How to Develop a Succession Plan

Selling a book of business can take several years to complete. If you’re thinking of retirement over the next 3 to 5 years, now is the time to start planning your exit strategy.

A written and well planned Succession Plan will help you to ensure that your clients and employees are transitioned to the right person(s) and that you’ll receive the maximum value for one of your most valuable assets.

Take inventory of your objectives- The Early Stages

You’ll have to ask yourself a number of thought provoking questions in order to develop a Succession plan. Let’s start with some of the obvious questions that you’ll want to answer.

What is your succession timeline?

If you would like to be fully retired within 4 years, you have to keep this end date in mind and start planning accordingly. Many vendors often underestimate the time that is necessary to go through each step of the selling and transition process. As an example, the time required to find a suitable buyer, go through the buyer and seller due diligence work and have all of the legal work completed can take 3 to 6 months alone.

How will potential buyers view your business?

You never have a second chance to make a good first impression! When selling a house, a real estate agent would advise the vendors to spruce up the house to give the best possible impression to perspective home buyers. You’ll want to do the same to present your business in the most professional manner to get the most interest and value from potential buyers.

Whether it’s a coat of paint, updating some old and tired looking furniture or having the carpets steam cleaned, start with obvious physical items. Next, you’ll want to put some effort into developing an information folder that would provide serious buyers with an overview of your business and the important facts.

Sign up for our automatic blog updates to receive our upcoming article on Preparing Your Book for Sale.

Prepare your employees for the sale

Ensure that your key employees are aware of your intentions to sell. They will be concerned about their employment status after the sale and you’ll want to give serious thought to how you will answer their questions. Typically, most new owners will want to retain some or all of the key employees. New owners understand that keeping key employees, especially employees that have had extensive client dealings, is important to ensure an efficient transition to a new owner.

Develop a buyer profile?

You’ll want the new owner to share similar philosophies and continue to offer the same level of service that your clients have grown custom to. If a new owner can provide new services and benefits such as income tax preparation, your clients would view this as a positive.

Be prepared to itemize and describe your service offering in your information folder to potential buyers. You may also consider developing a checklist of questions that you’ll want to ask each prospective buyer.

What financial arrangements are you looking for?

Depending on whether you’re selling a corporation or proprietorship, you may need to consult with an accountant to help you establish the best way to sell your business. As well, an accountant can help you do some income forecasting from an income tax point of view.

Prepare your financial statements for potential buyers to view.

Nothing will scare away a potential buyer quicker than messy or aggressive financial reporting. A buyer must be able to easily understand the revenue and expenses that flow through the business. Potential buyers will want to see your financial statements for the past three years and will want to know that all taxes have been paid.

Remove any personal expenses from the business and clean up your financials. Again, you may need to consult with an accounting professional.

Inform your dealer or managing general agent about your plans

Dealers and MGAs are always keen to keep all of the business they have so they would be open to providing helpful information for your plan, suggest potential buyers that fit your criteria and may be able to provide details on available financing options.

Sign up for our Free Blog Updates

We’re planning to include many more helpful articles on Succession planning for financial advisors. Click on our link near the top right hand corner of the screen titled “Free- Click here for regular updates…” and you’ll automatically receive all new blog postings by email.

Good luck