Intro to Equity Sharing – Best Practice for All Company Sizes
As a business professional, I have no doubt you have met a colleague or two that has told you all about the horrors of having business partners. I too have heard these stories, and they are vivid reminders about the weight these types of decisions should command. With that as my disclaimer, I want to share with you some of the benefits of having junior partners and go beyond the obvious potential benefits like collaboration, sharing work, infusion of capital, or synergies.
What to Expect When You Sell Your Business
Selling a business, in any industry, is a major endeavor with far-reaching implications for a wide variety of stakeholders. The first question for most owners is timing – “When should I sell my business?” This is both a personal and financial decision. If your intent is to sell to an internal successor you have or will groom, you will need significantly more time and resources than a sale to a peer/competitor. Internal transitions should start planning at least five years prior to the owner’s planned retirement, where a sale to a peer might only require 3 to 5 years of transition time for optimal results (from start to finish). Regardless of who you sell to, and when you decide to do it, here are a few important items, that if you keep in mind throughout the process, will produce a better result for everyone:
Succession Planning Help Is On The Way
Change is hard. No one likes it. So it is no surprise that so many advisers avoid the subject of succession planning. Both a Cerulli Associates study and polling by the Financial Services Institute found that almost 60% of advisers have not yet identified a successor. Yet every year more advisers get closer to their inevitable transition. An estimated $2.3 trillion in assets is controlled by advisers over the age of 60.
Top 10 Tips: Succession Planning for Insurance Agencies
After witnessing hundreds of agency leadership transitions, whether it’s planned, forced, tragic, or amicable, change in leadership is always difficult. You may think you have all your ducks in a row, then one will fly off on you. Here’s some help finding what could work for you:
How To Tell Employees You Are Selling The Business
Honesty is the best policy – particularly when discussing your plans after you decide to sell the business. However, when and how to tell your employees is a personal decision and one that must be given the attention and time it deserves. Everyone is inherently averse to change – you have likely seen this in both personal and professional settings, and likely have experienced it yourself. Most people have an immediate resistance to changing the known to an unknown. Understanding this as you consider how and when to position this to your staff is important since you will likely need them until closing, and likely the buyer will need/want them post-sale. There is an entire field of study dedicated to Change Management and understanding how to deal with this issue. The following is a brief primer on best practices employed by your peers to create “buy-in” during times of change: When to say it: You will want to ensure you tell your staff at the proper time. This is not an exact science and the best time is different for each practice and deal. In most cases, you will need to inform your staff well before a deal is complete, as you will need their assistance and involvement during due diligence, gathering data, generating reports for prospective buyers, etc. and both you and your buyer may rely heavily on employee(s) to complete this. For most advisors, you will sell your business because you are retiring, which means you have spent many years in the business. Your staff and clients have probably been wondering how much longer you plan to keep working – some may have even asked you. As you think about when to tell your team, know that you finally telling your staff that you are starting the process of finding a buyer/successor may not come as shock to them. Owners are often surprised at how well staff and clients take the news. You may be tempted to keep this close-to-the-vest until you are further along, but you are going to have to tell the team and its best to do it early so they feel they are participating in some way versus being told what is coming. There are numerous studies to support this strategy – making the staff feel they are participating in the decision will support a positive atmosphere in your office, maintain productivity, and reduce/eliminate staff leaving. Divide your employees into two groups: Senior level employees, employees who are part of the decision-making process, or employees who you believe should be retained will likely be notified earlier in the process – often told before you even start considering potential buyers. Your key staff are critical to “get on board” and involved early as employees will often talk amongst themselves and you want your senior level employees to support the messaging when talk with the rest of the team. “Rank-and-file” employees may be notified during the due diligence period. All staff should know before potential buyers show up in your office for due diligence – the goal is to control the message and avoid surprises. Make sure the staff knows how sensitive this subject matter is and ask for their discretion – keeping the possible sale confidential for now so you/they can control the message with stakeholders when the time is right. This is mission critical in small communities. What to say: Explain why you are selling – this may seem obvious, but it is worth sharing your motivations. Share how the sale will impact and benefit the business long term, and most importantly from their perspective – how they will be impacted. Their immediate assumption will be they are out of a job and should start looking now – that might be the case, but you still need them until the deal closes. And, if they aren’t going to be out of a job – this is equally important to communicate. Describe that you wanted to be the one to share the news at the right time and didn’t want them to hear the news from someone else. If you prefer to share the news when you are further along in the process, tell them why. The most common explanation/reason is you wanting to be sure you knew what you wanted and had planned, since this impacts everyone. Share, but do not overshare. Employees do not need to know all of the intricacies in the deal. Your sale price, terms, or other elements are not their concern. Express what you are/were looking for in a potential buyer to alleviate fears/concerns. If they support the selection criteria for their future boss, or can help contribute to the criteria, they are more likely to contribute to a positive result before and after closing. Explain what will likely stay the same Location Employees, their roles, and employee compensation/benefits Client service model and workflows Expected timeline of events Meeting(s) with potential buyer(s) Offer letter Due diligence – important for them to understand this is going to happen and you will have a stranger in your office for a while getting to know everyone. This will often be uncomfortable at first, so its important to plan for it Completion of the sale and what will follow Upon selecting a buyer (usually after accepting an offer, but possibly even before that), have the employee(s) meet the buyer: Use buyers name and have the buyer create a dossier on themselves if they haven’t already, sharing information about buyer’s background (family, background, education, etc.), and current business (employees, location, type of practice) Explain your plans post-closing and your goal to help transition the clients and integrate the employees. How to say it: It is most common to talk with the team members each individually, then again as a group. This allows each team member to have a private conversation with you and not feel blind-sided in a group setting. This also gives each team member time to “digest” what is being said privately.
Three Ways to Build Value in Your Advisory Practice
As an advisor, you provide tremendous value to your clients every day. But, what is often overlooked in the advisor-client dynamic, is the value they provide to you. That is, beyond the fees or commissions they pay you for your service, products or advice, your clients are providing you “value.” By that, I mean that your book of business (your clients) has a very real and tangible value that you can monetize some day when you are ready to exit the industry.
Leveraging Your Growth: Equity Compensation Strategies for Advisors
Most financial advisors are aware that a succession plan is important to their business and clients. Based on the last study done by InvestmentNews in 2012, 94% of respondents acknowledged the need for a plan, yet only 7% of those respondents actually had a plan.
Selling Your Masterpiece
As an advisor, at the end of a career, your business is your masterpiece – it’s your Picasso. It’s one of a kind, and in today’s market, you will not have trouble finding someone who wants to take it off your hands and pay you for it. But, there is a huge difference in getting paid, and getting what your business is worth from the best possible successor for your clients. The majority of advisors will not obtain the best deal, and many may not even be selling to the best successor. There are four key obstacles standing between you and the best deal with the best buyer:
DOL Fiduciary Struck Down – Time to Sell
On Thursday, March 15th, the U.S. Court of Appeals for the 5th Circuit struck down the DOL Fiduciary Rule. It is not known at this time whether this ruling will be appealed, or if it will apply to the entire country or just the states residing inside the 5th Circuit Court’s jurisdiction (Louisiana, Mississippi, and Texas). Nevertheless, the decision will have an impact on the value of advisor practices in 2018 and beyond, due to the expected shift in the supply-demand curves for advisor practices that are for sale.
Are YOU Hurting the Value of Your Business
There are many complicated facets to running a service-based business, but the most vital component are the relationships you build every day. These relationships are the basis of value, and, for most, your business is your largest and most valuable asset. The most frequently discussed factors that impact the value of your business are profitability, how consistent your revenue is and the growth rate of the practice.
