Succession planning can be a difficult subject to broach, or even think about as the owner of an advice firm, but it is important to do so even from early on.
Many advisers spend their working hours advising clients on their path to retirement, but many do not spend enough time thinking about what will happen to their own clients when they themselves choose to step back from work.
Any business owner needs to know what would happen in the event of them looking to retire, being unable to work, or should they pass away suddenly. And this needs to be set out in a clear succession plan just in case the worst happens.
Succession planning is an extension of the normal business planning process.
However, while it may be straightforward, it should not be left until the last minute but instead approached from the moment the business is formed.
Having a clear business plan, including a succession plan, is critical.
It determines a clear long-term direction for the business that goes beyond your personal involvement. It also helps with creating and establishing a business culture, a way of working, and customer focus that underpins the legacy you want to leave.
There are also succession planning considerations that should be taken into account when choosing the structure of the firm from outset.
Unincorporated advice firm owners could find themselves facing future liabilities, even years after they have retired.
Sole traders who have retired have found complaints come to them five or even 10 years after the event through the Financial Ombudsman Service.
You also need to consider how your business is structured for sale from a tax perspective.
For example should you be looking for a cash completion payment, this has capital gains tax implications with a singular large tax bill.
The earlier you start your succession planning the better you will be at making strategic decisions on hiring, on businesses activities, and keeping focus with one eye on your longer-term aspirations.
Having an effective succession plan from the start will also give stakeholders confidence that the business is sustainable in the long term.
The regulator will see that the business is safe and will not arrive at a cliff edge, investors will feel more comfortable to invest as they know they will achieve long-term returns, staff will be secure and happy in the knowledge that their jobs are safe and secure for the long term, and your customers will be confident their future is in safe hands.
Who takes over?
Planning is key. While life and business rarely work out exactly according to plan, if you have a plan in place you can be flexible and make sure both you and your business are prepared.
One of the hardest decisions faced by many advisers is knowing when to step back from the business they have built up.
