One of the greatest management and personal challenges for advice business owners is planning for exit and succession. Several of the key issues will be uncertain including exit dates, the differing plans and financial needs of partners, business value, potential buyers and the shape and capability of the future management team. For this reason succession planning is often avoided and undertaken too close to the desired exit dates of the owners.

    It is essential to develop your succession plan many years in advance of your planned departure to structure the business in a particular way, to maximise value, provide time for existing managers to arrange their finances (if a buy-out is one of the options) and secure the position of the key employees.

    There are two starting points

    The first is for partners and key people to share their personal ambitions, financial requirements at exit and key dates. Even if these are uncertain it is impossible to develop a plan without this information. The second start point is ensuring that business value is maximised when the time comes to exit. Firms that have a strong discipline of annual business planning are likely to be on the right track, but it is important to evaluate where the business stands against the value drivers and make any changes necessary to sustain or improve the position.

    This generic list is a good framework and the starting point is a detailed value audit to help determine the succession plan and the options available to owners. This is like an advanced strengths and weaknesses analysis but more forensic and closer to due diligence. The value destroyers are equally important because they must be dealt with to maximise value.

    This analysis will provide a list of essential issues to deal with and you need to confirm what to do, who will do it and by when. This is straightforward business planning and successful firms have no problem in implementing change, mainly because they concentrate on the priorities and get on with the task. But don’t forget to fully account for the personal ambition of the principals along with the vision for the business as these are usually inextricably linked. The plan will determine what the business must achieve in terms of growth, turnover, recurring income, productivity and scale.

    Options for sale and succession

    As part of the process you should consider the options for sale and succession. At high level these are:

    • Sell to a third party
    • Sell to the existing management team
    • Retain an ownership and income interest, with the latter related to managing a small number of key clients, business development or acting as chairman
    • Retain an ownership interest and relinquish all other responsibilities

    Each of these options requires the business to be prepared for sale in the way described above. If you are seeking retirement, the last thing you want to happen is to retain an interest and find that you have to return to work because you have not developed the business and people to cope without you.

    Sell to a third party

    Consider selling to third parties if you and the other owners wish to continue to grow the business and take out some of the capital value in the future. Also use this route for succession planning if the management team cannot raise the funds to acquire the business. If you are selling to a third party you need to recognise that you will probably have to remain with the business for up to three years after it is sold to maximise the value to yourself through the careful transition of the clients and key staff.

    Indeed, if you are the main adviser, it may have been difficult to institutionalise the clients, which means that you have to remain with the business for a time if you are to secure best value.

    Sell to the existing management team

    Selling to the existing management team is a popular means of extracting value and sustaining the business, but is dependent on the development of the team and its ability to fund the buy-out. If this is the desired route you must name a retirement date at least three years before you intend to retire. This gives the potential buyers time to arrange funding and, if needed, to secure the appropriate management training to take on a larger role. In addition this clarity reduces the risk of losing key people or the business drifting strategically. It is essential to have an independent valuation so that people have clarity and trust in the process.

    Retain an ownership

    A related approach is for partners to agree how they will arrange their joint succession plan. Ideally, they will agree that any partner who leaves will sell his part of the business to the others. This should include dates and formulae for agreeing the value, as with the management buy-out. This works well if there is a reasonable age spread and the opportunity for others in the business to acquire a share as the founding partners retire. The business should be revalued annually so that everyone knows the position and can manage their personal circumstances appropriately.

    An alternative to a sell-out is to retain all or part of your ownership and take on a different role. This is often a consultancy type role related to strategy, business development or maintaining relationships with key clients. In some cases, former principals return to full-time advising and the main reason they joined the profession many years before. This retains a flow of income but it is essential to adhere to the new arrangements and give the new team space to run the business to their desired plan. The personal challenge for business owners who step back in these circumstances must not be under estimated and trust and discipline to stick to the arrangements will be essential for all parties.

    Finally, succession planning is about developing the business to a point where it can run without its current key people. Keep that in mind when working through this process and during the transition period.


    To learn more about succession planning and exit strategy for your business, download our white paper 'Planning your exit: A guide to creating a succession plan and exit strategy'

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