While there has been a very welcome influx of young, qualified individuals into the financial advice profession in recent years, a significant proportion of successful advice businesses continue to be led by older, experienced advisers who built up these businesses from scratch. A high number of these businesses have seen children of the owner join the business, build up their experience, gain relevant and valuable qualifications and help bring the business to a higher level.
And the time then comes when the business owner wants to step back, take life a bit easier and start enjoying the fruits of their many years of toil. They also want to pass the business to their children as seamlessly as possible, a situation that we have seen played out many times in Ireland. With a consistent stream of advice businesses undertaking a succession process, there are a number of lessons that can be learned from previous successions that delivered on all of the intentions, and from those that didn’t.
Planning needs to start many years in advance
Succession planning is definitely a carefully planned process as opposed to a transaction event. The most successful successions are those that are planned from many years out – there are a lot of elements to get right! Careful thought needs to be given to the timing of the succession, the terms and basis of the transaction, the tax opportunities that can be leveraged, how the transaction will be funded, the ongoing role (if any) of the parent who established the business, the future direction of the business and the roles of the various children who will be taking the business forward.
This all takes well-executed planning. A poorly planned succession process will be quite unsettling and will likely introduce tension and sometimes fractured relationships among the family members.
Be open and inclusive in the planning
While the business owner often started and built the business pretty much on their own, succession planning is not something to be carried out unilaterally. A seamless transition and the future prospects of the business will be enhanced by involving the family from the get-go. If the children (future owners) of the business are involved in the planning, they will be more engaged and committed to the process.
Don’t paint yourself into corners
Another advantage of the business owner not planning the succession alone, is that they can avoid making decisions that ultimately don’t fit with the ambitions of the children and that become difficult to row back from. Involving the children in the planning may uncover some unexpected surprises – maybe the expected future leader of the business doesn’t want that role at all, instead they want to have a strategic voice but not be the leader of the business.
The children as a group may have a different future vision to the current owner – their parent. Maybe the new owners see a future as a specialist financial planning business as opposed to a more transactional business. While the latter may have been the preference and right course for the business today, the new owners may see a different future.
Get external help
Surprisingly often the downfall of a succession plan is the family believing that they know what they want and can sort it all out themselves. This may very well be the case, but it can fall down in two areas.
First of all, external oversight brings a new dimension and often identifies additional opportunities and sometimes issues with the chosen plan. Family members can become so immersed in the whole process that they end up not seeing the wood for the trees. External people bring additional rigour and valuable challenging of the plan, which otherwise may be missing. This can happen quite easily in a family scenario where everyone is on their best behaviour, treading cautiously around the whole succession and not wanting to cause offence. The second area where external oversight can help is in drawing out the thoughts, goals and contributions of the quieter or more reserved members of the family. An external can make sure that every voice is heard in the process.
Don’t forget about non-family staff
Don’t forget about non-family members of staff throughout the process. They can feel very side-lined if the whole focus of the business is on the succession process. It is really important to keep them informed and motivated throughout the process, as their contribution and commitment to the business is needed before, during and after the succession happens.
An effective succession within a family business is a momentous milestone in a family’s life. Give yourself every chance of this happening smoothly.