Are you nearing retirement, but unsure how to go about planning your exit? Succession planning is the solution.
What is succession planning? Succession planning is the process of developing a strategy to pass on your legacy. In other words, succession planning is the act of creating a blueprint for your future.
The business that took you years to build up will take years to transfer over to someone else. And while you might think succession planning is only for large corporations or C-suite executives, it’s not. A succession plan is necessary for any type of owner and business. It’s about preserving what you have worked hard to create and ensuring your clients will be well taken care of following your retirement.
Types of Succession Plans
Succession planning is not a one-size-fits-all type of plan. It is up to you to determine the best plan of action for your specific circumstances. The right move for you may be the wrong move for someone else. So when it comes to constructing your exit plan, you could consider one of these five options:
#1 – Selling Your Business
An outright sale of your business is a big transaction, and it’s not a transaction that can come together overnight. If this is the route you want to pursue, you need to decide whether you will seek an internal or external buyer. To determine the value of your business you may want to hire a business appraiser to conduct an official business valuation. Other details to decide include figuring out whether you will utilize the services of a business broker, accept a single lump sum payment or arrange a payment plan, and the list goes on and on.
#2 – Merging Your Business
Bringing together two separate businesses to form a new singular entity is also a huge transaction. It’s no small undertaking to create a merger agreement that benefits both companies. Then you have to determine details like how you will brand that new company and who will lead it. A successful merger is all about fine-tuning those intricate details.
#3 – Training a Successor
Training a successor to take over your position is another way to prepare your business for your retirement. But with this option, it is important to keep in mind that not just anyone is cut out for the job. Maybe a current employee is a potential successor candidate or perhaps you need to look into hiring a junior partner to train from the ground up. Whatever route you take, it is vital to invest in someone that aligns with your company culture and whose career goals include leading a company like yours for the long haul. Look for someone with outstanding leadership traits, excellent communication skills, and so on.
#4 – Preparing a Family Member
While handing over your business to a family member might seem like a simplified version of succession planning, this move requires just as much time, effort, and thought as any other exit strategy. In fact, transferring power to a family member can be the more complicated option. Beware of the difficulties that can arise when emotions get involved due to family ties.
#5 – Working Part-time
Some soon-to-retire financial advisors prefer a gradual transition to retirement. This option is especially helpful if your company still needs your direction, guidance, and support, just not 100% of the time. For example, let’s say your successor is not fully trained nor prepared to take over your position. Cutting back your hours to a part-time role is an excellent way to stay involved while you prepare your team for your exit.
When To Begin Your Succession Planning
A successful succession strategy takes years upon years to formulate and carry out. It’s a step-by-step process that should not be rushed. This is why you should start the succession planning process years prior to your retirement. Start by identifying when you want to retire. Then, establish a reasonable timeline that can get you there.
It is best to allow yourself at least 12 months to come up with an exit plan. More time is highly recommended, though. Depending on the type of retirement strategy, some financial advisors take five to 10 years to perfect their succession plan.
And just when you think you have everything figured out, you may hit a few bumps in the road that require additional time. As a general rule of thumb, factor into your timeline several extra weeks or months to account for stumbling blocks that might delay your retirement.
The Purpose of Succession Planning
To some, succession planning is a daunting task – an overwhelming endeavor with a to-do list that appears rather endless.
But in actuality, succession planning is meant to provide an irreplaceable peace of mind. The numerous advantages of succession planning far outweigh any stress that might come with the process.
Succession planning makes you marketable and shows respect to your clients. Succession planning increases employee engagement and prepares the next generation. Succession planning is an essential component to any retirement plan.
If you feel like mapping out your exit plan is more than you can handle, consider working with a top coach for financial advisors. A financial advisor coaching program is extremely beneficial to anyone young or old, incoming or exiting.
Your legacy is worth preserving. Get started today by partnering with a coach that can help you create a successful succession plan.