As the baby boomer generation careens towards retirement, many owners of investment advisory firms are thinking about succession planning for the first time. If you are among this group, it is never too early to begin the process of preparing for your eventual exit from the business.

Plan Early

The best first step in this process is to consult with one or more experts. Depending on the complexity of your business, you may want (or need) to engage an attorney, CPA, your own financial planner, a banker, a business valuation specialist, and/or even a psychologist to help manage family and other emotionally-fraught relationships intertwined with your business. Once the experts are engaged, the owner and his or her team of advisers must establish the owner’s ultimate goals: his or her “end game.” Some key information to collect and consider in setting these goals include:

• A personal budget analysis for the owner (both current and future needs);
• Risk protection analysis (including healthcare and life insurance expenses for the owner and his or her family);
• Desired sale price and the amount and timing of payouts;
• Level of involvement in the business after sale; and
• Rewards to the employees and employment risks created by a sale of the business.

Add Value

Once the end game is known, reaching the goal will undoubtedly require maximization of the business’s value. A number of value drivers can be evaluated and improved in the early stages of exit planning. Some simple first steps include:

• Improving business efficiency by implementing systems and processes. This is crucial for investment advisers, where value often is derived largely from the owner, to transfer value from the owner to the firm.
• Improving management and creating stability in the workforce is another important value driver because these individuals know the firm’s trade secrets.
• Ensuring diversity in the business line. If 18-20% or more of the company’s profits are derived from one client, the business is not sufficiently diversified.

Act Now

Any business owner that is contemplating an exit in the next ten years should act now. Deloitte reported recently that “71% of small and mid-sized enterprise owners plan to exit their business within the next ten years…” Capital is going to be more readily available at the beginning of this cycle. If you are within this cohort, the earlier you begin planning the greater chance you have to maximize your return and improve your future.

For additional information about succession planning considerations, please contact Sarah Weber, Associate Attorney at Jacko Law Group, at sarah.weber@jackolg.com or (619) 298-2880.