually increase the value of your business.

    It means any buyer of your firm, or whoever takes over from you, won’t have any hesitations because they can see you have a clear personal plan for a future outside the business.

    Getting started 

    A good timeframe to work to is starting five to seven years out from when you want to exit.

    It’s at that point a switch in mindset is needed – financial planners don’t sell their practices, business owners do. So you need to think more like a business owner, and less like a financial planner.

    After the honest conversation with yourself, there needs to be another honest and open conversation with what I call your ‘core team’.

    This may be your senior team, but it might also include an adviser or paraplanner who you see potential in and who you feel will be playing a key part of this business transition.

    The discussion should be geared around ‘how are we going to do this?’ rather than ‘how I am going to do this’. In other words, it’s about establishing who’s on the bus with you on this business journey.

    If you have any doubt about outlining your plans to a particular individual, perhaps due to fears they might leave as a result, then they’re not part of your core team.

    Then consider how the business is run. Are there key people which the business is reliant on?

    You may be a planner that only deals with a handful of clients, so it may be easy to assume the business could run without you when you leave. But could your firm run without your practice manager, for example?

    Establish what the key risks are, who are the possible flight risks (that is, who might be at risk of leaving the business) and what your business looks like.

    Is there a viable business to sell, or is it a lifestyle business that has simply kept you and your team in a job? Asking these kinds of questions will help you in shaping the next steps.

    The consolidator conundrum

    A lot of planners start the succession planning conversation with saying “I don’t want to sell to a consolidator or a corporate”, but of course that’s not the only option.

    Increasingly there are smaller, well-funded financial planning firms who receive investment to buy other like-minded firms.

    There's beginning to be a move away from the buying and stripping assets model.

    Consolidators and expert buyers will clearly have a track record in having done acquisitions previously, but it’s also worth remembering that consolidators don’t always offer the best ‘deals’.

    You then need to come up with your wishlist for what you want from the business/people that will take over from you.

    The starting point here is broader than “I don’t want to sell to a consolidator.” 

    If you decide you want to sell, it’s about establishing factors such as whether you want to sell to a firm with the same investment ethos as you, or which has an active staff training and development programme, or which has a local presence in your area.

    When we’ve spoken to firms about this, we often hear firms say they want to make sure their clients and team are well looked after.

    But once the negotiations are underway, sometimes owners lose sight of what they’ve said is important, and end up getting hung up on whether they’re getting an extra £100,000.

    If that’s the case, why not just flog your firm to the highest bidder?

    Don’t forget what you’ve put on your wishlist and what you’ve said is important – it’s not all about the headline payment.

    What’s important might also include your future role in the business. For example, whether you’re leaving on the day of the first payment or whether you’re seeking a different role in the new firm or ownership structure.

    We’re a profession that talks a lot about it ‘not being about the money’. But when it comes to selling up and all of a sudden it's about ‘your’ money, it’s a very different picture.

    This focus can be what scuppers deals, as people quibble over relatively small amounts and egos get in the way.

    Basing a business valuation on metrics such as assets under advice or multiples of recurring income still work as a rule of thumb.

    But ultimately businesses are always only ever worth what the buyer is prepared to pay and the seller is prepared to accept.

    Some measures of a valuing a business or the strength of a deal become irrelevant if other factors are more important, for example, teaming up with a firm in another part of the country which expands your regional coverage, or selling to a firm that operates the same back office system as you.

    Other things to consider

    What succession planning really comes down to is creating a business that doesn’t need you in it.

    With any firm the ideal outcome is to build a business that runs independently of the person in charge. Frankly, if you don’t do that, you can’t sell it anyway. But a business that runs well by default becomes more valuable.

    The employee ownership trust (EOT) succession model is one that’s gaining traction. This is where a business is sold to an EOT and the shares are owned by the trust for the benefit of the employees.

    Yet EOTs are only as good the people that are left to run the business.

    Do you have good quality people in place that can take the firm forward? Or have you hired people just to delegate unwanted tasks to?

    If you’ve a hired a team of ‘do-ers’, it’s likely they'll lack the necessary leadership skills to run a company. They may also feel they haven’t been empowered enough in the past to take on a bigger role in future.

    Hiring decisions need to be done with future roles in mind, but also with your own future in mind. Firms tend to hire for today, when they need to be hiring for tomorrow.

    I mentioned earlier the five to seven-year timeframe to exit. Much of that time will factor in the emotional disruption you'll undoubtedly feel.

    Emotions run deep, and if you don’t allow yourself that time emotions can be the thing that trigger a deal to collapse.

    We are talking about your life’s work, so it's an emotional transaction as much as it is a commercial one.

    Every seller needs a representative on their side. Buyers will be able to draw on expertise, whether it’s from previous deals or from outside help such as business and legal advisers.

    Sellers only sell once, so need the right support through the process.

    Buyers may say they are on your side, but that’s not necessarily true. Brokers aren’t always on your side either, as their fees may be contingent on a sale.

    What we’ve found in working with firms is sometimes a deal might not go ahead, but the work we’ve done has resulted in a total business restructure which means a sale is no longer necessary.

    For example, the owner can move to working two days a week with the board and appointed operations team running the business.

    Overall, don’t simply approach succession planning by trying to attach a physical amount of money to what is an emotional business.

    The value comes from opening up the dialogue, both with yourself and with your core team about what the future looks like.

    Then build a wishlist for your successor, and don’t lose sight of what’s important.


    Michelle is speaking at a series of events hosted by advice M&A firm Gunner & Co on building value in your business and preparing to exit. You can find out more information and register here 

    Start the discussion

    Add a comment